Month: April 2020

With 100,000 stores set to close by 2025, mall owners face this legal hurdle next

UBS is expecting 100,000 stores to permanently shut between now and the end of 2025.

Mall and shopping center owners around the country are getting ready to come face to face with a major legal hurdle: Co-tenancy clauses.

The coronavirus pandemic will accelerate the rate of permanent retail store closures, as sales shrink close to nothing with many shops temporarily shut to try to halt the spread of Covid-19. Liquidity also is drying up and finances are being squeezed. UBS is expecting there will be 100,000 stores permanently shut between now and the end of 2025.

Meantime, online sales as a percentage of total retail sales in the U.S. are expected to grow to 25% from 15% over that same timeframe, UBS analyst Michael Lasser said.

With another wave of department store closures inevitably looming, and some chains potentially filing for bankruptcy, landlords’ phones will likely be ringing — with retailers on the other line demanding rent reductions or outright saying, “I’m leaving your mall.”

Here’s how co-tenancy clauses work, on a basic level: They are typically built into the leases of the specialty tenants, like a Gap or an AT&T store, in the middle of a mall, or the shops situated along a grocery-anchored shopping centers, like a Big Lots or a TJ Maxx.

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The Outlook for Class-C Apartments Is Muddied by Tenants’ Loss of Income

While many tenants were able to pay rent in April, continuing shutdowns mean more federal assistance might be necessary to help workers forced to stay at home.

Class-C apartment tenants have been badly hurt by the economic shutdown precipitated by the novel coronavirus, crushing their ability to pay rents, thereby putting strain on those properties’ owners to continue to cover costs and mortgage payments.

More than 22 million Americans have filed for unemployment in recent weeks. Others are working on reduced hours. Large parts of the U.S. economy remain shut down as states have ordered non-essential businesses to keep closed.

The CARES Act passed by Congress did include expanded unemployment insurance—up to $600 per week on top of what states normally pay out and extension of benefits to workers previously not eligible. For some workers the weekly payouts on unemployment now may exceed their normal take-home play.

“State unemployment benefits obviously will help these households over the near term, and additional federal money provided by the CARES Act for a short period helps too,” says Greg Willett chief economist for RealPage, Inc.

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Top 10 ZIPs with the Highest Foreclosure Rates in Q1 2020

ATTOM Data Solutions’ newly released Q1 2020 U.S. Foreclosure Market Report reveals that foreclosure activity in the first quarter of 2020 was below pre-recession averages for 61 percent of U.S. housing markets (134 out of the 220) with a population greater than 200,000.

The areas named in this category were Denver, Colorado (89 percent below); Detroit, Michigan (80 percent below); Las Vegas, Nevada (80 percent below); Dallas-Fort Worth (79 percent below); and Indianapolis, Indiana (78 percent below). The analysis also noted other major markets with Q1 2020 foreclosure activity below pre-recession averages included Sacramento, San Francisco, San Jose, Memphis and Grand Rapids.

ATTOM’s latest foreclosure market report shows there were 156,253 U.S. properties with a foreclosure filing in Q1 2020. That number is up 42 percent from Q4 2019, but down 3 percent from Q1 2019.

According to the report, nationwide one in every 873 U.S. housing units had a foreclosure filing in Q1 2020. States with the highest foreclosure rates in in Q1 2020 were New Jersey (one in 406 housing units with a foreclosure filing); Delaware (one in 433); Illinois (one in 448); Maryland (one in 583); and Florida (one in 628).

The report also stated that among 220 metro areas with a population of at least 200,000, those with the highest foreclosure rates in the first quarter of 2020 were Trenton, New Jersey (one in every 286 housing units); Atlantic City, New Jersey (one in 293); Rockford, Illinois (one in 296); Lake Havasu City, Arizona (one in 331); and Peoria, Illinois (one in 351).

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McDonald’s Long-Term Real Estate Structure Provides It with a Cushion Even in a Severe Downturn

McDonald’s is likely to take a big hit on income in 2020. But owning its real estate empire should be a big help.

The Golden Arches have lost some of their sales sheen during the coronavirus pandemic, but the real estate strategy of McDonald’s Corp. might serve up a bit of respite from an economic grilling.

McDonald’s reported April 8 that overall same-store sales dropped 22.2 percent in March, with U.S. same-store sales falling 13.4 percent. Globally, three-fourths of the chain’s restaurants are still open. But they’re depending largely on drive-through and delivery sales, as most dining rooms are closed. Foot traffic at McDonald’s restaurants in the U.S. plummeted 32.1 percent in March, according to Placer.ai, whose platform tracks retail activity.

Despite those negative figures, McDonald’s real estate strategy remains a positive—a positive that could help it navigate choppy economic waters. However, McDonald’s is already grappling with rent deferrals for franchisees and, according to one projection, could see global income from rent take a $800 million dive in 2020.

Billions of dollars in rent

McDonald’s real estate strategy centers on owning much of the property—land and buildings—for corporate-controlled and franchisee-controlled restaurants. Last year, McDonald’s collected $7.5 billion in rent from franchisees, which operate more than 90 percent of the company’s restaurants around the world. That $7.5 billion represented a little over one-third of corporate revenue in 2019.

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Demand for rural homes shows ‘profound, psychological change’ due to coronavirus, Redfin CEO says

There has been a “flip” to demand in rural areas and away from cities, Redfin CEO Glenn Kelman said.

The CEO of real estate brokerage Redfin said Friday that demand for homes has shifted to rural areas as people react to the coronavirus pandemic and look to move out of dense urban areas.

“We have seen that people are more interested in that house at the foot of the mountains by the lake,” Glenn Kelman said on CNBC’s “Closing Bell.” “Rural demand is much stronger right now than urban demand, and that’s a flip from where it’s been for the longest time, where everybody wanted to live in the city. We’ll see how it comes back, but there seems to be a profound, psychological change among consumers who are looking for houses.”

The coronavirus pandemic has led to ballooning unemployment in the United States, and construction has paused in many cities across the country. Governors in many states, including in the northeastern part of the country, have extended their orders for staying at home into mid-May.

There has not been a big drop in home prices, Kelman said, because new listings have declined more than demand from buyers. Kelman said buying demand is down about 20%, but listing demand is down about 60%, which has kept prices from falling.

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Marriott CEO Says Coronavirus Pandemic Will Change Hotel Stays

Arne Sorenson said the company is working on new ways to protect hotel guests and workers.

(Bloomberg)—No one knows when the lodging business will bounce back from the social-distancing measures designed to slow the spread of the coronavirus, but it’s a safe bet that the deadly pandemic will change the experience of staying in a hotel.

Marriott International Inc. is working on new ways to protect guests and hotel workers, Chief Executive Officer Arne Sorenson said Monday on Bloomberg Television’s Leadership Live. That includes more rigorous cleaning protocols, masked hotel workers, and other methods for keeping people apart.

“I’m hopeful those things aren’t permanent, but instead are about communicating through the operating tools that you can be safe in our hotels, whether you work there or are staying there,” Sorenson said.

Sorenson has spent the better part of two months managing through the worst crisis in the company’s history. The pandemic has shut down travel and hammered the hospitality industry.

Marriott has been forced to close roughly 25% of its 7,300 global hotels, including about 1,000 in the U.S. The company has also furloughed tens of thousands of workers.

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How Will COVID-19 Lockdowns Hit The Housing Market? It Gets A Little Clearer

Actual data for U.S. homes sold after the lockdowns began will not be available for a while, and everyone is grappling with preliminary indications of just how ugly this is going to get.

“In May, what market? I don’t see no market”

Realtor

The “combined COVID-19 and oil shock” are going to do a number on the U.S. housing market, Fannie Mae warned in its monthly report on Wednesday. Actual data for homes sold after the lockdowns began will not be available for a while, and everyone is grappling with preliminary indications of just how ugly this is going to get.

The Home Purchase Sentiment Index (HPSI) plunged 11.7 points in March to 80.8, the largest single-month drop in the data, Fannie Mae said, “reflecting quickly diminishing homebuyer sentiment.”

A survey conducted by the National Association of Realtors in the first week of April, cited by Fannie Mae, showed that 90% of the responding realtors reported declining buyer interest, with half of them reporting declines of over 50%.

Contract signings in early April plunged by about 35% to 40% from a year ago, Fannie Mae estimated, based on Google Trends data.

Existing home sales will plunge 34% in the second quarter, to an annualized rate of 3.76 million homes, it said, “a sales pace similar to the lowest quarters of the Great Recession.”

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A Short Bet Against Malls Fuels 48% Gain for One Long-Time Bear

MP Securitized Credit Partners posted a net return of 47.9 percent in March in its $162-million flagship vehicle.

(Bloomberg)—A hedge fund’s long-held bearish bet on the demise of America’s malls sparked its biggest gains ever last month as the Covid-19 pandemic shut down much of the U.S. economy, threatening commercial landlords.

MP Securitized Credit Partners returned a net 47.9% in March in its $162 million flagship vehicle at a time when many other firms that bet on structured credit have nursed big losses. Its wagers against the derivatives index known as CMBX 6, which is heavily exposed to mall debt, helped to offset declines on the fund’s holdings of commercial mortgage-backed securities, according to an investor letter seen by Bloomberg.

Marc Rosenthal, the firm’s chief investment officer, declined to comment beyond the letter.

Rosenthal and Noelle Savarese co-founded MP in 2008 as a unit of FrontPoint Partners, the hedge fund where Steve Eisman made bearish bets on subprime mortgage bonds featured in Michael Lewis’s “The Big Short.” At the time, the MP founders focused on distressed mortgage-backed securities.

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Is Marijuana Real Estate Pandemic-Proof?

A number of states deemed marijuana shops “essential” businesses and pot sales were up in recent weeks. Does that mean marijuana real estate is pandemic-proof?

While many bricks-and-mortar stores have temporarily shut down recently because they were deemed as “non-essential” in a time of a pandemic, the debate has not been settled when it comes to marijuana stores. For example, in California, Governor Gavin Newsom’s administration has designated marijuana businesses as “essential” because of pot’s health benefits, though that designation has come under criticism. Florida and Oklahoma have also designated marijuana stores as “essential.” Meanwhile, Massachusetts Governor Charlie Baker is facing pressure to allow the state’s marijuana businesses to re-open.

One thing that has been clear is that demand for marijuana has only shot up in recent weeks. A survey of 990 marijuana consumers conducted recently by online resource American Marijuana found that more than 48 percent stocked up on marijuana products amid the pandemic. Of those, more than half (55.39 percent) said they were stocking up specifically to calm themselves down. Another 23.03 percent said they feared pot might eventually become scarce.

Investors in marijuana real estate are trying to figure out how today’s altered landscape might impact their business.

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Shopping center owner Kimco is trying to help its smaller tenants pay rent, stay in business

Kimco Realty has started piloting a tenant assistance program to help its tenants find and apply for federal and state loans to aid their businesses during the coronavirus pandemic.

A major shopping center owner in the U.S. has taken matters into its own hands to try to help small business owners get access to funds from the federal government and from states that can help them pay rent.

Kimco Realty, which owns and operates roughly 400 strip centers typically anchored by grocery stores across the country, has started piloting a tenant assistance program, or TAP. Its goal is to help its tenants find and apply for federal and state loans. Those loans are meant to aid smaller businesses in surviving the disruption caused by the coronavirus pandemic.

Currently, the TAP pilot is in California and Florida. Kimco said it plans to roll out the program to other states over the next few days.

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