How the eviction crisis across the U.S. will look

The impending eviction crisis will hurt some states more than others.

An unprecedented eviction crisis will soon hit the U.S.

On Friday, the federal moratorium on evictions in properties with federally backed mortgages and for tenants who receive government-assisted housing expired. The Urban Institute estimated that provision covered nearly 30% of the country’s rental units.

White House economic adviser Larry Kudlow said on Sunday that he would extend that moratorium, but these tenants are now unprotected from eviction. At the same time, some 25 million Americans will stop receiving the $600 weekly federal unemployment checks by July 31.

And most of the statewide eviction moratoriums are winding down.

The proceedings have resumed in more than 30 states.The moratorium in Hawaii and Illinois end this week, and in August, evictions will pick up in New York and Nevada.

By one estimate, some 40 million Americans could be evicted during the public health crisis.

“It’s like nothing we’ve ever seen,” said John Pollock, coordinator of the National Coalition for a Civil Right to Counsel.

In 2016, there were 2.3 million evictions, Pollock said. “There could be that many evictions in August,” he said.

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    Distress Mounts in U.S. Property Market Frozen by Pandemic

    Investment sales of U.S. commercial properties fell by 68 percent year-over-year in the second quarter, according to RCA.

    (Bloomberg)—The U.S. commercial real estate market is showing ever greater signs of stress, but there are still few deals to be had.

    Transactions fell 68% in the second quarter across all property types compared with 2019 as potential buyers and sellers remained far apart on the prices of buildings, according to data released Wednesday by Real Capital Analytics.

    The paralysis set in despite near-record amounts of capital ready to be deployed by some of the world’s biggest real estate investors.

    “The buyer and seller expectations are not aligned,” said Simon Mallinson, an executive managing director at RCA. “Sellers aren’t being forced to the market because there’s no realized distress and buyers are sitting on the sidelines thinking there’s going to be distress.”

    Industrial Strength

    Second-quarter sales plunged 70% for apartments, 71% for offices, 73% for retail and 91% for hotels, according to RCA. Industrial property transactions were a brighter spot. Sales dropped only 50% in the second quarter, as online shopping thrived and manufacturers leased space to avoid supply chain disruptions.

    For markets to function, there needs to be some agreement on what assets are worth. But the surging coronavirus outbreak is fueling uncertainty, making the outlook for commercial property just as cloudy as it was in March when lockdowns put the economy into deep freeze.

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      U.S. Airlines Face the End of Business Travel as They Knew It

      Half the respondents in a survey of Fortune 500 CEOs said trips at their companies would never return to what they were before Covid-19.

      (Bloomberg) — U.S. airlines hammered by the catastrophic loss of passengers during the pandemic are confronting a once-unthinkable scenario: that this crisis will obliterate much of the corporate flying they’ve relied on for decades to prop up profits.

      “It is likely that business travel will never return to pre-Covid levels,” said Adam Pilarski, senior vice president at Avitas, an aviation consultant. “It is one of those unfortunate cases where the industry will be permanently impaired and what we lost now is gone, never to come back.”

      At stake is the most lucrative part of the airline industry, driven by businesses that accepted — however grudgingly — the need to plop down a few thousand dollars for a last-minute ticket across the U.S. or over an ocean. While millions of customers fly rarely, road warriors are constantly in the air to close a deal, depose a witness or impress a client. Business travel makes up 60% to 70% of industry sales, according to estimates by the trade group Airlines for America.

      That’s under threat in the wake of an unprecedented collapse in passengers that started four months ago. Half the respondents in a survey of Fortune 500 CEOs said trips at their companies would never return to what they were before Covid-19, according to Fortune magazine.

      Even industry leaders such as Delta Air Lines Inc. Chief Executive Officer Ed Bastian are bowing to the inevitable.

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        Coronavirus pandemic cuts rent growth to a decade low

        Single-family rents grew just 1.7% annually in May on a national level, according to CoreLogic.

        Back in February, just before the coronavirus hit the U.S. economy with a vengeance, rent growth for single-family homes had hit its highest pace in four years. Barely three months later, that growth plummeted to a decade low.

        Single-family rents grew just 1.7% annually in May on a national level, according to CoreLogic. That’s the slowest growth rate in nearly a decade and a little more than half the growth these 12 million rental homes were seeing the year before. Single-family rentals make up 35% of all rental housing in the U.S., and these homes are valued at more than $2.3 trillion.

        “Single-family rent growth slowed abruptly in May as the nation felt the full impact of the economic crisis caused by the pandemic,” said Molly Boesel, principal economist at CoreLogic. “Some metro areas, especially those that depend on tourism, were hit hardest by job losses. With unemployment rates predicted to remain high through the end of the year, we can expect to see further easing in rent growth as the economy struggles this year.”

        The slowdown in rent growth was most severe at the high end of the rental market, while lower-priced rentals saw rents going up more markedly. That is likely because the demand for high-end rentals has dropped more dramatically than demand for lower-priced properties.

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          Uptown Villas Tampa

          Harborside Partners, along with Dreamstone Investments and Brick Street Capital, have just closed on 90 units in Tampa, Florida for a purchase price of $6.28 million. This acquisition will further establish our footprint in Uptown Tampa by bringing our total portfolio in this neighborhood to 149 units.

          How Will Subchapter 5 of the Bankruptcy Code Impact Landlords?

          Landlords need to educate themselves about the new Subchapter 5 bankruptcy rules as a precedent-setting case plays out in Texas.

          Recent revisions to the U.S. Bankruptcy Code might open the door to headaches and heartaches for landlords that rent to small businesses.

          In August 2019, Congress created what’s known as Subchapter 5 of the Bankruptcy Code. Subchapter 5 is designed to streamline the Chapter 11 bankruptcy process for small businesses and slash their legal bills, according to Robert Dremluk, a partner in the New York City office of law firm Culhane Meadows Haughian & Walsh PLLC who specializes in bankruptcy cases.

          Subchapter 5 went into effect this February. A month later, Congress tweaked Subchapter 5 as part of the federal CARES Act, aimed at helping the U.S. recover from the coronavirus pandemic. A major change in Subchapter 5 that will be on the books till next spring raises the cap on secured and unsecured debts for a small business to qualify for Chapter 11. The threshold jumped from a little over $2.7 million to $7.5 million. “The idea was to create an easier path for companies to reorganize,” Dremluk says.

          Legal observers say the re-engineered Subchapter 5 could invite even more small businesses to file for Chapter 11 bankruptcy reorganization and, therefore, entangle more landlords in bankruptcy proceedings.

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            Apartment Investors Begin to Navigate COVID-19 Deal Landscape

            The properties hitting the market today tend to be smaller. Investors are holding onto stabilized assets if they can and distressed deals haven’t hit the market yet.

            Verde Capital Corp., a private equity and investment management company, is negotiating a sale of several hundred apartments in Northern New Jersey. A buyer has agreed to pay $75 million, or roughly $250,000 per unit for the property, which Verde owns in partnership with a local real estate family.

            “That’s the exact price we would have sold it for a year ago,” says Jacob Reiter, president of Verde Capital Corp., based in Conshohocken, Penn. He expects the sale to close in fall 2020 after several months of due diligence.

            Deals like this illustrate there are signs of life in the market to buy and sell apartment properties, despite the economic crisis caused by the spread of the novel coronavirus. But deal volume remains down significantly year-over-year and buyers and sellers are continuing to navigate the re-set in property values resulting from the massive economic disruptions of recent months.

            In May 2020, investors paid a total $3.1 billion to buy apartment properties in the U.S. That roughly one-fifth of the amount they spent in the same period the year before, according to data from Real Capital Analytics (RCA), a data firm based in New York City. It’s also even less than the $3.4 billion that investors spent in April.

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              U.S. may need another 1 billion square feet of warehouse space by 2025 as e-commerce booms

              With more people clicking “buy” online, demand for industrial real estate could reach an additional 1 billion square feet by 2025, according to commercial real estate services firm JLL.

              With online sales proliferating during the coronavirus pandemic, the U.S. is going to need more warehouses to store hoards of boxes and handle those orders.

              Holed up at home, and with many bricks-and-mortar stores temporarily shut, shoppers have turned to their computers and smartphones to buy everything from fresh groceries to new home furnishings to pet toys. And even after the pandemic subsides, the trend of people buying more and more online is expected to stick around.

              And so with more people clicking “buy” instead of venturing to the mall, demand for industrial real estate could reach an additional 1 billion square feet by 2025, according to a new report from JLL.

              The commercial real estate services firm said that prior to the Covid-19 crisis, about 35% of its industrial leasing activity was related to e-commerce. But now, it said, as much as 50% of that leasing activity has already been tied to the online retail industry in 2020.

              “The first quarter was our largest leasing quarter in three years,” said Craig Meyer, president of JLL’s Americas industrial division. “We’re seeing more pressure on [e-commerce companies] than the typical holiday season … to meet consumer demand.”

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                How To Know If You Are Ready For Real Estate Investing

                Real estate investing is an excellent strategy for long term wealth accumulation, but how do you know if you’re ready?
                In a nutshell, you’re going to need some cash reserves and a good strategy that works for you. There are tons of real estate investment strategies and it’s easy to get overwhelmed. But narrowing your focus can help you get started on the right foot.
                Here are the top three things that will tell you whether or not you’re ready:

                • You have access to cash
                • You know which kind of investor you want to be
                • You have a strategy

                How Much Cash Do You Need for Investing?

                Contrary to popular belief, you don’t need a ton of cash on-hand to begin investing in real estate. Many investors actually prefer to take out loans from private lenders rather than using their own cash. It all depends on your financial situation, your credit score and your level of comfort with taking risks.
                Here are some of the key considerations to help you decide whether or not you’ve got enough cash in the bank, or good enough credit to find a lender.

                Are you in survival mode? Living paycheck to paycheck can be a tough situation. Or maybe you’re not quite in the “living paycheck to paycheck” spot, but you make just enough to pay your bills and start digging yourself out of debt. This is a normal and commendable place to be. But it’s not likely a great place to start investing just yet. Focus on getting to a comfortable spot first, unless you can qualify for a loan

                What do your reserves look like? Do you have cash reserves in the bank? In general, you want to have $1,000 in an account for a rainy day fund. This is for emergencies and unplanned expenses. Beyond this, it is wise to have about 6 months’ worth of bills saved up for the property you want to purchase. If you’re looking to purchase a rental property with a $1,000/month mortgage, you want to have at least $6,000 in the bank.

                Passive vs Active Investing

                Investing in real estate can be as much or as little work as you want it to be. Some investors really want to be hands-on while others don’t have the time or the interest in doing so.
                Let’s talk about the specifics so you can make the best decision for you.
                Passive Investors make monetary investments in properties without getting involved in the decision-making, negotiations, etc. For example, when you invest in the stock market, you don’t get involved in the daily operations of the companies in which you invest. You simply earn some dividends when the company does well.
                Passive investing is similar. People who invest passively in real estate typically do so in one of three ways: the stock market, crowdfunding or partnership.

                • The Stock Market is a quick and easy way to invest in real estate without getting involved in construction, fixing and flipping, negotiating deals, etc. But you still have to do some research on which funds and REITs to invest in. There are some great resources available for this, but I usually prefer to talk to successful investors. They are already doing it, so why not buy them a cup of coffee and pick their brain for great ideas?
                • Crowdfunding is a scenario in which a professional investor identifies a property to renovate into a hotel, multifamily unit or other such entity. If the investor doesn’t quite have enough capital to make the purchase, they may look for private investors to assist in that area. If you invest in it and it does well, you will receive a portion of the profits.
                • Partnership with an active investor is another great way to get involved without doing a ton of work. Much like crowdfunding, partnering with another real estate investor who actively purchases rental properties can generate some income for you, as well. In this type of partnership, you can partner with the active investor to purchase the properties and then you share the profits in a way that is proportional to the work you put in. So the active partner will likely receive more of the profits, but all you did was invest a little money on the front end, so it’s worth it.

                If you already have a full-time job that you enjoy and that allows you to live your preferred lifestyle, passive investing is likely a great option for you. Depending on how much cash you have to invest, you can really build a nice portfolio.
                There are downsides to everything and this is no exception. In passive real estate investing, you need to make sure that the stocks you purchase or the partners you choose are reputable. Make sure they are purchasing properties in a viable end of town. Do the research on the projects they are working on before putting in any money!
                Active Investors are involved in the identification, purchase and/or management of the real estate in question. The simplest example of this is a person who flips houses. They find a home that they think will be a good investment, put in an offer, purchase it, renovate it and then sell it (hopefully) for a profit. Although there is a lot more that goes into the process, this is a good illustration of active investing.
                Another example of active investing is to purchase rental properties. In this scenario, you purchase a rental property, find a renter and allow their monthly rent to serve as an income source for you. Many of these investors hire property management companies to take care of the logistics of finding, renting, getting contractors to do repairs, etc. But it is still much more involved than passive investing.
                Some of the key benefits of active investing are control over the situation and the opportunity to make more money in a smaller amount of time. If you are the one purchasing and managing the property, you are relying only on yourself to make good decisions, rather than a company, a partner or a large real estate investment firm. You also have the opportunity to flip the house quickly and make a fast profit.
                This type of investing typically requires a higher toleration for risk.

                Developing a Strategy

                Once you decide what kind of investor you’re going to be, you will need to develop a strategy on how to make it a successful venture. Your strategy can change drastically based on your available/accessible cash.
                Strategies for Passive Investors
                If you’ve already decided that you’re going to be a passive investor, you need to develop a plan that makes sense for you. Real estate investments via stocks, bonds and REITs are a great place to get started.

                What is a REIT? I’m glad you asked!
                REITs or Real Estate Investment Trusts are companies that own and manage income-generating properties. These include residential properties like apartment buildings and condos, as well as non-residential properties like hotels and shopping malls. These companies share their profits proportionally with their investors on a quarterly or annual basis.
                Some REITs are publicly traded while others are non-traded. It is helpful to discuss your options with an investment broker to help you choose which ones are best for you.
                So let’s talk about next steps.
                Step One:
                To invest in stocks, bonds and REITs, start by identifying a broker you want to work with or an online brokerage that you trust. It pays to do your research and find one that has a similar philosophy to yours and a fee schedule you can live with.
                Step Two:
                If you’re working with a broker, you’ll want to schedule time to sit down and talk about your goals. Tell them why you want to invest, how much available cash you have and what your ultimate goals are. Your broker will discuss the various options and assess your tolerance for risk. From there, the two of you will build a plan.
                If online brokerages are more your speed, there are tons to choose from.
                Step Three:
                After developing a plan with your broker, it’s time to take that leap! Whether you have just a small amount to invest at the beginning, or a much larger sum, now is the time! As you become more confident with your investments and returns, I think you will find it really gratifying to invest in this way.
                Note to self: Crowdfunding is a much bigger world. It is a type of investing that is typically reserved for accredited investors. If that’s you, then go for it. If not, perhaps it will end up on your real estate investment bucket list.

                Strategies for Active Investors

                As an active investor, there are several ways to jump into the real-estate business. But let’s consider how your available cash affects your strategy.
                If you’re in survival mode right now, it might be best to focus on real estate as a side-hustle or even a job, rather than an investment. Simply put, you need more money coming in right now, rather than going out. There are a variety of full and part-time opportunities in real estate that will get you involved in the industry and making connections, while putting more cash in your pocket. Leasing agents, real estate agents, property managers, appraisers and other such jobs are a great way to get into it without investing just yet.
                If you have plenty of cash available to invest, there’s no better time than the present to start doing it! If you’ve identified yourself as an active investor, start looking for your first fix-and-flip or rental property. It’s important to know whether you want to flip it or rent it out before you purchase a property. These two types of properties will look very different. One will be a “fixer upper” while the other might already be in great shape and you’ll just need to find a renter.

                Fix and flip investments are a great way to make a profit quickly, assuming you’ve done your homework on getting a great price, doing the renovations and then listing and selling it. You need to consider what your ROI will be once it’s all said and done.
                In the fix and flip world, the faster you get it done, the better. You don’t want to hold onto these properties for too long because you’ll end up paying the mortgage until it’s sold. After all, you OWN it…
                Rental properties are a completely different animal. With these types of investments, there is generally a lot more risk involved. Again, you need to do some homework on the potential ROI of a rental property. You’ll need to be confident that you can rent it at a price that will give you a positive cash flow each month. To create a positive cash flow, you need to consider all expenses that are tied into owning the property.
                For example, if you purchase a rental home with a mortgage of $1500/month, an HOA of $200/month and a property management company of $150/month, you’re looking at $1850 per month plus maintenance and upkeep if it’s not covered by your management company. So you’re looking to rent it out for $2200-2500/month or more in order to make a profit each month.
                Of course the math is much more complicated than that, but you get the picture.

                Conclusion

                Real estate investing is an exciting and sometimes scary world. But doing some research on the front end and answering the simple questions above will help you get started off on the right foot. A great strategy and a business plan will give you great peace of mind and the confidence to take the first step.
                So what are you waiting for?

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                Wave of Rescue Capital Moves on Ahead of Opportunistic Buyers

                Rescue capital could make a dent in the amount of distressed real estate deals in the market.

                Rescue capital is hoping to beat opportunistic investors to the punch when it comes to providing needed liquidity to distressed commercial real estate. Although both groups are hoping to generate alpha returns, rescue capital aims to provide a shorter term solution with preferred equity, mezzanine debt or fresh joint venture money to help owners hold onto troubled assets.

                “We have had an extreme and rapid shock to the real estate market. There are a lot of operators out there with good projects who have had what were good, sustainable business plans just upended,” says Doug Wells, CEO of Denver-based Broe Real Estate Group (BREG), an affiliate of The Broe Group. “What rescue capital can be is an early stage structure around which to resolve some of these situations,” he adds.

                BREG launched its $250 million rescue capital platform in June. The BREG Strategic Investments Program will provide “expedited capital solutions” for liquidity strained commercial real estate properties and ventures that are experiencing distress specifically related to COVID-19 market disruptions. The platform is focused primarily on preferred equity and joint venture investments in growth markets throughout the Southeast, Southwest and Western U.S. “I do believe these things will take some time. Our expectation is that our holds will be three to five years,” adds Wells.

                Denver-based Hospitality Real Estate Counselors (HREC) also is gearing up to launch a new platform to broker rescue or “runway” capital for hotel operators. A common number being thrown out is that the average hotel is worth about 30 percent less now compared to what it was worth pre-COVID, notes Michael Cahill, CEO and founder of HREC and co-founder and principal of HREC Investment Advisors. What that means is that owners are not necessarily upside down, but it does mean they have lost all of their equity. So, they are motivated to hang onto assets long enough to ride out the recovery and rebound in values, he says.

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