Month: December 2020

The 10 biggest retail bankruptcies of 2020

This year, Neiman Marcus and J.C. Penney joined the ranks of some of the biggest retail bankruptcies on record, including Sears, Toys R Us and Circuit City.

More than three dozen retailers, including the nation’s oldest department store chain, filed for bankruptcy this year, marking an 11-year high.

Pre-pandemic, several of these retailers were already teetering on the brink of survival. But the Covid health crisis pummeled the industry. Lockdown orders put in place in March to slow the spread of the virus turned into prolonged store closures for many businesses that didn’t sell essential items like groceries. Retailers that started 2020 already in a tough spot were hit harder. Liquidity was strained and sales went into a freefall.

“The magnitude of bankruptcies has been larger this year compared to previous years,” said David Berliner, chief of BDO’s business restructuring and turnaround practice. “You’re noticing national brands and other prominent franchises, that had hundreds of stores, now being liquidated or going through a restructure to salvage what they can.”

About 60% of the retailers that had filed for bankruptcy in 2020 through August listed more than $100 million in assets, compared with 50% of filings during the same period in 2019 and 36% in 2018, Berliner said.

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    BLACK KNIGHT’S FIRST LOOK AT NOVEMBER 2020 MORTGAGE DATA

    Delinquencies Improved Again in November 2020, But Nearly 2.2 Million Seriously Past-Due Mortgages Remain

    • Despite seasonal headwinds, mortgage delinquencies improved for the sixth consecutive month in November 2020, falling to 6.33% from 6.44% in the month prior
    • The national delinquency rate is now down 1.5 percentage points from its peak of 7.8% in May but remains a full three percentage points (+93%) above pre-pandemic levels
    • While early-stage delinquencies – borrowers one or two payments past due – have fallen back below pre-pandemic levels, seriously past-due (90+ days) mortgages remain 1.8 million above pre-pandemic levels
    • Foreclosure activity remains muted as widespread moratoriums remain in place
    • November’s 4,400 foreclosure starts and 176,000 loans in active foreclosure are both at their lowest levels on record since Black Knight began reporting the metrics in 2000
    • Prepayments fell 11% from October’s 16-year high; however, with interest rates at record lows and refinance incentive at an all-time high, prepay activity is likely to remain elevated in the coming months

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      National eviction ban will be extended through January in stimulus deal

      The next stimulus package will continue the ban on evictions for another month.

      A bipartisan coronavirus aid deal that lawmakers struck on Sunday will extend the national eviction moratorium through January and establish a rental assistance fund of $25 billion.

      The relief comes as the Centers for Disease Control and Prevention’s eviction moratorium was set to expire at the end of the month. More than 14 million Americans — or 1 in 5 adult renters — said recently that they’re not caught up with their rent, according to The Center on Budget and Policy Priorities.

      “This aid is badly needed,” said Douglas Rice, a senior policy analyst at The Center on Budget and Policy Priorities. “The CDC order prevented a wave of evictions this fall, and the extension will avert a large wave in January.”

      Heidi Breaux had no idea where she and her two daughters, Kayleigh, 13, and Kora, 10, would go if the national eviction ban was allowed to expire on Dec. 31.

      She fell behind on her $750 rent after the pandemic cost her both of her jobs. The family lives in a townhouse in Baton Rouge, Louisiana. She recently landed a job as a custodian at a church, but makes just $10 an hour. She owes her landlord around $4,000.

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        How to Analyze a Potential Rental Property

        Building a portfolio of rental properties is an excellent way to increase wealth over time. However, there are a ton of things to think about before jumping into a deal.
        How do you know if it’s a good investment? What things should you be looking at in order to make your decision?
        This article will outline a variety of simple steps to take when analyzing a potential investment property. It includes a series of formulas, calculations and things to consider so you know whether or not it’s a good deal for you. No two deals are the same and no two investors are the same, so it will vary depending on your specific situation.

        How to Analyze Potential Income

        The potential income you can earn on a property is the first step in your analysis and there are several ways to do this. For this discussion, we will assume that the only income for the property will be monthly rent. Some properties also have storage, parking, laundry machines and other income, but we will assume only rent for now.

        Gross Rent Multiplier (GRM)

        The Gross Rent Multiplier is the sales price for that property divided by the total annual rent that you anticipate being able to collect. In this scenario, use the asking price on the property as your sales price. You might be able to get a better deal by negotiating well, but using the asking price will keep you on the conservative side as you do your calculations.
        To determine how much you can charge for rent, take a look at other properties in the same neighborhood or similar neighborhoods. Do some comparative analyses of what other renters are paying for similar homes in similar neighborhoods. This will help you determine what you can charge for the property.
        Now, you can simply do the math: sales price divided by total annual rent. This will give you a single number. It’s not a percentage or a number on a scale, but when you do the same analysis on multiple properties, you can compare them all to see how the GRM differs. The lower the GRM, the better.

        The 1 Percent Rule

        In a nutshell, this rule says the monthly gross income should be equal to or greater than one percent of the purchase price. Your monthly gross income is the total amount of income you are collecting on the property. Since we’re only talking about rental income in this discussion, this number is simply the amount you intend to charge for rent.
        This is another great way to compare properties. Some will be within the one percent rule and others will not. It doesn’t mean you should walk away if they aren’t, because there are tons of other factors that affect the value of a deal, but it’s a great thing to look at while you’re doing your analysis.

        Net Income

        This calculation is the gross income minus the expenses. You can calculate this on a monthly or annual basis, depending on which specific number you’re interested in. If you want to know your cash flow, or how much you’ll be putting in the bank each month, calculate the monthly net income.
        Your total income is the amount you will charge for rent and your total expenses will include your; taxes, insurance, HOA fees, utilities, and more. It is anything that you plan on paying for. Some landlords will wrap the cost of utilities, lawn care and other services into the rent payment and others will leave that to the tenant to pay. There’s no right answer, but be sure that you identify what you’ll be paying vs what the tenant will be responsible for.
        To do the calculation, simply subtract your total expenses from your total income. This will give you an approximation of how much income you can plan to receive from this property on a monthly basis. If you want the annual figure, multiply the monthly rent by 12 and the total expenses by 12, then re-do the calculation.
        *Pro Tip: Smart investors set aside a little bit of money each month for repairs, capital expenditures and vacancy. Be sure to include these items in your list of monthly expenses on the property to get a clear picture of net income.

        Cash on Cash Return

        This is a measure of the percent return that you can expect to have on your investment. It is the net income divided by the total investment. For this calculation, you need to consider the annual net income, rather than monthly as we calculated in the previous section.
        To determine your total investment on the property, you will add the down payment, closing costs and the amount of any repairs you plan to do prior to allowing tenants to move in. It is basically all the cash that you have to invest while purchasing and upgrading the property versus the amount of money you are putting in your pocket every month.
        Once you have all of the income and investment costs calculated, simply divide the income by the investment amount. This will give you a number with several decimal points. Multiply that number by 100 to find your return percentage. In this calculation, the higher the percentage, the better.

        What Other Factors Are Important Besides Income?

        Obviously, the numbers are the biggest indicator of whether or not a deal is actually a good deal. However, there are other factors to consider after determining that the numbers are working in your favor.

        Housing Market Trends

        One of the most important factors to consider after crunching all the numbers is the future of the property. You want to do some research on the current market value as well as what you think the house will do in the future.
        The trends of a particular neighborhood or area of town will help you to better understand what this property is likely to do. If you look at some comps and they all seem to be losing value, you may want to reconsider the purchase.
        If you’re planning on keeping the property for 10 or more years, it might be okay to purchase it even if the trends for that area aren’t going up right now. Regardless of trends, if you keep it for that long, you are likely to build a lot of equity in the home.
        But if you’re planning on renting it out for a few years and then selling, you may want to look elsewhere. If the property values in that area come crashing down, you may find yourself upside down with the mortgage payments.

        Commercial Development

        Commercial development projects can have a huge impact on residential neighborhoods. Sometimes they can increase home values and sometimes they can negatively impact them. You should do some research on this, as well.
        For example, a historically low value neighborhood that is undergoing some major commercial development is a really great opportunity for investors. If you get into the space at the right time, you can find some fantastic deals. “Buy low and sell high” as they say…
        Purchase a home as low as you possibly can, keep it until the market recovers and grows, and then sell it for a much higher price. In the meantime, you can do a few upgrades and rent it out to pay for the mortgage. If the commercial development around the neighborhood is adding restaurants, retail locations and other amenities, chances are that the home’s value will increase as those projects are completed.

        Equity

        Equity is a huge piece of the puzzle that many investors forget to consider in their calculations. It is absolutely possible for several of the formulas above to give you less-than-desirable results and the deal is still a good one.
        Why? Because at the end of the day, equity is king. (Well, cash is king, but maybe equity is the prince).
        Simply stated, equity is the difference between the home’s market value and the amount you owe on the mortgage. If you have $50,000 in equity, that’s how much you should walk away with if you sold the house right now at market value, assuming all closing costs and other fees were covered by the buyer.

        How Do I Increase Equity?

        There are a variety of ways to ensure that you have plenty of equity in your rental property when it comes time to sell it.
        The Down Payment: The minute you put a down payment on the property, assuming it’s a fair purchase price, you have at least that amount of equity in the home. If you have the cash to use, it can be a really good idea to put more down so you get better interest rates and lower mortgage payments.
        Buy at a Discount: If you buy the home for a discounted price, or less than market value, you automatically have even more equity. Try to find a short sale, foreclosure, estate sale, divorce or someone who needs to get out quickly. People in these situations are generally highly motivated sellers and you can find a reasonable deal that is good for both parties.
        Add Value: If you add value by doing various upgrades and renovations, you can almost force the property to appreciate in value. This can be a hit-or-miss strategy, so be sure to do your comp analysis to see what other properties in the area have and what they’re selling for before you spend a ton of money.
        Buy and Hold: This is the most basic of all equity growth strategies. You basically buy the property and hold on to it for a long time. Pay the mortgage down over that time and you will naturally build equity.
        Passive Price Appreciation: This strategy is very similar to the scenario we discussed regarding commercial development. If you choose properties in the right locations, it can be a great strategy for long-term ownership. If the neighborhood is up-and-coming, it can appreciate quickly.

        How Much Work Does It Need?

        Although you calculated these costs into many of the calculations earlier, it is still necessary to do a deeper dive. If you’re buying a house that needs to be renovated, you need to be strategic in doing so. Here are a few tips and tricks regarding renovations and upgrades.
        Don’t go custom. You might love bright colors, funky patterns and custom designs, but this is an investment property – not your forever home. Resist the temptation to put in a bunch of custom fixtures and high-end features. The goal is to make the place safe, livable and appealing to the majority of people who will see it. Stick to the basics and save money in the process.
        Use individual businesses for repairs. If you’re not able or willing to do the necessary repairs yourself, you should use individual service providers for the different items that need to be fixed. For example, if you need some plumbing and electrical upgrades, along with new carpet, it is tempting to get one general contractor to bid the whole job for you.
        This is a BIG mistake. That general contractor will likely cost hundreds or thousands more than if you reached out to a plumber, an electrician and a flooring company. Your goal is to spend the least amount of money possible while making the property safe and livable. It doesn’t have to be perfect.
        Only complete the necessary repairs. If you’re not planning to flip the house, there is no reason to go in and immediately rip everything out and replace it. As previously stated, you’re just trying to make it safe and livable. Do a full assessment of the home, or use the home inspection document from the purchase process. Choose the items that are the highest priority and complete those first. Then rent it out and start making that money back.
        Over time, you can make other repairs and upgrades. But remember, your goal is to make money, not spend it, so only do what is necessary.

        Conclusion

        Buying a rental property is a huge investment. It is well worth your time to do the research and calculations on the front end to avoid painful consequences of a bad deal on the back end. Take your time to evaluate each property and find the deal that is best for you.
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        International Investors Have Sights Set on U.S. Multifamily Deals

        The money from overseas spent on U.S. apartment buildings is likely to increase in 2021, once several working vaccines against the coronavirus are widely distributed and it is easier to travel.

        New foreign investors are investing in apartment properties in the U.S.—even if they can’t easily get on a plane to visit buildings they are interested in.

        “We can expect to see allocations from overseas increase,” says Alex Foshay, vice chairman and head of Newmark Capital Markets’ International Capital Markets Division, based in New York. “There are new investors focusing on single-asset acquisitions… investors like Korean institutions and Middle-Eastern syndicators.”

        These new investors are beginning to bid for properties, joining the large foreign pension funds and sovereign wealth funds that have already been buying for years and who have been extremely active as the year ends. The money from overseas spent on U.S. apartment buildings is likely to increase in 2021, once several working vaccines against the coronavirus are widely distributed and it is easier to travel.

        Despite pandemic, international investors spend billions

        The chaos caused by the spread of the coronavirus did not stop foreign investors from buying apartment properties in 2020 … though it did slow them down.

        International investors spent $5.3 billion to directly purchase apartment properties in the U.S. between the beginning of the year and early December, according to JLL Capital Markets. That’s a lot less than the $11.1 billion they spent over the same period in 2019. But it’s not such a sharp decline compared other types of real estate investments.

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          Multifamily Investors Are Ending 2020 on a Brisk Buying Clip

          Tired of waiting for discounts, investors have come off the sideline to snap up assets in a year-end rush of deals.

          Apartment investors are in a hurry to make up for lost time. They are trading billions of dollars in apartment properties—a pace of activity that’s double or even triple the volume of sales from the fall.

          Buyers and sellers have closed deals despite the coronavirus pandemic worsening in the U.S., with hundreds of thousands of new cases confirmed daily and the death toll now reaching more than 3,000 in a single day twice this week.

          Buyers and seller are closing deals regardless as they resolve disagreements about what apartment properties are worth in the pandemic. Fights between would-be buyers and sellers stalled transactions for most of the spring and summer.

          “We are making up for a very slow second and third quarter,” says Kris Mikkelsen, executive vice president in Walker & Dunlop’s property sales group, working in the firm’s Atlanta office. “Everything that was on pause before the pandemic is getting put back together.”

          Billions of dollars in deals closing in year-end rush

          Investors spent $11.2 billion to buy apartment properties in October 2020. That’s pretty good for a global pandemic—continuing at roughly the same level as August and September 2020 and only about 41 percent less than the volume of apartment deals in the same period in 2019, according to data firm Real Capital Analytics (RCA), based in New York City.

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            There’s ‘a lot of opportunity’ in real estate as pandemic pinches property market, says investor

            There is “a lot of opportunity” for investors to take advantage of distressed real estate assets, according to one of London’s prime property investors.

            Opportunity abounds for investors looking to seize on distressed real estate assets in the wake of the coronavirus pandemic, according to one of London’s prime real estate investors.

            Thomas Balashev, founder and CEO of Montague Real Estate, said real estate has been unduly hammered during the downturn, creating opportunities for buyers to make gains as the economy recovers.

            “I think it goes without saying that there will be a lot of opportunity,” Balashev told CNBC’s “Squawk Box Asia” on Tuesday.

            A different kind of crisis

            Unlike in the 2008 Financial Crisis, which was linked directly to the U.S. housing market and enabled opportunities for some people to “get ahead of it,” the current economic crisis caught the market off guard, hurting otherwise sound assets, Balashev said.

            “If you look at the way the pandemic’s been handled, both politically and the devastating effect it’s had economically, it’s caught many people by surprise,” he said. “So assets that really shouldn’t be distressed, shouldn’t have had such a significant drop in value, have suddenly come onto the market.”

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              Distressed Commercial-Property Sales Seen Surpassing Last Crisis

              CoStar Group estimates that $126 billion in CRE assets will be sold at distressed prices through 2022.

              (Bloomberg)—An estimated $126 billion in commercial real estate will be forced to sell at distressed prices through 2022, more than the first two years after the global financial crisis, according to CoStar Group Inc.

              Distressed hotel, retail, office and other properties will continue to flow to the market over the coming five years, potentially reaching $321 billion in sales by 2025, the real estate analytics company said. The total may swell to $659 billion in a worst-case scenario, according to a CoStar presentation released last week.

              Mortgage delinquencies have soared for hotel and retail properties during the pandemic, while office buildings face an uncertain future as employees continue working remotely. Regulators have so far avoided pressuring lenders to recognize losses, while most borrowers continue to hold out hope for a rebound, especially as Covid-19 vaccines begin distribution.

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                The Apartment Amenity Race Adapts to COVID-19

                Multifamily buildings with the right mix of features for attracting renters could deliver the most appetizing returns for investors.

                Even before the coronavirus stalled the U.S. economy and scrambled the lives of apartment renters, property owners were already building and renovating apartments to include amenities that range from extra sound insulation to super-fast wireless Internet connections.

                Living through the pandemic has led renters to value many of these amenities even more highly. The most important amenities for apartment renters in 2021 are likely to include access to outdoor spaces and space inside the apartments for people working at home—in addition to fancy technologies like smart locks and smart thermostats and even simple technologies like garbage disposals and sound insulation.

                The value renters put on these features go right to the bottom line of how much these properties earn—and how much investors are willing to pay for them.

                “The pandemic has caused an acceleration of trends that we saw coming anyway,” says John Helm, partner and founder RET Ventures, a venture capital firm specializing in property technology based in Park City, Utah.

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                  U.S. needs more warehouses to handle record returns this holiday and in coming years, CBRE says

                  As much as $70.5 billion worth of holiday purchases this year are expected to be returned, real estate firm CBRE predicts.

                  With a record amount of returns projected to flow back to retailers this holiday season and in the coming years, the United States is going to need more warehouse space to handle them, according to a new report.

                  As much as $70.5 billion worth of holiday purchases this year are expected to be returned to companies by consumers, commercial real estate services firm CBRE forecast Monday. That will put additional stress on supply chains that are already working around the clock, at max capacity, to fulfill a surge in digital orders.

                  CBRE said the projected 73% jump versus a five-year average is largely due to more online shopping. E-commerce sales tend to have a much higher rate of return, up to 30%, than items purchased in stores. People buying apparel online, for example, might order two or three sizes to judge which one fits best, then send the others back.

                  “One thing we often overlook is what happens when that shirt of yours gets returned,” Matt Walaszek, director of industrials and logistics research for CBRE, said during a call with the media Monday. “It creates a lot of challenges and costs for retailers.”

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