Syncopated Real Estate offers an integrated approach to property acquisition and asset disposition. As a South Florida brokerage we facilitate the buying, selling, and leasing of real estate in both residential and commercial markets. A strategic coordination with real estate professionals and funding services allows for innovative solutions. The boutique brokerage approach caters to the individual goals of buyers and sellers. This is accomplished through listening to market rhythms and having the dedication to discover value. The ability to connect with resources such as family offices, legal services, accounting professionals, and private funding groups, facilitates smooth transactions. This method achieves success while developing long term business relationships.
Trump Organization properties are missing out on more than $1 million in revenue each day as the coronavirus pandemic hammers the hospitality sector, the company’s primary source of income.
Several Trump-owned properties have been forced to close and around 500 employees have been laid off or furloughed, according to the Wall Street Journal. The company has shut properties in Las Vegas and Florida, including Mar-a-Lago and the Trump National Doral Miami.
Those that remain open are getting just a fraction of their usual business. One employee told the newspaper that one day last month, the 263-room Trump International Hotel in Washington, D.C., had just 11 guests.
The outbreak has put on hold negotiations to sell the long-term lease on the hotel, which opened just before Trump won the 2016 presidential election. The company was in talks with two potential buyers to sell the lease for as much as $350 million.
The Doral and Mar-a-Lago closed last week after Florida Gov. Ron DeSantis ordered hospitality properties shuttered to mitigate the spread of the coronavirus. This week he followed that with a 30-day stay-at-home order.
The Doral gets most of its business from golf tournaments and conventions and subsequent hotel business. It alone could be losing as much as $200,000 per day to the pandemic, according to the Journal.
National golf course trade groups, including some that Trump-owned properties are members of, have lobbied government officials to allow courses to stay open or provide economic relief while they are closed. But Trump properties were barred from receiving direct support from the $2 trillion stimulus package that the president signed last week. [WSJ] — Dennis Lynch
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In a special edition subscribers-only episode of TRD Talks Live, join associate publisher Hiten Samtani, attorney Stuart Saft and Miller Samuel’s Jonathan Miller as they discuss the impact that the $2 trillion federal stimulus package will have on all sectors of real estate.
In our web and print coverage over the last few weeks and through our new series of TRD Talks, we’ve broken down the impacts of coronavirus on every sector of the real estate industry. And just today our team sorted through the 880-page stimulus bill to explain what it means for everyone — from residential brokers to retailers, from developers to lawyers and lenders and more. This evening we’ll dive even deeper with experts to lay all of the stimulus effects on the table.
The post Subscribers Only: Live at 5pm, find out what the stimulus means for real estate appeared first on The Real Deal Miami.
“In moments of crisis,” the legendary developer Big Bill Zeckendorf was fond of saying, “one’s world tends to become simplified.” Even those with big dreams (pretty much every successful real estate professional) get down to the basics: survival.
This is a crisis unlike one we’ve ever seen. The world has stopped. “It’s the first time ever that we’ve had a chain of supply shock to the system and a demand shock,” developer Steve Witkoff said. To help the U.S. economy recover from that shock, the government has passed a $2 trillion economic stimulus package, the largest of its kind in modern U.S. history.
What sort of help can the real estate industry expect?
The Real Deal‘s editorial team has broken down key aspects of the stimulus package that are most relevant to different stakeholders from across the industry, from multifamily landlords to residential brokers, from lenders to builders to investors. So much of what exactly the stimulus will mean for real estate is still being hammered out, but this is a snapshot of the current state of play.
“A good first step,” is how REBNY president Jim Whelan described the stimulus to us. He did note, however, that “increasing attention is going to have to be paid to the commercial market — mortgages, lenders, as well as landlords.”
Landlords and Investors
The stimulus package offers no direct relief for landlords. They might see respite indirectly, however, through the one-time $1,200 check to most individuals making up to $75,000. Unemployment insurance has been expanded to include gig workers, with the federal government offering up to an additional $600 per week on top of what states provide. Renters (and homeowners) can use that cash to make their monthly payments.
However, Fannie Mae and Freddie Mac are offering borrowers impacted by the pandemic up to 90 days of forbearance as long as they do not evict renters. For those who own Section 8 properties, the stimulus provides a total of $1 billion in funds to help maintain normal operations and “make up for any reduced tenant payments as a result of the coronavirus,” according to law firm Nixon Peabody.
Alan Hammer, a multifamily-focused attorney at Brach Eichler, is urging clients to reach out to existing lenders to see what programs they could qualify for, in lieu of federal or state help.
“There’s nothing really in the CARES Act that provides for landlords,” Hammer said, referring to the stimulus package’s official name — Coronavirus Aid, Relief, and Economic Security Act. “But you’ll never hear me complain that life has been unfair to landlords as a group.”
Francis Greenburger, who heads development firm Time Equities, said the plan “could be better,” adding that 90-day forbearance programs may not be helpful in the long run.
“Kicking the can down the road is not as good as it sounds if the crisis is still here in three to four months,” Greenburger said.
There is, however, one provision tucked into the bill that could see big landlords reap big savings.
Under the existing tax code, landlords can use losses including depreciation to offset other taxes up to a total of $250,000 for individuals and up to $500,000 for joint filers. The new stimulus lifts that restriction for three years, and the New York Times, citing a draft congressional analysis, estimated that the program could result in investors saving $170 billion over 10 years. (All taxpayers with depreciable assets or losses will also be eligible, so it’s unclear how much of that sum would represent savings in real estate.)
Depreciation on prime real estate holdings can easily come out to millions of dollars a year. According to one tax attorney, a $100 million building with “straight-line” depreciation over a 40-year lifespan would yield $2.5 million in depreciation losses a year. Depending on the owner’s income in a given year, the removal of the “excess business loss” cap could yield substantial tax savings.
The stimulus also allowed lawmakers to mend a “drafting error” from the 2017 tax bills — also known as the “retail glitch” — which made interior improvements for nonresidential properties ineligible for bonus depreciation. Retailers and restaurants will now have the option to deduct 100 percent of the cost of such improvements in the first year, instead of depreciating it over several years — an option which machinery owners, for example, already had.
Affordable Housing Developers
The bill would also add significant liquidity to municipal markets. The Fed is now exercising its power to buy municipal bonds, which the stimulus expanded to include all types of bonds, not just short-term ones. Because bonds allow municipalities to raise money cheaply, that’s good news for affordable housing developers who use tax credits to finance their projects.
Developers say enabling the construction of such product is more important than ever.
“Affordable housing could be more dramatically affected in the short term,” said Ron Moelis, CEO of L+M Development Partners, one of the most active affordable housing developers in New York City. Moelis said more of those tenants may lose their jobs because “they don’t have as much of a social safety net.”
Agents and Brokerages
Brokers used to eating what they kill are usually left out of government bailouts, but not this time.
Unlike with previous stimulus packages, this one extends unemployment insurance to independent contractors, which is how the majority of the nation’s 2 million real estate agents operate. (The amount is based on individual state formulas, and would be in addition to the up to $1,200 provided to individuals earning $75,000 or less.)
For brokerage firms, the Small Business Association has two loan programs — including one that may cover the cost of lost commission.
The Paycheck Protection Program provides loans up to $10 million to cover rent, mortgage interest, utilities and payroll. According to the National Association of Realtors, lost commissions count as payroll. The other loan program, dubbed the Economic Injury Disaster Loan, provides a $10,000 advance on emergency loans. The loans are limited to $2 million.
SBA loan payments will also be deferred for six months.
REBNY’s Whelan said he was happy to see the small business assistance programs centered around employment. “That was thoughtful and will hopefully play a critical role in getting businesses back on their feet,” he said.
The measures come as welcome news for firms that are already reckoning with significant layoffs or pay cuts, among them Compass, Realogy, and Meridian Capital Group. But given that commissions are the bulk of a broker’s income, layoffs even in bad times are less common compared to other industries. “There isn’t a tendency to go in that direction,” said CBRE’s Mary Ann Tighe.
Rent, however, is a real concern. “I promise you other brokerages are not paying rent,” said Stephen Shapiro of L.A. luxury firm Westside Estate Agency.
Retailers and Small Businesses
Similar to brokerages, retailers, restaurants and other small businesses are eligible for the Paycheck Protection Program.
Businesses with fewer than 500 employees are eligible for the loan, which is designed to keep workers on payroll. The U.S. Small Business Administration said it will forgive loans “if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.”
“This should give landlords some comfort that their tenants will be able to pay rent eventually,” said Jeff Friedman, a partner at law firm Hall Estill, “if not immediately.”
Tom Barrack already thinks it’s the end of CMBS as we know it.
The founder of Colony Capital and close associate of President Trump penned a dire letter on Medium on March 22, in which he predicted that the coronavirus pandemic and subsequent shutdown of sectors of the U.S. economy could lead to margin calls, foreclosures, evictions and potential bank failures. The impact, the polo-playing billionaire warned, could be greater than that of the Great Depression.
What happens to mortgage servicers remains unclear. Last week, the Mortgage Bankers Association estimated that lenders could be on the hook for at least $75 billion on short notice, and possibly more than $100 billion if homeowners and landlords sought forbearance en masse.
But the association noted that the stimulus “includes funding that can be leveraged to create a broad, dedicated Federal Reserve liquidity facility.” It called for the government and the Fed to rapidly establish a program to help mortgage servicers provide the necessary forbearance.
Heidi Learner, chief economist for Savills, noted that “while servicers can go into the facility to borrow from the Fed, the fact of the matter is that it’s a cash-negative position.”
“They have to borrow to advance cash that’s not coming in,” Learner said. “I don’t see how this is sustainable.”
Hardhats can expect significant support. Infrastructure and construction could be eligible for $43 billion of the $340 billion in funds outlined in the appropriations section of the package, according to trade publication Engineering News-Record.
Trade group Associated General Contractors told the publication that the stimulus provisions that would help the industry include ones that allow companies to delay paying payroll taxes through Jan. 1, and allowing firms to “carry back” net operating losses for five years to offset past earnings. Another section of the bill allows firms structured as partnerships, S-corporations and other pass-through entities to deduct all 2020 losses in the current tax year.
Construction workers could also avail of direct payments from the government, and smaller construction businesses would also be eligible for the same types of SBA loans brokerages can take advantage of.
Real estate investment trusts were mentioned briefly in the bill — but only to exclude them from part of a temporary change to rules around net operating losses.
Most companies that paid taxes in recent years but had losses later on may be able to obtain tax refunds by carrying those losses back for up to five years.
In a memo analyzing the stimulus package, law firm Skadden Arps said that “despite the provision of this relief, loans, leases and other contracts likely will need to be restructured and renegotiated. Property owners, operators and lenders will need to collaborate to make this happen.”
Big Bill Zeckendorf would have agreed with that sentiment. The rotund tycoon accumulated suits with the same gusto that he did properties, and once said of his tailor: “By now he knew that I would always pay. But he also knew that he might have to wait.”
This special report was written by Hiten Samtani and Danielle Balbi, with reporting from TRD’s Georgia Kromrei, Rich Bockmann, Kevin Sun, E.B. Solomont and Kathryn Brenzel.
The real estate industry is bracing for a rough second quarter, but top South Florida brokerage executives are optimistic, and said that residential sales are still closing.
Jay Parker, CEO of Douglas Elliman in Florida, Beth Butler, director of new development for Compass’ Southeast region, and Mike Pappas, CEO of The Keyes Company, said during a webinar hosted by The Real Deal on Wednesday that amid the doom and gloom the residential market has not cratered, and it will bounce back stronger than before.
“There are deals being done,” Pappas said.
In fact, Butler said pending residential sales in Miami-Dade County were down 23 percent in March compared to February, and down 27 percent from March 2019. She pointed to that as a good sign.
“It’s not a huge drop from this time last year,” Butler said. “It’s actually a positive that the decrease has only been relatively small.”
Parker said that in the last two weeks at Douglas Elliman the company generated over $105 million in sales volume, even with many of those sales closing virtually.
Yet, it’s hard to deny the stark reality the novel coronavirus presents to the broader economy and to the world. The White House’s coronavirus task force estimates that the virus could kill 100,000 to 200,000 Americans. Unemployment filings have reached record highs across the U.S. and in South Florida, as businesses have shuttered.
On Wednesday, Florida Gov. Ron DeSantis issued a statewide stay-at-home emergency order, mandating that people can only leave their homes for essential activities.
Workers in residential and commercial real estate were included in the Department of Homeland Security’s list of essential workers, which was cited in the governor’s statewide order. Construction is also allowed to continue.
Regardless, the panelists said it is important to tread carefully when showing properties.
“I am not sure… that taking away a mask from a hospital so that we can do a showing is the right thing,” Parker said.
Pappas said the question asked most by agents is how to close a deal. Buyers, sellers and agents are asking about a legal action known as “force majeure,” which allows buyers to get out of a contract or extend the timeline due to a “force of nature” such as a natural disaster.
“People are throwing out force majeure. We believe that this isn’t force majeure,” Pappas said. “We are encouraging our people to extend contracts, but not force majeure because force majeure can end the project in 30 days.”
Deals are increasingly being handled virtually now. Butler said Compass has released a new set of tools called virtual agent services, which help realtors go through the full transaction process virtually.
Pappas said that the residential market won’t fall apart at certain price points because people are pulling listings from the market. The supply of homes priced under $500,000 is at three months, meaning that inventory is low and demand is high, according to Pappas.
“It’s probably one of the tightest markets we’ve ever been in,” he said.
Meanwhile, being locked inside for at least 30 more days could give homeowners and renters a new perspective on where they want to live, according to the panelists. The warm weather and lack of a state income tax will make Florida an even more attractive destination to people from larger cities, they said.
“In Florida, we can be in our backyards and be out on our balconies or at least get some element of fresh air,” Parker said. “In other markets they are glued to their TVs or the internet or their social media pages.”
The post SoFla brokerage execs optimistic, say deals are still closing appeared first on The Real Deal Miami.
SoftBank is abandoning plans to buy $3 billion of WeWork shares from investors, a major blow to the company as it struggles to stabilize during the pandemic.
The announcement was made to a board committee Wednesday evening, according to The New York Times. WeWork’s former CEO, Adam Neumann, is among the shareholders who will now miss out the chance to sell hundreds of millions of dollars worth of stock to SoftBank.
The rescue deal’s collapse comes as WeWork makes efforts to reduce its rent liabilities by as much as 30 percent. According to Bloomberg, WeWork CEO Sandeep Mathrani has been contacting landlords and proposing options including revenue-sharing agreements, with the goal of slashing rent by up to 30 percent.
The publication reported that some landlords pitched by Mathrani were reluctant.
SoftBank said it was walking back on the deal — reached last October — because of “multiple, new and significant pending criminal and civil investigations,” which changed conditions ahead of the deal’s April 1 closing date. The Wall Street Journal reported that SoftBank also cited business interruption from the coronavirus as a reason for reneging.
In response, WeWork’s board said it would evaluate its legal options, “including litigation.”
As of last year, WeWork had $47 billion in lease commitments over the next 15 years. An S-1 filing submitted as part of a botched IPO attempt showed the company had $4 billion in committed revenue from its customers and $2.5 billion in cash, half of which was unrestricted.
[NYT] — Sylvia Varnham O’Regan
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Real estate investor and developer Moishe Mana is adding a new business to his portfolio: dairy production.
Mana’s Mana Saves McArthur was named the winning bidder of Dean Foods’ South Florida facilities, including the McArthur Dairy plant at 6821 Northeast Second Avenue in Miami’s Little Haiti neighborhood, and distribution centers in West Palm Beach and Fort Myers. The deals include the land, furniture, fixtures and equipment, trucks, trailers and other vehicles.
Dean Foods acquired McArthur in 1980, according to published reports. J. Neville McArthur founded the company in 1929, according to Dean Foods’ website.
Court records show Dean Foods filed for Chapter 11 bankruptcy in November, as Americans’ consumption of dairy has declined over the years and non-dairy alternatives to milk have grown in popularity.
Mana’s $16.5 million purchase of the business is subject to final approval by the federal bankruptcy court in the Southern District of Texas. Dairy Farmers of America was named the winning bidder of a “substantial portion” of Dean Foods’ business operations for $433 million, also subject to final approval. The deals are expected to close by the end of April, according to a press release.
The South Florida Business Journal first reported Mana’s deal.
Mana, who has his hands in a number of businesses, including logistics, document storage, fashion and arts, has spent hundreds of millions of dollars on real estate alone in downtown Miami, Wynwood and Allapattah over the past few years, though he has yet to deliver on his master plan.
He also owns a former McArthur Dairy site west of Wynwood at 2451 Northwest Seventh Avenue. Mana paid $8.5 million for that property in 2015.
In a letter filed on Monday, Mana’s lawyer, Bruce Fischman, said his businesses are valued at more than $3 billion. He said Mana plans to keep the dairy processing plant and distribution centers, acknowledging that McArthur Dairy is “currently a money losing operation” that will take “many millions of dollars to turn it around.”
The coronavirus pandemic interfered with “the smooth transition of information,” Fischman continued, noting a letter from Centennial Bank, a lender to Mana, that shows Mana’s financial wherewithal.
Ahead of another stimulus package to address the coronavirus pandemic, House Speaker Nancy Pelosi is reportedly considering a retroactive rollback of the state and local tax (SALT) deduction cap.
The $10,000 cap went into effect in 2018 as part of President Donald Trump’s 2017 sweeping tax overhaul. A Democrat-led effort to repeal it in 2019 was unsuccessful. At the time, New York Gov. Andrew Cuomo went as far as calling the cap an act of “economic civil war” because it hit New York, California and 10 other states much harder than the other 38.
The rollback would benefit some 13 million households, most of whom would be in high-income brackets, according to The New York Times.
Pelosi told the Times that the priority of the next stimulus was to get money to individuals, which would be advanced by having Congress “retroactively undo SALT.”
A spokesman for Pelosi said the proposal fell short of a complete rollback and would be “tailored to focus on middle-class earners and include limitations on the higher end.” [NYT] — Sylvia Varnham O’Regan
Michael Swerdlow’s planned Block 55 in Overtown is in jeopardy. Swerdlow lost Terra as a partner to build the Target-anchored mixed-use project, and had to delay closing this week on a final development agreement with Miami’s Southeast Overtown/Park West Community Redevelopment Agency.
The setbacks came days after three entities tied to developer Don Peebles sued Swerdlow, his company Downtown Retail Associates, and his business partner Alben Duffie for allegedly sabotaging a previous deal to redevelop the city-owned site where Block 55 would be built.
Swerdlow and his partner’s Overtown Gateway Partners is seeking $175 million in damages, including $160 million in alleged lost profits and $15 million from the previously proposed deal between Swerdlow and the Peebles partnership that fell apart.
A spokesperson for Terra president David Martin confirmed the company had backed out of Block 55, but would not give a reason why. In addition to Target, the project would include a grocery store, offices and 556 apartments with 154 set aside for senior affordable housing.
Cornelius Shiver, the Overtown CRA’s executive director, said “it is not overlooked” that Peebles’ lawsuit was filed shortly before the closing date as an attempt to derail Block 55. “Site plans have been approved, the project is fully funded and leases with Target and Aldi have been signed,” Shiver said. “Whether or not this lawsuit is baseless in facts or the law surely will be determined at a later date, but right now, everything is on hold.”
Although not parties to the lawsuit, the complaint identifies Shiver and two other city officials, including Miami Commissioner Keon Hardemon, of purposely killing a development agreement Peebles and his business partner Baron Channer, through their company Overtown Gateway Partners, had tried to finalize with the Overtown CRA in 2016.
In that proposal, Overtown Gateway Partners offered to build a mixed-use project with ground-floor retail and 500 to 600 apartments at 249 Northwest 6th Street.
At the time, Overtown Gateway Partners walked away from the deal after failing to reach an agreement with the Overtown CRA during two years of negotiations. “The plaintiffs mutually agreed on the default in exchange for the return of their deposit,” Shiver said.
Glen Waldman, an attorney representing Overtown Gateway Partners and the two other Peebles entities, said his clients are confident they have a strong case. “What happened here was just wrong on many levels and caused significant damage to not only those involved in the entity which sought to bring relief to the people of Overtown, but to the people of Overtown as well,” Waldman said. “The complaint seeks very substantial damages which we believe are merited.”
Alan Kluger, the lawyer for Downtown Retail Associates, said Peebles and Channer were unable to fulfill their obligations to develop the Block 55 site and adjoining parcel known as Block 45. Kluger said Downtown Retail Associates subsequently won a separate bidding process to develop Block 55.
“Seeing that Peebles and Channer have no legitimate claim against Downtown Retail Associates, their 11th hour attempt at litigation is nothing more than a brazen act to extract dollars from the pockets of Block 55’s development team,” Kluger said.
According to the lawsuit, Commissioner Hardemon and his uncle Billy Hardemon, a local lobbyist, were influencing Shiver, who was at the time an Overtown CRA employee, and then-executive director Clarence Woods to slow down the negotiations with Overtown Gateway Partners. The lawsuit alleges Hardemon did not want the agreements with Peebles and Channer to move forward, preferring to give the development rights to Swerdlow and Duffie, a former Miami-Dade County housing official who was “good friends and professional collaborators with Billy Hardemon.”
In an emailed statement to The Real Deal, Hardemon denied the allegations. “It seems that this developer failed to produce, and wishes to place the blame elsewhere,” Hardemon said. “I had no role whatsoever in the demise of their development plan.”
The lawsuit alleges that in 2015 Overtown Gateway Partners began negotiating with Swerdlow to sell him the development rights to Block 55 for a retail project. At the time, according to the lawsuit, Shiver allegedly met with Channer at Harry’s Pizzeria in Miami’s Design District to deliver a message: “Shiver made it clear to Channer that OGP would have issues coming to agreements with the CRA for both Blocks 45 and 55 based on Keon Hardemon’s dislike for Peebles and the preference to work with Swerdlow and Duffie,” the lawsuits states.
Shiver allegedly encouraged Channer to cut a deal with Swerdlow. Subsequently, Overtown Gateway Partners entered into a purchase and sale agreement to flip Block 55 to Swerdlow for $15 million plus out-of-pocket predevelopment costs. However, the Swerdlow deal fell apart in June 2016 and three months later Overtown Gateway Partners and the Overtown CRA parted ways. The lawsuit alleges that Hardemon instructed Woods and Shiver to end negotiations with Overtown Gateway Partners.
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In just three months, the coronavirus ravaging the globe has infected at least 750,000 people and killed nearly 37,000. And those are just the confirmed numbers.
The pandemic has also stopped the longest-running bull market in history, put the world’s biggest economies into intensive care and become a mortal threat to storied companies. In less than a month, the Dow Jones Industrial Average sank 35 percent before Congress passed a $2 trillion stimulus package, the largest ever.
The full impact of the outbreak is impossible to calculate. But the devastating effects are already clear — especially in the United States and in New York City, which alone generates $1.7 trillion of economic activity — 8 percent of America’s total.
By March 31, the U.S. had 163,539 cases, more than any other nation. Nearly half were in New York state, and most of those were in the city, which had more than 40,900 confirmed cases.
“It’s amazing and scary when you see the lines of people trying to get into emergency rooms just to be tested,” RXR Realty CEO Scott Rechler said during an interview on TRD Talks Live, a series of webinars prompted by the coronavirus panic.
“Now is not the time to try to make this perfect,” Rechler said as a debate raged over the details of Washington’s intervention. “We need to get liquidity in the system and make sure that people don’t lose jobs.”
What started as a marginal concern for New York’s real estate industry in February now poses an existential threat to commercial landlords, office and retail tenants, hoteliers, a growing number of real estate lenders and a brokerage industry built on face-to-face dealings.
Nearly everyone across the city is holed up in their homes, and all entertainment venues and “nonessential” stores are shuttered. The real estate industry is scrambling to adapt as landlords, developers, investors and others wait to see if the stimulus package can save them from a massing tidal wave of red ink.
Donna Olshan, who has been running her own Manhattan-based residential brokerage since 1980, echoed the assessment of many as she described the sense of a world-changing cataclysm.
“I have been in business for 40 years,” she said, “and this looks like a cross between 9/11 and 2008.”
As the virus engulfed the globe, the world’s markets went into a free fall, even dragging down most real estate investment trusts, which are typically safe havens during volatility because their revenue streams are based on long-term leases.
Initially, the hardest hit were publicly traded companies that have exposure to Asian hotels. But the contagion soon spread to other real estate stalwarts such as the country’s largest mall REIT, Simon Property Group, and even diversified giant Brookfield Property Partners, which saw its share price fall from $17 in early March to $8 by month’s end.
Repeated interventions by the Federal Reserve have failed to slow real estate’s meltdown. The central bank slashed interest rates to nearly zero, but its purchases of commercial mortgage-backed securities and investment-grade bonds were too narrow to include most real estate firms that needed help. Several insiders say the worst is yet to come.
Trading in securitized commercial mortgages ground to a halt as investors balked at pricing the risk. “The CMBS market is shut down,” one mortgage broker told The Real Deal in mid-March.
Just days before TRD’s April issue went to print, Congress passed its $2 trillion stimulus, which includes direct payments to most Americans and even a $170 billion windfall for real estate investors in the form of increased depreciation write-downs.
But while the unprecedented rescue package — officially called the Coronavirus Aid, Relief and Economic Security (or CARES) Act — earmarks aid for several troubled sectors, such as airlines and retailers, it largely passes over the real estate industry’s backbone.
“There’s nothing really in the CARES Act that provides for landlords,” said Alan Hammer, an attorney at New Jersey-based Brach Eichler.
The coronavirus pandemic and economic fallout have shaken every facet of real estate.
The first sector to take ill was the hospitality industry, which was already weakened by oversupply and debt. With occupancy rates plunging, industry leaders on March 17 appealed to America’s hotelier president for a $150 billion taxpayer bailout.
Even before states imposed lockdowns, major retailers including Macy’s, Apple, Nike and Nordstrom announced plans to close stores for about two weeks. But New York state’s closure of “nonessential” businesses could be extended indefinitely.
Shuttered to customers, some retailers warned their landlords they may not pay rent on April 1. And the day after hotel firms begged for a federal backstop, the International Council of Shopping Centers also asked for government support.
Office towers likewise began emptying as companies told employees to work from home. Then, Gov. Andrew Cuomo’s order for all nonessential workers to stay home completed the evacuation. Between March 9 and March 23, when the order took effect, physical occupancy rates for commercial office space went from 90 percent to 2.7 percent, according to the Real Estate Board of New York (see related story on page 30).
Because many workers in the city can’t telecommute, the order triggered mass unemployment and a looming rent crisis. On March 15, the state barred evictions — both residential and commercial — indefinitely.
And while the relationship between tenants and landlords is coming unmoored, the work of brokers is already swept out to sea. Open houses are history, and even individual showings ended after the governor told real estate agents to stop. With the brokerage business in an induced coma, REBNY and StreetEasy agreed to remove the number of days on the market from listings.
The pandemic is also incapacitating construction, though Cuomo initially granted the industry a blanket exemption to his stay-home order. But then LaGuardia’s $8 billion renovation and Moynihan Train Hall’s $1.6 billion redevelopment both stopped when workers tested positive for coronavirus, and on March 27, Cuomo halted most kinds of projects.
The coronavirus had already blocked others from even gaining approval after the city put the Uniform Land Use Review Procedure on indefinite hold, stranding 119 active ULURP applications, 45 of which had already started the seven-month clock, a TRD analysis found.
Moreover, projects permitted to go forward may not be able to, as the pandemic has disrupted global supply chains for building materials such as finishings from China and stone from Italy. Clay Edwards, executive vice president and partner at Chicago-based construction firm Skender, said he expects more problems as the crisis drags on.
“I don’t think we’ve seen the worst of it by any means,” he said.
Lockdown, hand up
Growing fears and Cuomo’s lockdown have already cost people in an estimated one-third of New York City households their jobs, while restaurants across the city have lost at least $2 billion in sales, according to recent surveys.
That comes on top of huge business losses nationwide, with the Fed now projecting that the coronavirus could drive unemployment as high as 32 percent.
The federal stimulus offers most Americans a $1,200 check, but that’s little help to retailers — or their landlords, investors and lenders — when people can’t or won’t go shopping. Nor would it come close to covering the $2,152 median rent for a one-bedroom apartment in the city.
For its part, New York City will provide interest-free loans of up to $75,000 to businesses with fewer than 100 employees if they can demonstrate that sales fell by 25 percent or more.
State Sen. Michael Gianaris has a bolder idea that would shift the burden to lenders rather than the city. His bill would suspend rents for 90 days for small-business and residential tenants hurt by the coronavirus — and forgive mortgage payments for landlords facing hardship as a result.
The logic is to shift the burden from individuals and small businesses to firms with the clout to pass the buck to Uncle Sam, said Gianaris, predicting the banks are the “best-positioned to seek federal relief.”
But if loan forbearance is widely adopted and payments are pushed back six months or more, mortgage lenders could be on the hook for up to $100 billion, according to the Mortgage Bankers Association. Mortgage servicers are required to continue paying interest even when the borrower is in arrears.
“It’s going to be a liquidity tsunami,” Jay Bray, CEO of mortgage lender Mr. Cooper, told the Wall Street Journal.
It’s impossible to foresee how long the pandemic, the lockdowns or the resulting economic turmoil will last. But even after business resumes, the impacts of the crisis will endure.
Retailers and their landlords fear their quarantined customers will get so used to buying everything online that they won’t return even when it’s safe. And hoteliers worry that a surge in telecommuting and virtual meetings will curb business travel and conferences.
But for all the comparisons of this crisis to 9/11 and the Great Recession, if those catastrophes proved anything, it’s that New York real estate is resilient.
Firms that quickly drew down credit lines in anticipation of a credit crunch like that of 2008 have war chests of capital that could be deployed to acquire floundering rivals. Virtual brokerages and proptech firms born to do business at arm’s length may take advantage of the unprecedented disruption. And there are always funds hoarding dry powder, ready to swoop in on assets in distress.
It’s a moment for survival of the fittest — or at least the most liquid, according to attorney Evan Hudson of Stroock & Stroock & Lavan. “This is a shakeout,” he said, “and the winners are going to be the REITs and the private buyers that already have liquidity.”
But veteran developer Steve Witkoff cautioned that this crisis is unlike anything the modern business world has faced.
“This is the first time ever that we’ve had, at the same time, a chain of a supply shock to the system and a demand shock to the system,” he said in a TRD Talks Live webinar.
“The medicine right now is that we’ve got to shut down demand,” Witkoff added, referring to closed stores, canceled events and self-isolation to quell the outbreak. “That means that the cure may be worse than the actual disease.”
—Reporting by Rich Bockmann, Mary Diduch, Kathryn Brenzel, Erin Hudson, Eddie Small, Georgia Kromrei, Sylvia Varnham O’Regan and Kevin Sun
A garbage magnate scooped up his second home in Palm Beach for $10 million.
A company tied to Anthony Lomangino and his wife, Lynda, bought a 6,067-square-foot house at 1742 South Ocean Boulevard for $1,648 per square foot, records show. Gunther E. Lehmann, of Irving, Texas, sold the home.
Built in 1987, the house has five bedrooms and seven bathrooms with five large terraces on the second floor, a three car garage, and a pool. It was listed for $12 million in September.
The property last traded for $3.9 million in 2004, according to records.
Anthony Lomangino ran garbage collection businesses in New York and South Florida. He founded the South Florida waste hauling company Southern Waste Systems, which was acquired by Waste Management in 2015. In 2018, Lomangino reportedly gave $150,000 to help fund the legal fees of Trump associates who had been engulfed in the Russia investigation, according to Politico and the Wall Street Journal.
The ultra-luxury home market in Palm Beach has been especially strong over the past year, with two deals closing in 2019 for more than $100 million, each.
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