Worst of the worst: The real estate disasters of 2020

Empty offices, shut down retail stores, closing restaurants and literal fires are among the biggest real estate disasters of 2020. (Getty)

Empty offices, shut down retail stores, closing restaurants and literal fires are among the biggest real estate disasters of 2020. (Getty)

Vacant offices. Shuttered restaurants. Empty hotels.

The pressure on real estate was relentless this year as the pandemic took down struggling sectors — and some healthy ones, too. Except for a few blessed sectors, such as industrial space (hello, Amazon!), fiascos were unavoidable.

To explain the catastrophe that was 2020, we picked 10 of the biggest real estate disasters to highlight.

Where is everybody?

Say this for the Partnership for New York City: It is no cheerleader.

The business group released surveys laying out in stark detail how empty city office buildings are. Attendance has risen — from horrendous to merely abysmal. First 8 percent, then 10 percent, then 13. President Donald Trump called Gotham a “ghost town” and his lie trackers didn’t argue.

But every office market struggled as the virus surged and work-from-home proved productive and popular. Dallas barely has 4 in 10 office workers showing up, but guess what? It’s the No. 1 market in the U.S.

“We need to get through a very difficult point now,” said Anthony Malkin, chairman and CEO of New York office REIT Empire State Realty. “We probably won’t see the bottom until the first quarter of 2022.”

Restaurants’ perfect storm

The restaurant business began 2020 stronger than ever. Then came a perfect storm: a deadly virus that spreads like wildfire when people gather indoors without masks. A month later New York limited service to takeout and delivery, triggering mass layoffs.

Reopening has been marked by caution and reversals, and as of October, 88 percent of NYC eateries still could not pay full rent. A month later, 54 percent statewide said they would likely not survive another six months without federal relief.

The experience has been similar elsewhere, including L.A., where even outdoor dining was banned to tamp down a second wave.

A Penney for your retail chain

For brick-and-mortar stores, the pandemic piled on to a retail apocalypse triggered by the e-commerce boom. Shutdowns and infection fears accelerated online shopping’s gains, and 25,000 stores were expected to close as a result of Covid.

Retail giants were among them: J.C. Penney filed for Chapter 11 in mid-May and has since closed 150 locations. (Simon Property Group and Brookfield Property Partners are now trying to salvage it.)

Other retail bankruptcies included Neiman Marcus, Ascena Retail Group and GNC, while many other stores, including Macy’s and Gap, pulled out of malls and pared down their store counts. Home improvement stores such as Home Depot and Lowe’s did thrive in 2020, but for the foreseeable future, it’s Amazon’s world.

Fire in the whole

Covid vaccines will solve many of real estate’s problems in the next year or two, but not the wildfires that have increasingly plagued the West Coast in recent years. And this fire season was the worst one yet in California.

Unfortunately, it is not clear what will keep the seemingly annual blazes at bay. Global temperatures will continue to increase, fostering conditions that put huge swaths of California, Oregon and Washington at risk. Some homeowners are seeing annual fire insurance premiums rise to tens of thousands of dollars, if they can get a policy at all.

One strategy would be to return large, fire-prone areas to nature, concentrate development in urban areas and relocate millions of people, something the real estate industry, especially in California, has never been inclined to do, let alone done.

Heading For Zero

When shaky sectors began to crumble under the pandemic’s weight, that meant trouble for New York’s oversaturated luxury condo market and the developers who created it. If one firm has emerged as the poster child for big bets and bad timing, it would be HFZ Capital Group.

HFZ has faced a reckoning across its multibillion-dollar Manhattan portfolio, with $300 million in collections piling up from its investors, lenders, contractors and other vendors. Sales have dragged and construction has stalled at the XI, its flagship project along the High Line. Making matters worse, the firm’s principals are personally liable for some loans.

While HFZ may be the first big Manhattan developer at risk of losing it all in the pandemic, it is far from alone when it comes to financial woes. Slow sales and a tight market for financing have pushed a number of major projects to the brink of distress and in some cases into foreclosure auctions.

And the supply problem shows no signs of dissipating. Unsold new-development units in Manhattan will take 8.7 years to sell, according to appraiser Jonathan Miller of Miller Samuel.

Anbang, you’re dead

Hotels are hurting like never before, so picking the hospitality sector’s worst fiasco of 2020 is like shooting fish in a barrel. But some fish are bigger than others. In one of the largest real estate deals undone by the pandemic, plans by Chinese insurer Anbang to sell a $5.8 billion luxury hotel portfolio collapsed as the coronavirus crushed the hospitality sector.

The prospective buyer, South Korea’s Mirae Asset Global Investments, pointed to non-pandemic factors as justification for backing out, including a bizarre deed fraud scheme involving a trademark troll, obscure Delaware arbitration laws and possibly high-ranking members of the Chinese Communist Party.

Not that it mattered in the end: In allowing Mirae to terminate the deal, a judge noted that contract terms required Anbang to operate the hotels in the “ordinary course of business” — which the pandemic had rendered impossible.

Pain All Year

Early this year, Yoel Goldman’s All Year Management was lining up a pair of big deals to alleviate the Brooklyn developer’s cash flow problems: a $675 million refinancing for its Denizen Bushwick luxury rental complex, and a $300 million-plus multifamily portfolio sale. Then the pandemic struck.

The portfolio deal seemed to fall through in May, then was renegotiated in July, but the buyers — led by investor David Werner — missed a deposit in September. Meanwhile, the refinancing deal earned provisional ratings from a ratings agency, but that loan didn’t close either. Things came to a head in November when All Year skipped a payment on its Tel Aviv-listed bonds and postponed its financial reporting, sending its bond prices plunging.

The firm is now in default on numerous loans, and the mezzanine lender on its prized Denizen Bushwick property has scheduled a UCC foreclosure sale for February. And on the final day of the year, it was reported that All Year defaulted on a $66 million loan for a property in Gowanus and, having failed to file third-quarter reports and make bond payments, would be delisted from the Tel Aviv Stock Exchange.

Take these jobs and…

The death of the Industry City rezoning reaffirmed local City Council members’ power and willingness to kill major development projects, and reopened real estate’s wounds from losing Amazon’s HQ2.

More than five years after unveiling its plans for a $1 billion commercial hub, the Industry City development team withdrew an application that would have allowed more retail, academic and commercial space, and instead will pursue permitted uses, such as a last-mile distribution center.

Local Council member Carlos Menchaca and other elected officials in Brooklyn opposed the project, arguing that its thousands of new jobs would accelerate gentrification and displacement in Sunset Park. Arguments that the city desperately needs jobs and tax revenue did not move Menchaca, who — far from being chastened — announced his candidacy for mayor.

Eviction benediction

When shutdowns crippled the economy, landlords braced for an eviction moratorium of perhaps three months. Instead, evictions have been on hold for more than nine.

After being peeled back slightly over the summer, this week the ban was broadened and extended until March 1, with an additional two months for tenants who declare hardship. Landlords say lawmakers are encouraging nonpayment of rent, which could cost them their buildings.

Tenants and their lobbyists will try to carry their political momentum into fights next year for taxes on second homes, universal rent control and canceling rent altogether.

High price of admission

It’s been a difficult year for many in real estate, but especially for Bob Zangrillo. An initial partner in the multibillion Magic City Innovation project in Miami, Zangrillo was charged in the college admissions scandal dubbed Varsity Blues. Zangrillo is also battling allegations by the Federal Trade Commission that a company he chaired was running scam websites that mimicked government sites. Zangrillo is fighting all of the charges, but other developers have already distanced themselves from him. In February, Avra Jain said Zangrillo is out at her Miami River project.

Apartment List’s latest capital raises brings valuation to $600M

Apartment List co-founder John Kobs (Photo via John Kobs; iStock)

Apartment List co-founder John Kobs (Photo via John Kobs; iStock)

Rental platform Apartment List has raised $50 million in a funding round, doubling its prior valuation to $600 million.

Janus Henderson Investors led the latest round, and the new capital injection signals investors’ growing interest in rental platforms to compete with Craigslist and StreetEasy, Bloomberg News reported. Unlike its competitors, however, Apartment List only earns a fee when a property is rented.

The San Francisco-based startup has 5.5 million units listed and more than 30 million users. It plans to use the new funding to increase its sales initiatives and bring in renters to its platform. More than 175,000 renters used Apartment List to find new homes this year, the company claims. Many of these new homes were in growing cities like Houston, Dallas and Austin, as well as Denver, Phoenix, Minneapolis and Charlotte.

When it comes to sales, the residential listing space is largely dominated by Zillow, Redfin and Realtor.com. The rental listing space is more fragmented, but that could soon change. Zillow and Zumper are big players, and CoStar recently made a big bet on the sector through its $250 million purchase of HomeSnap.

Apartment List said a public listing is possible in the next two years and the company would consider a conventional initial public offering or a merger with a special purpose acquisition company, also known as a SPAC.

Its other backers include Allen & Co., Canaan Partners, Tenaya Capital and Quantum Partners LP, a fund managed by Soros Fund Management LLC.

[Bloomberg News] — Keith Larsen 

San Francisco rents continued unprecedented slide

San Francisco and New York (iStock)

San Francisco and New York (iStock)

Rents are free-falling in the country’s most expensive market.

The median monthly rate for a studio in San Francisco in September was $2,285 per month, Bloomberg reported, citing data from Realtor.com. That’s 31 percent lower than it was a year prior. In comparison, rents fell about 0.5 percent nationally.

Median rents for one-bedroom units were down about a quarter year-over-year, while two-bedrooms dropped in price by 21 percent, according to Realtor.com.

Santa Clara and San Mateo, both in the Bay Area, also saw big drops in their median studio rents — 19 and 18 percent, respectively.

San Francisco’s rent drops are among the largest in the country since the coronavirus pandemic began. Its vacancy rate has risen, too; it was at 6.2 percent as of May.

Even though that trend hasn’t borne out nationally, it has in the country’s other ultra-expensive rental market: In Manhattan, studio rents have fallen by 15 percent to $2,495 per month, and the vacancy rate recently hit a historic high of 5 percent.

The precipitous drop in rents in some markets can be directly attributed to the pandemic, which has led more employees to work remotely. “Renters are likely heading to more affordable areas where they can get more space at a cheaper price,” said Realtor.com chief economist Danielle Hale.

Some companies have taken notice. San Francisco-based Stripe is among the firms that want to cut salaries of employees who move out of cities like San Francisco, Seattle and New York, and offer a one-time bonus instead. Facebook and Twitter are reportedly considering similar moves.
[Bloomberg News] — Dennis Lynch

How many Americans actually moved during the pandemic?

Change of address data from the United States Postal Service reveals that 15.9 million people moved between February and July this year. (iStock)

Change of address data from the United States Postal Service reveals that 15.9 million people moved between February and July this year. (iStock)

How many people actually moved because of the pandemic? Though it’s hard to know movers’ exact motivations, new data reveals migration patterns during the height of Covid-19 lockdowns in most states.

Change of address data from the United States Postal Service reveals that 15.9 million people moved between February and July this year, according to MyMove, a platform that provides information for people who are relocating. MyMove analyzed data from both USPS and a Pew Research Center survey of 10,000 U.S. adults that was conducted in July.

Whether the newly relocated will stay in their new homes is less clear: The number of people who permanently moved was up by just 4 percent from the same period in 2019, while temporary moves rose by a more substantial 27 percent. Those temporary moves spiked in March and April, suggesting that people decided to be with family or relocated to a second home during the lockdowns.

“About a quarter (28%) told us [they chose to move] because they feared getting Covid-19 if they stayed where they were living,” said D’Vera Cohn, who authored the Pew survey. “About a fifth (20%) said they wanted to be with their family, or their college campus closed (23%). A total of 18% gave financial reasons, including job loss.”

The USPS data also showed that many people who moved left densely populated urban areas in favor of less-densely populated areas.

Manhattan saw the biggest increase in moves, with 110,978 people departing — a 500 percent increase compared to the same period in 2019. Brooklyn followed, losing 43,006 people during the same time period. Residents of Chicago, San Francisco, Los Angeles, Naples, Florida, Washington, D.C. and Houston also saw large drops in population during that period.

While it remains to be seen if the urban-to-suburban exodus will be a long-term thing, USPS data shows that many city dwellers did relocate to smaller, less urban areas. Two suburbs of Houston — Katy and Richmond — gained 4,400 and 3,000 new residents, respectively.

East Hampton, New York, also saw an influx of nearly 2,500 residents. In March, as government-mandated lockdowns set in, real estate brokers in the Hamptons said that a run on pricey rentals led to bidding wars for some properties.

The exodus from Manhattan led to a historic vacancy rate of 5 percent in September after setting a new record for each of the four preceding months.

If the vacancy rate stays that high, it could potentially lead to the repeal of the city’s rent regulations, which depends on a vacancy rate below 5 percent. That threshold, however, is set by legislators, and a new Housing & Vacancy Survey is not scheduled to be conducted until 2022.

Black and Hispanic landlords offer rent relief at higher rates than white counterparts: study

(iStock)

(iStock)

Black and Hispanic landlords are struggling to pay their mortgages more than their white counterparts, yet have been offering more rent relief to tenants.

That’s according to a recent survey of 2,225 landlords from the Urban Institute, a Washington-based think tank, and Avail, a rental management platform.

According to the survey, Black and Hispanic landlords typically make less money annually than white landlords, own fewer properties and have mortgage debt at higher rates.

Despite those financial challenges, Black and Hispanic landlords offer rent relief to tenants at higher rates than white landlords, the survey found. Forty-two percent of Black landlords and 48 percent of Hispanic landlords worked with renters on altered payment schedules and deferrals; 36 percent of their white counterparts did the same.

The survey found that Black and Hispanic landlords are more likely to own smaller, two-to-four-unit buildings, where tenants are often less affluent and have jobs at higher risk of layoffs because of the pandemic.

The survey found that 28 percent of white landlords make less than $75,000 annually; for Black and Hispanic landlords, that figure was 38 and 35 percent, respectively.

When it comes to property volume, 32 percent of white landlords own just one property compared to 40 percent of Black landlords and 47 percent of Hispanic landlords.

More white landlords also own their properties free of mortgages. Seventy percent of white landlords have mortgages, while 79 and 77 percent, respectively, of Black and Hispanic landlords have the same.

Black and Hispanic landlords are also more likely to take advantage of mortgage forbearance options than white landlords, according to the survey. About 20 percent of Black landlords and 14 percent of Hispanic landlords have at least one mortgage in forbearance, compared to 9 percent of white landlords. Two-thirds of white landlords opted not to enter into forbearance plans with their special servicers because they could stay current on their payments without forbearance; fewer than half of Black and Hispanic respondents said the same.

The coronavirus pandemic has dealt a massive blow to multifamily landlords and mortgage lenders. Unpaid rent cost landlords about $9.1 billion in revenue in the second quarter, while missed mortgage payments totaled an estimated $16.3 billion, according to a report from the Mortgage Bankers Association.

Even though multifamily rent collections as of Aug. 13 were only down 2 percent annually, some leaders in the multifamily industry have expressed fears that rent collections will decline further as relief through the CARES Act dried up.

The Urban Institute recommended extending an eviction moratorium for tenants, which the federal government extended through the end of the year for those who qualify. It also called on the federal government to provide assistance for struggling landlords, particularly those who owns fewer than 10 rental units, who “may not be able to continue making their mortgage payments and keep their tenants housed.”

Radco sells multifamily portfolio for $316M

Radco CEO Norman Radow (iStock)

Radco CEO Norman Radow (iStock)

Atlanta-based Radco Companies has been unloading its multifamily portfolio, piling up cash for what it hopes will be a discount shopping spree.

This week alone the company sold six buildings in the Atlanta suburbs and one in Charlotte for a total of $315.6 million, CEO Norman Radrow told Bloomberg News.

Radco has sold 28 of the 59 apartment properties it has purchased since 2011, and it’s not done. The firm is marketing 18 rental communities and some of the deals are expected to close in the next couple of months, Radow said.

“We want to have the cash and capital available and be ready to take advantage of a new and interesting cycle that will be coming next year,” Radow said.

The pace of multifamily building sales has plummeted since the onset of the coronavirus in March. Landlords have expressed concerns about rent collection but have not been selling at a discount. Radrow believes that will change next year, and he wants to be ready to buy.

Valuing buildings became tricky when tenants’ ability to pay rent was thrown into doubt. Adding to the uncertainty, the Centers for Disease Control and Prevention on Tuesday unveiled an eviction moratorium that will run through the end of the year. The measure aims to keep renters in their homes but leaves landlords without options when tenants stop paying rent.

[Bloomberg News] — Akiko Matsuda

These 25,000 retail dinosaurs will meet the meteor this year

A new report says the virus will harm shopping malls especially (iStock)

A new report says the virus will harm shopping malls especially (iStock)

As many as 25,000 retail stores may close this year due to the coronavirus pandemic, with a majority closing in shopping malls, further hastening the industry’s decline.

That number would dwarf the prior record of 9,800 retail closures set in 2019, according to a new report from the retail data firm Coresight Research.

First issued in March, the report estimated that 15,000 stores could close in 2020, but as the reach of the coronavirus grew across the country, governments required many stores to close temporarily and shoppers were discouraged from venturing out.

For some businesses, those temporary closures may hasten the transition to digital commerce, or they may become permanent.

Coresight’s CEO Deborah Weinswig said in the report that the closure of department stores and large clothing retailers — so-called anchor stores — represents a particular threat to malls.

Already, 15 national retailers including Bed Bath & Beyond, H&M, Century City, AMC Theaters, Regal Cinemas, Party City and The Gap, have elected not to pay May’s rent. The company Macerich, which owns 47 shopping malls across the U.S., said it “collected about 26 percent of rent” owed by tenants in April, and sported a similar number as of mid-May.

Simon Property Group, the nation’s largest mall owner, sued The Gap last week for $66 million in unpaid rent across its properties. The mall giant this week also exited a $3.6 billion deal to acquire up-market mall operator Taubman, known in the industry for its quality anchor tenants.

Neiman Marcus, J.C. Penny, J.Crew, and Victoria’s Secret have gone beyond closing stores and filed for bankruptcy. The Mall of America has fallen behind on its $1.4 billion mortgage, exposing the wider bond market to systemic risk.

If damage done to the retail sector by coronavirus has been deep, any return to health will be slow and grinding. Anonymized cell phone data shows that foot traffic in malls that have reopened are just a quarter of what they were in January 2020, suggesting that the Coresight report correctly predicts many more closures ahead. [Bloomberg] – Orion Jones

Bernie Sanders throws support behind New York rent-suspension bill

Bernie Sanders (Credit: Getty Images)

Presidential candidate Bernie Sanders has thrown his weight behind Sen. Michael Gianaris’ rent-suspension bill.

“Along with pausing mortgage payments, evictions, and utility shutoffs, we must place a moratorium on rent payments, especially in states hardest-hit by the coronavirus like New York,” Sanders tweeted on Saturday morning. “We must build on the important work [Gianaris] and others are doing to make this happen.”

Gianaris’ bill is quickly gaining momentum. Along with the national attention, Senate Bill 8125 has 21 co-sponsors in the state senate, just one week after having been formally introduced.

According to the legislation, rent and mortgage payments would be forgiven rather than postponed. An executive order issued by New York Gov. Andrew Cuomo last week urged banks to defer mortgage payments for 90 days for homeowners suffering because of the health crisis, but offered no such equivalent for apartment owners and renters.

A relief package for landlords with mortgages backed by Fannie Mae or Freddie Mac came earlier this month. Most renters will receive some financial assistance from the government in the form of a one-time payment of $1,200, in a $2 trillion federal stimulus package which passed on Friday. But there is little else in the package for multifamily real estate owners or renters.

Along with waiving rents for 90 days, the Queens Democrat’s bill would allow landlords in financial distress to apply for forgiveness of their mortgage payments in an amount equal to that of unpaid rent stemming from coronavirus-caused hardship.

For renters, late fees would not apply during the 90-day period, and any lease that expires during that time would be automatically renewed, with the monthly rent unchanged.

Critics of the legislation question how such a waiver would be enforced, and are instead pushing for relief for landlords in the form of a tax abatement, which could be passed on to tenants in the form of a rent reduction.

Why New Yorkers, Californians and others pay so much rent

US rent payments in the 2010s totaled $4.5T

The U.S. homeownership rate peaked in 2005 at 69.1% and has been falling since

Residential rents in the U.S. increased in 2019 as did the number of tenants, pushing America’s total rent bill to $512 billion, according to a new research report from Zillow. That’s about 10% above the decade’s average.

With most U.S. renters making their final payments of the decade at the start of this month, Zillow used census data and its own to look back at rent payments for the period.

“A bump in the overall number of U.S. renters in 2019 (to 43.6 million), after a slight decline in the previous year, and rent growth itself that has picked up slightly throughout the year both contributed to a higher overall rent bill this year than last,” the report notes.

The U.S. homeownership rate peaked in 2005 at 69.1% and has been falling since, USA Today reported this summer. It’s now 64.2%. According to Governing.com, the rate declined in 99 of the 100 largest metro areas between 2006 and 2013 — a period that included the housing crash and the Great Recession of 2007 to 2009.

Unsurprisingly, the country’s two largest metropolitan areas are the two largest sources of rent payments. New York City renters paying a total of $56.6 billion in 2019, followed by Los Angeles with $39.2 billion — more than twice the total of any other metro in the country.

But low homeownership rates have a lot to do with that. Only about half of New York and Los Angeles metro-area residents own their homes — which is the case in only four the 75 largest metro areas. The other two are in northern California: Fresno and San Jose. Silicon Valley salaries and tight development policies make homeownership extremely costly there.

In part for the same reasons, San Francisco, the 11th-largest metro area, is No. 3 in total rent payments. After spending the first half of the decade neck and neck with Chicago and Washington D.C., San Francisco ($16.4 billion) has since opened up a $1 billion gap between itself and fourth-place Chicago ($15.2 billion). Restrictions on building combined with a tech boom have pushed up rents in San Francisco.

Another factor is that San Francisco and New York City both have rent control, which deters tenants who pay below-market rents from becoming homeowners.

Nearby San Jose, as well as San Diego and Austin, also contribute a disproportionately large share to the nation’s collective rent bill, while Pittsburgh and St. Louis stand out for small total rent payments relative to population — in part because of high home-ownership rates. Nearly 70% of those two metro areas’ residents live in owner-occupied homes.

Meanwhile, Miami appears to have a total rent load in line with its population: It is the country’s seventh-largest metropolitan area and No. 7 in rent payments with $12.3 billion in 2019.

Zillow’s report also notes three markets that have seen the greatest rent growth in the past year: Phoenix (up 7.5 percent), Las Vegas (5.6 percent) and Charlotte (5.5 percent).

The states with the biggest share of vacation rentals aren’t where you’d think

The states with the biggest share of vacation rentals aren’t where you’d think

The Northeastern U.S. has a higher percentage of vacation rentals than the South

July 20, 2019 01:00PM
Portland, Maine (Credit: iStock)

Portland, Maine (Credit: iStock)

Year-round sunshine didn’t help Florida make it to the top of this vacation rental ranking.

The states with the highest percentage of vacation homes are clustered in the Northeast, Bloomberg reported, citing a new study from investment property exchange firm IPX1031.

Maine topped the ranking, with 19.3 percent of its homes being used as vacation rentals. Vermont came in second, at 17.4 percent, followed by New Hampshire, at 11.8 percent, and Alaska clocked in at No. 4 with 10.5 percent. Florida came in sixth place, at 9.7 percent.

Few of them are in the Midwest. The study found that states with the five smallest percentages of vacation homes are Indiana (1.7 percent), Iowa (1.6 percent), Kansas (1.4 percent), Ohio (1.1 percent) and Illinois (1 percent).

The report used data from the Census Bureau, which defines vacation homes as residences “vacant for seasonal, recreational or occasional use.” The United States has 5.7 million vacation homes. [Bloomberg] – Mike Seemuth