Below is the summary notes that Mr. Kambiz Merabi participated as one of the panelist from an industry conference call this past Friday that included a panel of various large commercial property owners throughout the U.S. with over 2,000+ CRE listeners that dialed in.
Impacts on real property purchase and sale transactions?
- Since debt markets have largely been frozen, most buyers with current deals in escrow are trying to negotiate either an extension or a purchase price reduction (approximately 5% to 15%), or both.
- In some cases where buyers have already gone hard and waived contingencies, some sellers are fully intending to keep the buyer’s 3% deposit if buyer decides to walk.
- For deals in the LOI phase, almost all buyers have pulled back and are waiting to see how things play out over the next month or so to determine where valuations end up.
- Those investors who can close all cash are unlikely to part with their cash right now, unless they are especially committed to a particular deal.
How are you handling rent relief for your tenants?
- Expectation is that the vast majority of tenants will not be paying April rent next week, which will have enormous impacts throughout the industry.
- It is not just “mom and pop” tenants that have indicated they won’t be paying rent, but even many national retail chains (e.g., Cheesecake Factory, Subway, Mattress Firm, etc.) have all sent notices to their landlords saying not to expect rent for the next 90 days beginning with April. In some few cases (e.g., AMC Theater), some tenants have taken the aggressive position of trying to terminate their lease altogether.
- Most landlords are agreeing to immediate rent relief for their tenants (e.g., 50% rent abatement for 90 days with no obligation to pay back, 100% rent forbearance for 90 days with obligation to pay back with no interest, or full rent abatement for 30 days on a rolling basis but with obligation to still pay CAM charges), however a few landlords are not providing any relief and instead referring their tenants to various government relief programs that are being putting in place.
- It will be interesting to see which tenants come back and are able to operate once everything opens up again. Businesses that rely on “social gathering” (e.g., gyms, bars, etc.) will have a difficult time, at least in the short term.
Are you paying your April debt service to your lender?
- Best opportunities are coming and MUST preserve the lender relationships. If you are defaulting on your debt service without an agreement for relief, then you will ruin your chance to bounce back after this ends. “Be first in line to borrow”.
- If there is not sufficient revenue, then owners are speaking with their lenders for relief. Bright spot is that everyone is in the same position so lenders are happy to work together so long as the borrower is part of the solution and not exacerbating the problem.
- Conduit lenders are based on case-by-case basis.
- Always depends on the nature of the asset.
- CMBS Loans: Interest only on the loan for the next 90 days. Special servicer cut the deal. Broker was able to connect with the special servicer. 90 day deferral seems to be the norm, but they are paying April debt service as good faith to the lenders.
- APRIL DEBT SERVICE: Critical to pay before talking about a modification. For a lot of lenders, it becomes much more difficult to work out a deal because the non-payment can cause a reclassification of the loan from a regulatory standpoint. Then figure out how to go from there. Special Servicers seem to be very responsible (and they will ask for fees very fast (modification fee, special servicer fee, etc.). Be careful. They have been amazed how quickly they are getting to things.
- Great opportunity for preferred equity to restructure deals (discussion limited to non-hospitality assets).
Overall future outlook?
- Hotel, Restaurant and Entertainment will bounce back quick straight line as people will be over incentive to get out of the house after being cooped up for so long.
- Residential will bounce back with the respective concessions being granted by government.
- Retail will take a long time and even then, you must pick the right type of retail asset.
- Very bright future on the horizon that could lead to a lot of purchase opportunities.
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