5 Must-Reads for the CRE Industry [August 2020]

Posted by Alex Dimitroff on Sep 1, 2020 6:33:55 PM
Alex Dimitroff

1.  US No Longer the Global Leader for CRE Investment

“In normal periods the U.S. is the largest, most liquid region for commercial real estate deal activity worldwide. In the second quarter, however, Europe surpassed the U.S. as a hub for investment. Trends into July are not looking favorable for the U.S.” (Real Capital Analytics, 8/31)

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What you need to know:

  • The last time that commercial real estate transaction volume regularly surpassed the United States was during the Global Financial Crisis.
  • In Q2 2020, U.S. CRE investment volume for deals priced $10 million and greater fell behind Europe by $19 billion. In the previous nine fiscal quarters, U.S. investment volume for each quarter outpaced Europe, on average, by approx. $32 billion.

Read the full article here.

2.  Commercial real estate deals show July improvement, but recovery seen more than a year away

“Commercial real estate fundamentals improved in July, but the pandemic continues to affect development projects and is likely to remain a significant challenge for more than a year, according to a COVID-19 impact report released Tuesday by the NAIOP Commercial Real Estate Development Association.” (Star Tribune, 8/4)

What you need to know:

  • A survey of 347 development firms and brokers found positive growth of industrial, office, and multifamily acquisitions in July. Around 93% of respondents reported an overall increase in acquisitions for July, which compares to just 71% in June. 
  • Despite the impressive developments reported by the respondents, some property types are still experiencing difficulty in the COVID-19 era. Approximately 80% of respondents reported no new activity in the retail sector and 52% of those surveyed reported no new office deals in the previous three weeks.

Read the full article here.

3.  Distressed Property Market at a Tipping Point

“Evidence of distress in the commercial real estate realm is mounting. U.S. commercial real estate transaction activity plunged in the second quarter as the COVID-19 pandemic continues to cripple deal making. Real Capital Analytics (RCA) reports a 68% drop in transaction volume, the lowest level of a second quarter since the global financial crisis.” (Mortgage Professional America, 8/3) 

What you need to know:

  • RCA reported more than $30 billion in Q2 2020 has moved into distress, with retail and hotel assets accounting for more than 90% of that total. The industrial sector accounted for less than 1%, while office and student housing remain the next largest question marks.
  • Something to keep in mind is that the number of potentially distressed assets greatly exceeds properties that are in outright distress and is more diversified across property types. For examples, apartment and office assets represent about 20% and 15%, respectively, of assets identified as potentially in distress.

Read the full article here.

4.  A Quarter of U.S. Hotels at Risk of Foreclosure

“Citing the most recent data available, Trepp reported that the percentage of loans that are 30 or more days delinquent was 23.4 percent as of July. That’s the highest percentage on record, and an incredible 1,746 percent increase from July 2019, when only 1.34 percent of hotel loans were more than 30 days past due.” (Mortgage Professional America, 8/30)

What you need to know:

  • As of July, $20.6 billion in hotel CMBS loans were 30 or more days delinquent compared to December of 2019, when that figure was only $1.15 billion.
  • At the peak of the Great Financial Crisis, the highest volume of delinquent hotels totaled $13.5 billion, meaning the current percentage of delinquent loans now exceeds that the GFC by 53%. 

Read the full article here. 

5.  Retail Landlords Offer Pandemic Clauses in New Leases

“Retail landlords are including pandemic language in new leases, a previously rare feature as tenants seek protection after the first government-mandated coronavirus shutdowns in March complicated their negotiations for rent relief.” (WSJ – subscription required, 8/25)

What you need to know: 

  • Since most insurance policies did not provide for pandemic-related losses, landlords have offered various concessions to both attract and retain tenants. This has allowed tenants to lower expenses while still allowing most landlords to collect enough money to pay their mortgage.
  • Landlords are overwhelmingly refusing to include pandemics as a force majeure event since it will hurt their ability to get financing. Because of this, landlords are providing alternate avenues for tenants such as: rent structures tied to a tenant’s revenue and license agreements which have shorter terms and more easily revocable for both parties. 

Read the full article here.

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Topics: Market Update, Investment

Alex Dimitroff
Written by Alex Dimitroff

As Financial Analyst, Alex supports RRA Capital's senior managers in property underwriting, loan closing, and fund administration. Alex is a CFA Level I candidate and a recent Finance graduate from Barrett, The Honors College at Arizona State University.