Hotel Defaults Break 50% In Some Cities, Spur Commercial Foreclosures

The market for commercial mortgage-backed securities, particularly hotels and retail, continues to worsen with no sign of an imminent turnaround.

The September edition of CMBS analysis firm Trepp‘s monthly report found that 26% of hotel-backed CMBS loans are in special servicing, while the same is true for 18.3% of CMBS loans tied to commercial retail properties. Both sectors’ special servicing rates are the highest on record, while industrial, office and multifamily all have below 3% of their CMBS loans in special servicing.

Luxury hotels in major cities seem to be the hardest-hit subsection of the hospitality industry because they are more dependent on business travel and large events that remain all but nonexistent across the country.

Hotels in Houston, which has also been hurt by the oil industry’s struggles, hit a 69% delinquency rate in September, according to Trepp data obtained by Commercial Mortgage Alert. Just over 50% of Chicago’s hotels are in special servicing, as are 44% of New York’s hotels. 

CMBS loans are placed in special servicing when payments are not current, but lenders had been forthcoming with forbearance and other relief measures for struggling borrowers. As the country enters its eighth month of the coronavirus pandemic, such measures are expiring, The Wall Street Journal reports

The dollar value of CMBS loans in foreclosure held steady at around $1.75B from May through June, but in July it started climbing past $2B, according to Trepp data obtained by WSJ. In September, nearly $4B in CMBS loans were in foreclosure, coming from 278 properties.

Leaders of special servicing firm CWCapital and real estate services company NAI Global both told WSJ they expect an increase in lenders taking possession of properties with delinquent CMBS loans in the coming months.

“It’s coming,” NAI Global CEO Jay Olshonsky told WSJ. “We just don’t know how bad it’s going to be.”

Olshonsky added that he believes that more CMBS loans will go into foreclosure than they did during and after the Great Recession. That financial collapse that began in 2007 is largely considered to have been precipitated by the securitization of subprime home mortgages. At least one company has begun the same practice for CMBS loans.

Cerberus Capital Management has begun packaging interest-only slips from delinquent commercial mortgages (rated BBB-, the worst investment-grade rating) into $390B worth of securities, $300B of which has received a AAA rating from DBRS Morningstar, Bloomberg reports. Over 40% of the loans in Cerberus’ offering are from the retail and hotel sectors, which have seen steep drops in value from appraisers ahead of possible foreclosure proceedings.

Theater Bailout Urged, With 2/3 Of Industry At Risk Of Permanent Close

The coronavirus pandemic has dealt a body blow to the movie theater business, and now the industry is asking for a federal bailout, asserting that over two-thirds of small and midsized movie theater companies will be forced into bankruptcy or close permanently in the near future.

The request for assistance came in the form of an open letter to Congress, signed by a score of established Hollywood directors, producers and writers, along with such organizations as the National Association of Theater Owners, the Directors Guild of America and the Motion Picture Association. Among the signers are Hollywood directors including Wes Anderson, James Cameron, Clint Eastwood, Ron Howard and Martin Scorsese.

The letter, which notes that 93% of movie theater companies suffered over 75% of losses during the second quarter of 2020, urges Congress to redirect unallocated funds from the CARES Act to help the industry or pass a new relief measure. It did not ask for a specific amount.

“Absent a solution designed for their circumstances, theaters may not survive the impact of the pandemic,” the letter says. “Our country cannot afford to lose the social, economic and cultural value that theaters provide.”

The letter also said that the industry benefits other sectors, noting that 150,000 people work in theaters nationwide and that the industry supports “millions of jobs” in movie production and distribution.

More to the point for ailing retail properties, the letter also explained that movie theaters support nearby restaurants and retailers by spurring foot traffic. Besides the Q2 drop-off in revenues for the business, the dire state of the movie theater industry is reflected by anemic numbers of moviegoers in the places that have allowed theaters to reopen, which doesn’t yet include major markets like New York City.

The industry had hoped that the opening of Warner Bros.’ Tenet for Labor Day weekend would help jump-start revenues, but the $200M would-be blockbuster has pulled in only about $3.4M in the United States (though it has made $280M worldwide).

Major movie studios have responded by delaying big-movie releases even more. Warner Bros., for example, has moved Wonder Woman 1984 from October to December, and Black Widow, another Marvel film, is now slated for a May 2021 release, instead of November.

Also, movies that are still scheduled for releases this year, including MGM’s next James Bond flick and Pixar’s latest creation, both due for Thanksgiving, may also be delayed.

Boosters said that the heart of the problem for the industry is that much of the public isn’t willing to risk exposure to COVID-19 for the sake of entertainment, especially when at-home options are so plentiful.

Movie theaters aren’t going to recover fully until consumers are confident that they won’t die if they go to the movies, Wedbush analyst Michael Pachter told CNBC.

“That means no return to normal until there is a vaccine widely available,” he said.

Liquor Stores Giving Landlords A Buzz

Across the U.S., bar stools are still empty, but alcohol consumption is soaring as more Americans turn to liquor stores for their favorite after-dinner drinks.

Commercial real estate has taken notice, and liquor stores are now considered a top-tier anchor tenant post-coronavirus — right behind grocery stores.

“I’m already seeing larger fitness operators that have gone dark now have larger format liquor stores looking to infill them, so landlords have shifted their thinking on what a liquor store means for the merchandizing mix inside a shopping center,” Transwestern Senior Vice President Mason Bishop told Bisnow.

Bishop said landlords are blessed to have liquor stores as tenants, since they drive consistent revenue and have remained classified as essential services throughout the pandemic.

The more successful players are combining brick-and-mortar storefronts with curbside and online delivery options to keep up with consumer demand, Bishop noted.

During the national shutdown, liquor store demand online remained strong. Nielsen Co. reported a 234% increase in online alcohol sales during the seven-week period ending April 18 as the pandemic shuttered most U.S. bars and restaurants. Nielsen called alcohol the “fastest growing e-commerce department among consumer packaged goods.”

E-commerce and brick-and-mortar can work hand in hand more than other retail segments — for example, online alcohol companies Drizzly and Minibar source their deliveries through local liquor stores rather than independent warehouses.

On-site liquor store traffic also rebounded faster than retail outlets not selling alcohol. Retailer Total Wine saw a dip in store traffic right after the pandemic hit, but quickly regained momentum with traffic growing on an annualized basis every month since April, retail data provider said. Between June and August, monthly traffic at Total Wine rose between 7.2% and nearly 13% year-over-year, even as other mainstream retailers continued watching store traffic plummet, noted.

While office retailer Staples saw traffic in June through August hover in the negative 17.6% to negative 29% range, department store Macy’s was slogging through negative 44.3% to negative 48.1% traffic and clothing retailer Kohl’s traffic ranged between negative 22% and negative 26%, alcohol retailers like Goody Goody Liquor, ABC Fine Wine & Spirits and Binny’s Beverage Depot recorded major year-over-year traffic increases. In July, Goody Goody’s year-over-year traffic rose 17.1%, while ABC Fine Wine and Binny’s Beverage Depot saw traffic increases of 13.5% and 34.1%, respectively, said.

“When looking at six different brands, we see impressive year-over-year growth for May, June, July and August for all but two brands analyzed,” said in a statement to Bisnow. “As the pandemic continues and cases also continue to resurface in states such as Florida and Texas, it’s safe to assume that traffic for these brands will only continue to increase as the months progress.”

Demand is keeping liquor stores so busy during the pandemic that Bishop has a tenant trying to open a third location in Dallas-Fort Worth. The tenant made the decision to add another liquor store after seeing sales rise 30% to 35% during the pandemic, Bishop said. “He’s interested in getting a new store open because he has done so well, and he continues to see that being a trend.”

High demand for alcohol products is even evident when looking at how traditional bars and distilleries have survived in a world of mass closings and social distancing.

M2G Ventures developer Jessica Miller Essl said bars are struggling across Texas, but one of her distillery tenants in Fort Worth’s chic The Foundry District is thriving after deciding to focus on manufacturing and product delivery. Blackland Distillery lost its ability to drive sales through on-site tours and tastings, but the company’s ability to deliver product through other channels kept it a solid tenant, Miller Essl said.

“He has done very well,” she said. “He pivoted early and converted [the distillery to] developing hand sanitizers and distributing his [beer] product.”

Miller Essl said the pandemic proved alcohol providers with the ability to deliver goods through multiple channels are quality tenants in both good times and in bad.

“If you have other channels and can pivot to delivery, then you are a really strong tenant at this point,” she said.

Going forward, Bishop expects to see liquor store activity remain at least 20% above year-over-year sales as more consumers struggle with the fear of going back to food and beverage establishments.

One thing that has changed for the better during the pandemic is commercial real estate’s perception of liquor store tenants in general.

“If any landlord previously had concerns about liquor stores being perceived as being detrimental to their tenant mix, I think they have certainly changed their tune and are welcoming high-quality and well-merchandized liquor stores,” Bishop said.

Airbnb aims to raise roughly $3 billion in IPO

Home rental company Airbnb Inc is aiming to raise around $3 billion (£2.32 billion) in its upcoming initial public offering (IPO), people familiar with the matter said on Friday, taking advantage of the unexpectedly sharp recovery in its business after the COVID-19 pandemic roiled the travel industry.

Airbnb will be one of the largest and most anticipated U.S. stock market listings of 2020 which has already been a blockbuster year for IPOs, featuring the likes of record label Warner Music Group, data analytics firm Palantir Technologies and data warehouse company Snowflake Inc.

Airbnb said in August it had filed confidentially for an IPO with U.S. regulators.

The company’s current plan is to make its filing publicly available in November after the U.S presidential election and is targeting an IPO some time in December, the sources said, requesting anonymity as the plans are private.

The sources cautioned that the timing is subject to change and market conditions, in particular volatility that could come from the election.

A spokesman for Airbnb declined to comment.

The company could achieve a valuation of more than $30 billion in the IPO, the sources added, again cautioning this was subject to market conditions.

This would be substantially higher than the $18 billion Airbnb was valued at in April when it raised $2 billion in debt from investors. Airbnb’s most recent independent appraisal of the fair market value of its stock pegged its worth at around $21 billion.

The push to go public and the growth in its potential valuation underscores Airbnb’s dramatic recovery from earlier this year when it secured emergency funding from investors and the outlook for the travel industry was uncertain.

Since then, San Francisco-based Airbnb has benefited as travelers shy away from larger hotels and instead prefer to drive to local vacation rentals.

The company said in July that customers had booked more than 1 million nights in a single day for the first time since March 3.

Shares of U.S. online travel agency Booking Holdings Inc , which some Airbnb investors use as a conservative public market proxy for its own stock, have rebounded more than 35% in the past six months.

Reuters reported last month that billionaire investor William Ackman had approached Airbnb about going public through a reverse merger with his blank-check company but that Airbnb was prioritizing going public through a traditional IPO.–31465915/

Vaccines Boost Montgomery County MD Life Sciences, Outpacing Available Space

The federal government has pumped billions of dollars into Montgomery County, Md. life sciences companies to work on a COVID-19 vaccine, and these investments are having major implications for the area’s real estate market.

The vaccine-related activity is creating more demand for lab space in an already tight market, further reducing vacancy rates and driving up rents. This dynamic is leading developers to consider breaking ground on spec and converting vacant office buildings to lab space, multiple experts said Thursday on Bisnow’s Life Science Surge webinar.

The Department of Health and Human Services has distributed billions of dollars through its Operation Warp Speed program, with a goal of producing and delivering 300 million doses of effective vaccines starting in January.

Four of the 10 companies that have received the most funding are based in Montgomery County, BioHealth Innovation CEO Richard Bendis said.

Gaithersburg-based Novavax received $1.6B to manufacture a COVID-19 vaccine, HHS announced July 7.

Rockville-based Emergent BioSolutions received $628M in funding, HHS announced June 1.

U.K.-based GlaxoSmithKline, which has a Global Vaccine Center in Rockville, was part of a partnership that received $2B in vaccine funding.

AstraZenaca, a U.K.-based company with a major Gaithersburg facility, received $1.2B in vaccine funding in May.

“It speaks to how important from a vaccine development and manufacturing perspective this region is to everybody in the world, because almost 40% of the funds from Operation Warp Speed are going into one small county in the U.S., which happens to be part of this region,” Bendis said.

This vaccine funding is not only benefiting the companies that have received it but also the broader market that supports them, EwingCole Managing Principal Bill Gaudreau said.

“There are so many companies that are involved in supporting the manufacturing, testing, distribution, there’s a huge benefit that has played out,” Gaudreau said. “There’s been an increased demand in the real estate market to try to accommodate those [companies], and it’s been difficult with the shrinking availability of space in the market.”

Venture capital investment has also been flowing into Maryland life sciences companies. JLL has tracked more than $500M in VC investment in the region’s life sciences companies this year, compared to $100M in 2016, JLL Executive Managing Director Pete Briskman said.

“There is a direct correlation between VC and private equity and tenant demand, so in the future what we’re going to have to do is keep up with that demand,” Briskman said.

Life science tenants created 870K SF of leasing demand in suburban Maryland from January 2019 through June 2020, comprising nearly 25% of the area’s commercial leasing activity during that period, according to JLL. The vacancy rate for suburban Maryland life sciences space is around 4%, Briskman said, compared to roughly 17% vacancy in the area’s office market.

This low vacancy rate has led rents to increase by nearly 50% over the last three years, Briskman said. Even with the increases, he said rents in suburban Maryland’s life sciences market are still roughly half the rents in the Boston, New York and San Francisco markets.

“There is certainly a value play in staying in Maryland even though the rents are increasing,” Briskman said. Briskman said he expects the rising demand and rents in the life sciences sector will lead to more developers entering the market and to more speculative construction

. “I think we’re going to see more spec development,” he said. “I think we’re going to see institutional owners from outside our region enter the market and maybe buy land and entitle it.”

In addition to new development, Briskman said he is seeing a growing trend of life sciences companies leasing spaces that developers have converted from other uses.

“Because the market is so tight, tenants and landlords are being more flexible with their space needs,” he said. “So if you’re manufacturing you can go to warehouse buildings … you can also convert an office building. Owners are looking at office product that’s empty and saying ‘here’s an opportunity.'”

Alexandria Real Estate Equities and an affiliate of Scheer Partners converted an 80K SF office building in Gaithersburg into lab space, and in August the team announced it signed a lease with Novavax to bring the project to 100% leased.

Rock Creek Property Group in 2018 signed a full-building lease with Supernus Pharmaceuticals for a 119K SF Gaithersburg office-to-lab conversion project. American Gene Technologies in July leased 27K SF of lab space in a converted office building in Rockville.

Gaudreau, who works on strategic planning and design for initiatives for his architecture firm’s science and technology tenants, also said he is seeing many property owners adapt vacant office buildings for science purposes.

“We’re in the middle of a very robust marketplace with inadequate real estate opportunities to support the life sciences community, so anything that the market can do to support the development of more space and more capability for these companies … is really what’s going to be key for this economy,” Gaudreau said.

LucasPye Bio founder and CEO Tia Lyles-Williams said that while the influx of vaccine funding has benefited the market, it has also created challenges for the manufacturing of other drugs not related to the coronavirus.

“For all the space the COVID effort is going to take up, that’s also a loss to different patients with different chronic diseases for which there may be a shortage of drugs,” Lyles-Williams said. “Patients have already been turned away from receiving their regular dose, their standard of care has been interrupted because of what’s going on with Operation Warp Speed.”

What It Means If Trump Is Responsible For $421M In CRE Loans

Commercial real estate professionals reading The New York Times’ analysis of President Donald Trump’s tax data this week may have paused at a data point: The president appears to be personally responsible for $421M in real estate loans that are coming due within the next four years.

Exactly what that will mean for the president, and for his creditors, isn’t quite as clear-cut, however, and the intricacies of recourse vs. nonrecourse loans may offer some insight beyond the splash of the number.

That Trump might be personally on the hook for that kind of debt fits in with other information reported by the NYT, which paints a picture of deep financial disarray. That data as reported includes ongoing, massive losses by Trump’s companies, and some gains, and real estate assets that are sinkholes for cash, and a lengthy dispute with the Internal Revenue Service.

One important caveat about the information is that even if accurate as tax return data, it only presents how the president’s business dealings were represented for tax purposes, the NYT article notes.

It also isn’t problematic in real estate to simply have debt — the NYT’s analysis doesn’t say if the loans are current.

The types of loans Trump may have taken out are also a key component; some CRE watchers noticed this week that much of the debt as reported by the paper appear to be recourse loans. Under the terms of a recourse loan, in the event of default, a lender can seek recompense not only from the asset itself, but other wealth that the borrower has.

While Trump might indeed personally owe lenders $421M, many of the reported details about the types or amounts of loans are unclear.

For example, why Trump may have committed to recourse loans in these cases isn’t known. With his history of bankruptcy, lenders might have insisted.

Or the use of recourse may relate more to the performance of the assets themselves and their viability as collateral. Much of the debt is associated with the Trump National Doral Miami ($125M) and the Trump International Hotel Washington ($160M), according to the NYT. Both properties were struggling even before the coronavirus pandemic, a circumstance that might make lenders more reluctant to refinance their debt when Trump’s loans come due.

The concept of recourse lending is simple enough in theory, and widely practiced in commercial real estate, but its execution can be much more complicated, experts say.

For commercial construction loans, nearly all lenders require a personal guarantee of some kind during construction of the project, explains Lane Powell shareholder Bryan Powell, a Portland, Oregon-based real estate attorney.

“After construction is completed, the loan will typically convert to a term loan or permanent financing loan, which often will not require personal recourse. That depends on a number of variables, including project cash flow, loan-to-value and debt coverage ratios, experience of the owner and operator, market conditions and others,” Powell said.

Many lenders are required by their underwriting guidelines to only make recourse real estate loans, so the borrower might have to choose between more favorable loan terms and recourse liability with one lender, or less favorable terms but with nonrecourse liability with another lender, Powell said.

“Nonrecourse lenders focus on the value of the properties on a stand-alone basis, and do not allow for much speculation on the valuation,” Mag Mile Capital CEO Rushi Shah said.

“Currently, lenders are asking for more recourse especially on higher-risk asset classes and for the asset classes that require more operational oversight,” Shah said. “However, the recourse is harder to enforce by the lenders because of the bankruptcy code.”

Those are the normal perimeters of recourse and nonrecourse loans, but Trump is anything but a normal borrower.

“Even though the headlines might say, Trump owes all this money, it’s hard to know what that really will mean for him,” said Alliant Credit Union Vice President, Commercial Lending Charles Krawitz.

“Even if you have a recourse loan, you’re typically going to go after the collateral first, foreclose on it and sell it on the marketplace,” Krawitz said. “Also, in some states, the law precludes you from going after both the guarantor as well as the collateral.”

For one thing, Krawitz said, maybe Trump’s loans are in good shape; the tax returns as reported by the NYT don’t shed light on that point, with the properties suffering now, but due to recover after the pandemic.

Even if they don’t, there are a number of reasons a lender might not go after Trump for recourse.

Who loaned Trump the money also isn’t in the tax data NYT reports. One possibility is Deutsche Bank, which has been the president’s go-to bank for some time, even though it has a history of quarreling over exactly how much Trump should pay on loans he personally committed to. In 2008, Trump sued the bank to get out of a $40M commitment he made to facilitate the construction of Trump Chicago International Hotel & Tower. The parties eventually settled out of court.

These are nuances that the legal teams for both sides will be well aware of, but they might not be the determining factors.

“Who in their right mind is going to pursue Donald Trump personally, as opposed to recovering from the piece of real estate?” Krawitz said. “From a reputational standpoint, maybe a lender wouldn’t want to be in the headlines for that.”

Cases against Trump can drag out for years, even when he is fighting with a powerful government agency. The NYT reports that long before he became president, the IRS began an audit of a $72.9M refund Trump claimed in 2010, based on losses in earlier years. The paper reports that audit has been ongoing since then to determine whether Trump was actually entitled to the refund, though it isn’t clear why the matter remains unresolved after so long.

Exactly which losses sparked the dispute aren’t spelled out by the tax data the NYT reports, but it is also true that Trump abandoned his stake in his Atlantic City casinos in 2009, which would have represented a major loss. If the IRS ultimately decides to claw back the refund, Trump would be stuck with a tax bill in excess of $100M.

Also, Krawitz points out, there are serious question marks about Trump’s financial worth in any case. Would taking a high-profile action against him actually be worth the trouble?

“Going after the asset or assets might well prove to be enough of a remedy, without the trouble of tangling with Trump personally,” Krawitz said.

City steps up street cleaning as workers remain anxious about returning

Mayor Bill de Blasio announced new initiatives to bolster the city’s sanitation and street cleanliness efforts.

“New Yorkers deserve clean, safe communities and with this announcement today we are continuing to deliver on that promise,” said Mayor de Blasio.

“Our sanitation professionals have been heroes throughout this crisis. They deserve all the support they can get in their fight to keep New York City clean.”

The City will take three response actions to supplement current sanitation efforts.

  • The City will reallocate a portion of the NYC Department of Sanitation (DSNY) budget to support the restoration of approximately 65 litter basket trucks weekly in areas across the city, a 24 percent increase from current levels. These additional litter basket trucks will focus on the 27 neighborhoods citywide that have been especially impacted by the COVID-19 crisis, as well as other areas across the City that will see increased pedestrian traffic as employees return to the workplace.
  • The New York City Economic Development Corporation (NYCEDC) will restart CleaNYC with the Doe Fund to provide supplemental cleaning services in neighborhoods and parks across the City through the end of the calendar year. This supplemental cleaning will support efforts by DSNY and the NYC Department of Parks and Recreation, as well as Business Improvement Districts and other community partners. The Doe Fund provides employment, career training and social services to homeless and formerly incarcerated individuals.
  • The City will partner with community-based organizations, elected officials and the private sector to sponsor community cleanups and mobilize volunteers to collect litter on streets and in parks. The City will provide tools and logistics support to groups who host cleanups.

Litter basket service will be restored in the 27 COVID-impacted areas.

The announcement follow a warning from the Partnership for New York City that an increase in crime, homelessness and trash are thwarting efforts to get the city back to work.

“There is widespread anxiety over public safety, cleanliness and other quality of life issues that are contributing to deteriorating conditions in commercial districts and neighborhoods across the five boroughs,” said the Partnership in a letter to the mayor.

“We need to send a strong, consistent message that our employees, customers, clients and visitors will be coming back to a safe and healthy work environment. People will be slow to return unless their concerns about security and the livability of our communities are addressed quickly and with respect and fairness for our city’s diverse populations.”

NYC landlords call for drastic measures as vacancy climbs to over 12%

New York City landlords are proposing a rent forgiveness program and reintroduction of preferential rents to help them – and their tenants – survive the COVID crisis.

The Community Housing Improvement Program (CHIP) said today that tenants are fleeing the city at alarming rates and, with no federal help in sight, it was time for the city to act and avert a real crisis.


“At this point, we cannot expect the federal government to bail out New York City from our current housing crisis. City and State leaders must take steps to stop the bleeding and stabilize the affordable housing ecosystem for both tenants and their housing providers,” said Jay Martin, executive director of CHIP.

In its latest survey of rent regulated properties in the city, CHIP found that vacancy has risen to 12.55 percent and more that 17 percent of renters were behind on their rent.

Members reported that they are offering concessions averaging a net effect of 1.4 months of free rent to tenants (either through dropping the asking rent or giving a month or two of the lease term rent free) in order to be more competitive on the rental market and combat the growing number of vacant units. 

Many CHIP members also have first floor commercial space in their buildings and the survey found that roughly half of all commercial tenants paid no rent in August or September. 

“For a sixth straight month, housing providers have borne a huge financial burden due to the COVID-19 emergency with little help from the government. We need solutions now. We can no longer wait for the federal government to bail us out,” said Martin.

CHIP is proposing several solutions to help stabilize the housing market that we are asking the State Legislature to consider.

They are:

Reinstate Preferential Rents

The June 2019 rent laws eliminated the usefulness of preferential rents for tenants of rent-stabilized buildings.  Under the current system, rent-stabilized housing providers cannot offer temporary discounts on rent without becoming locked into that reduced rent for as long as the renter lives in the apartment. This creates a barrier for these housing providers to provide lower rents, whether because there is a dip in the market or a tenant is experiencing temporary hardship.  Rather than being able to offer a discount for one lease term, once an owner charges a lower preferential rent, every future lease must also include the discount.  So when there are lulls (or even dips) in the rental market, like there are now, rent-stabilized tenants don’t receive the benefit because the 2019 HSTPA removed the flexibility of preferential rents. If the laws were altered to once again allow this flexibility, more than 50% of CHIP members say they would offer lower rents to rent-stabilized tenants who negotiate for a lower price in their lease renewals or need immediate help because of financial struggles. And roughly 55% said they would be likely to lower the asking rent for a vacant stabilized apartment to remain competitive in a COVID devastated rental market .

Implement Tenant Rent Forgiveness and Rent Increase Tax Offset Program.         

New York currently offers SCRIE and DRIE programs to offset rent increases for seniors and disabled persons with property tax credits for housing providers. The programs have been incredibly successful in stabilizing the lives of some of the city’s most vulnerable renters.  COVID-19 has dramatically increased the number of at-risk New Yorkers, creating a need to extend this same program to all renters in need.  CHIP proposes a pilot program of $500 million in property tax credits for renters who can prove financial hardship caused by COVID-19.  Rather than relying on the federal government for relief that isn’t coming, this proposal would allow the city to help housing providers absorb the continuous increases in building operating costs while at the same time providing desperately needed relief to a population of renters so they can stay in their homes and be free of worrying about future increases in rent. 

Under this program, renters who can demonstrate the necessary financial hardship can qualify for rental arrears forgiveness that would be offset by a dollar-for-dollar reduction in the housing provider’s property tax payment. A targeted program of tax relief would both insulate tenants from future rent increases and also provide necessary relief on operating expenses.  No matter the cost, it is a proportionally small price to pay to stabilize the city’s housing and keep as many people in their homes as possible. 

Expand Funding To COVID Rent Relief Voucher Program.

The legislature passed the Emergency Rent Relief Act of 2020 (S8419 / A10522) in June, and Homes and Community Renewal (HCR) began processing applications in August. The initial funding for the program was $100 million. CHIP members report payments through the Act have not covered all of a tenant’s existing arrears but they did bring much needed operating income to the building. Our members (the owners and operators of about 15% of NYC’s residential rental properties) estimated that they have lost at least $500 million in operating income since the start of the pandemic. The existing program is a start to filling this massive gap, but it needs more funding and to expand its eligibility requirements to cover more renters and more arrears.  The Act only covers rent losses from April to July, and does not cover the entirety of arrears that were owed by tenants but rather doled out benefits based on a formula that links payments to loss of income and percentage of income paid towards rent.     

Landlord won’t go month to month, but offered opt-out clause to renew. The catch?


Our lease ends this month and we asked our landlord if we could go month to month because one roommate is unemployed as a result of Covid. The management company said no. Instead, they offered to renew our lease for one year with a clause that says we can move out early, without penalty, if we give 30-days notice. Isn’t this pretty much the same as going month to month? Are there any downsides to this?

Leases with opt-out clauses are more popular these days in New York City because of hardships and insecurity related to the Covid-19 pandemic. As a renter, it’s actually better for you and your roommates to sign a one-year lease with an opt-out clause, rather than go month to month, says Sam Himmelstein, a lawyer who represents residential and commercial tenants and tenant associations (and a Brick Underground sponsor).

That’s because you’ll have the legal protections of a lease, and it locks in your rent for the full year if you do stay, Himmelstein says. “And you still get to move out early if needed,” he notes.

However, if the city starts to return to normal before you move out, and you are month to month, your landlord might decide to increase your rent, which isn’t ideal if you’re already dealing with Covid-related hardships.

There are several variations of opt-out clauses, and depending on the terms in your lease, and the situation for you and your roommate, some might be more beneficial than others—so read the wording of the clause carefully. 

Some opt-out clauses require you to live in the apartment for at least 90 days before you can move out. Others allow you to move out anytime during the lease, as long as you give advance notice, which is typically 30 to 60 days, Himmelstein says.

However, some opt-out clauses say you cannot move out during a “blackout period,” usually from November to January 1st. Those months are the hardest to rent apartments. So, if your roommate doesn’t find a job by then, or you or another roommate are laid off during those months, you are legally obligated to stay until the end of the blackout period. 

Unless any of the provisions in your opt-out clause violate public law, it’s not illegal for your landlord to include those specific terms.

You should also understand your obligations as a tenant if you do sign a lease with an opt-out clause, says Steven Kirkpatrick, a partner at the law firm Romer Debbas. For example, some landlords will require you to inform them of your early move out by certified mail, or even return receipt. So, simply sending an email to your landlord might not be an option.

From a landlord’s perspective, the benefit of having you sign a one-year lease with an opt-out clause, rather than letting you go month to month, is two-fold, Kirkpatrick says.

If you have a lease, it likely says that you’re required to give advance notice before you move out, which gives your landlord time to list the apartment and find a replacement. If you’re month to month, you can basically move out whenever you want, potentially leaving your landlord with a vacant apartment unexpectedly. 

In addition, New York City laws require landlords to give month-to-month tenants 30- to 90-day notice if they want you to vacate, depending on how long you’ve lived there. And, they have to serve the notice through a process server, which can be costly, Kirkpatrick says.

But, if you have a lease, they can simply choose not to renew it. Your landlord still has to give you proper written notice, according to Section 226-C of New York’s real property law, which is 30 to 90 days depending on how long you’ve lived there.

Himmelstein says it also gives your landlord a sense of security because a lease outlines what you can and cannot do in an apartment, like not having a pet or smoking in the apartment. If you’re month to month, there’s no legal obligation for you to follow those rules and regulations.

The last thing you and your roommates should consider before signing the lease is if any concessions are being offered. Obviously, if any rent credit or months free are given to you at the end of your lease-term, and you move out before, then you’re giving up those concessions.

But, if you got your first month free, and you move out before the lease is up, you might have to pay at least some of it back, Kirkpatrick says. Most landlords include a clawback provision that says you are responsible for paying it back if you don’t stay for the full-term of the lease.

You can try to negotiate this to only pay back the prorated amount though. “If you move out in month 10, then it wouldn’t make sense for you to pay all of the first month back,” Kirkpatrick says.

So, this lease gives you and your roommates, and your landlord, both security and flexibility.

Read the fine print and consider all of your options, but if staying in your current apartment works for everyone, signing the lease with the opt-out clause mostly works in your favor.

Office Market Out Of Kilter Until 2025, Cushman & Wakefield Predicts

The recovery of the U.S. office market from the impact of the coronavirus pandemic and recession is going to be a slow process, likely stretching beyond 2024, Cushman & Wakefield predicts in a new report on the future of office space worldwide.

The recovery might be slow, but the pandemic doesn’t necessarily mean the end of established patterns of office space use.

“Even though the impact of work-from-home trends will slow the office market recovery, the overall growth in office-using job sectors along with many other factors — including agglomeration, culture/branding, and productivity — indicate that the office will continue to play an important role in the economy going forward,” Cushman & Wakefield Global Head of Forecasting Rebecca Rockey said in a statement.

The report predicts that the U.S. office sector will lose about 145M SF of office occupancy in 2020 and 2021 as the result of the economy losing a net 1.7 million office jobs. As of Q2 2020, the office sector has already lost 23.1M SF of occupied space nationwide, with negative absorption continuing for at least another 18 months.

All together, a 145M SF contraction in occupied space is about 2.7% of the entire U.S. office inventory as of Q1 2020, the report notes. That would mean the current contraction, if it follows the baseline scenario, would be worse than the contraction of the Great Recession of 2.2%, or that of the dot-com recession of 2001, which saw a loss of 2.4% of occupied office space.

The pandemic is only part of the reason for negative office absorption, according to Cushman & Wakefield. Even without it, absorption rates were in decline, because businesses were using fewer square feet per employee. That trend has come to a halt, but more employees will probably work from home in coming years, even after the end of the pandemic. That would put downward pressure on the demand for office space in a way that densification did previously.

Before the pandemic, Cushman & Wakefield reported that U.S. office vacancy was 13.2%. Under its baseline scenario, vacancies will peak at 17.6% in mid-2022 and fall after that, but not to pre-pandemic levels by 2024, the last year of the scenario.

Only once before have office vacancies been as high: After the dot-com bust, they hit 17.6% in Q3 2003.

Office rents will contract in both 2021 and ’22, the report predicts, by 6.5% and 2.3%, respectively, before starting to grow again in 2023 by 2.6% and in 2024 by 3.5%.

The baseline scenario is one in which the economy has a 50% chance of doing better than predicted by the scenario, but also a 50% chance of doing worse.

The report also included a downside scenario, in which the economy has only a 10% chance of doing worse than in the scenario. In the downside scenario, negative net absorption in U.S. office space continues through 2022 and totals 243.2M SF, vacancy peaks at 19.9% in 2022 and is nowhere near pre-pandemic levels by 2024, and rents contract 8.4% and 7.5% in 2021 and ’22, respectively.

Considered as a whole, the global office market will recover sooner than the U.S. market, with global vacancies back to pre-pandemic levels by 2025, the report predicts under a global baseline scenario.

Some parts of the world will not see any negative office absorption at all, but rather a slowing down of positive absorption for a while. China, for instance, will experience net absorption of only 5.5M SF in 2021, down from 30.9M SF this year. But the report predicts it will bounce back to 38.2M in positive absorption in 2022. Office absorption will likewise slow down, but not go into reverse, in the wider Asia-Pacific region.