Nobody Knows What Will Happen When the Rent Comes Due on April 1

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From landlords to economists to Wall Street traders, a lot of folks are fretting over what’s going to happen on April 1.

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That question is hanging over the U.S. real estate industry as $81 billion in rent payments come due. Renters are warning they won’t pay, prompting property owners to have delicate conversations with their lenders. And regulators are racing to keep the wheels of finance turning in the middle of a global health crisis.

Few in the industry are certain how things will play out. Most agree that laid-off renters and shuttered retailers are suffering, and that the pain is going to spread as long as the economy is locked down.

“The hardest thing right now is that nobody actually knows how bad it’s going to get,” said Willy Walker, chief executive officer at commercial real estate lender Walker & Dunlop Inc. “That’s driving everybody crazy.”

After a long economic boom in which tight housing inventory gave apartment landlords unprecedented power to raise rents, the shoe is on the other foot as the calendar turns toward April. Many local governments have placed temporary bans on evictions, and there’s a growing sense that even tenants who can afford to pay will skip rent.

Apartment owners collect more than $22 billion in rent in a typical month, roughly a quarter of the total landlords take in across major types of commercial property, according to CoStar Group Inc. In an extreme scenario, more than 25% of the households that rent in the U.S. may need help making payments because of the coronavirus, requiring up to $12 billion a month in government support, according to research from Amherst Holdings.

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Residential landlords aren’t the only ones worried. Retail owners have little leverage, since a quarantine is a bad time to find new tenants. Rental debt typically must be paid eventually, but uncertainty about the economic impact from the virus makes it hard to anticipate when people and businesses will be able to make up missed payments.

“If tenants stop paying rent, then at some point landlords can’t pay utilities,” said Scott Rechler, chief executive officer at RXR Realty, a New York-based owner of offices, apartments, and other properties. “The municipalities don’t get their property taxes or mortgages aren’t paid and the banks get a spike in defaulting loans.”

Across credit markets, regulators are racing to prepare for missed rent to turn into late loan payments. The apartment industry alone has more than $1.5 trillion in outstanding debt, said Dave Borsos, vice president of capital markets at the National Multifamily Housing Council. Last week, the Federal Housing Finance Agency said it would allow apartment owners who financed their properties through Fannie Mae and Freddie Mac to delay mortgage payments.

Real estate investor Tom Barrack argued in a series of tweets on Saturday that offering forbearance on interest owed by real estate owners and mortgage investors is central to providing relief to U.S. businesses – and that the U.S. Treasury could help stabilize debt markets by purchasing certain commercial mortgage backed securities.

Barrack: We’re in a Liquidity Crisis, Not a Credit Crisis (Video)

American renters, meanwhile, are making their own calculations. Kansas Wade, a 28-year-old recruiter for tech companies in Austin, sent an anxious email to her landlord after social-distancing efforts cost her girlfriend her job as a hairdresser. Their property manager dismissed a request to reduce or defer part of the monthly $1,400 payment, leaving Wade to worry she’ll have to use her credit card to make rent.

While the stimulus package passed by Congress should eventually put cash in the pockets of consumers and make emergency loans available to small business owners, the economic carnage is still unfolding. Jobless claims are spiking, with economists estimating that 3.3 million Americans filed for unemployment last week.

“I’m less worried about April,” said Bruce McNeilage, CEO of Kinloch Partners, which operates single-family rental homes. “I’m more worried about May 1. Once people miss three or four paychecks, that’s when things get bad.”

— With assistance by Noah Buhayar, and Natalie Wong

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Number of homes sold in UK expected to plunge by 60% in next three months

The number of homes sold in the UK is expected to fall by 60% in the next three months, according to the property website Zoopla.

There was a 40% drop in housing enquiries for the week to 22 March, the week before the nationwide lockdown, and new sales agreed fell by 15% on the previous week.

The trend is expected to worsen considerably in the coming months. The need for physical distancing and government advice to stay at home mean buyers and renters are unable to view properties in person. Some estate agents have switched to virtual viewings.

The housing minister, Robert Jenrick, said on Twitter: “Buyers and renters should, as far as possible, delay moving to a new house while emergency measures are in place. If moving is unavoidable because you’re contracted and the parties aren’t able to agree a delay, you must follow advice on social distancing when moving.”

Vicky Bibiris, the managing director of Location Location, a north London estate agents, said so far only one sale had fallen through because of a job loss, out of 40 transactions in the agency’s pipeline.

She said that after the EU referendum the number of sales plunged immediately, whereas this time the impact was more gradual. She estimated Location Location could face a 20% drop in transactions in the next few months.

Separate research from the upmarket estate agents Savills said that if a sharp drop in demand was extended until September, total transactions for 2020 would be between 566,000 and 745,000, compared with the 1.027m forecast last November. “Suppressed demand would be expected to return relatively quickly to the market and we could see a return to normal levels by May 2021”, it said.

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Noble Francis, an honorary professor at the Bartlett School of Construction of Project Management at UCL, said: “The estate agent sector is very volatile and tends to go hand in hand with the housing market so it suggests that estate agents will be very badly affected unless they can access government help for businesses quickly to sustain themselves until the housing market recovers.”

UK banks have pulled 552 mortgages in the last fortnight, according to Moneyfacts, equivalent to about a tenth of the mortgage market. Halifax, the UK’s biggest mortgage lender, has withdrawn the majority of the mortgages it offers through brokers.

Henry Pryor, a housing expert and former estate agent, predicted some agents would collapse. Referring to the Zoopla forecast, he said: “A 60% fall is probably optimistic given the challenges that lie ahead. Assuming we are once again back to normal by the summer it is unlikely that most buyers will be confident of making what for most is their biggest financial commitment before the new year.”

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Savills FY19 Profit Rises, Lifts Dividend; Buys Macro Consultants In US

Savills plc. (SVS.L), a real estate advisor, reported Thursday that its fiscal 2019 profit before tax increased 6 percent to 115.6 million pounds from last year’s 109.4 million pounds.

Basic earnings per share increased 8 percent to 60.6 pence from 56.2 pence last year.

Underlying profit before tax was 143.4 million pounds, compared to last year’s 143.7 million pounds. Underlying basic earnings per share were 78.0 pence, compared to 77.8 pence a year ago.

Group revenue grew 10 percent to 1.93 billion pounds from 1.76 billion pounds a year ago, driven by strong performance in Less Transactional business lines.

Further, the company announced a final ordinary dividend of 12.05 pence, higher than last year’s 10.8 pence. This makes the ordinary dividend for the year of 17.0p, up from last year’s 15.6p.

In addition, a supplemental interim dividend of 15.0p, down from 15.6p last year, is declared, based upon the underlying performance of Transaction Advisory business.

The ordinary and supplemental interim dividends comprise an aggregate distribution for the year of 32.0p per share, representing an increase of 2.6 percent.

Looking ahead, Mark Ridley, Group Chief Executive, said, “While we continue to monitor the impact of global uncertainties on investor and occupier demand for real estate, we have made a good start to 2020 with the first two months outperforming the same period last year on all measures. As a result of the dynamic situation in respect of COVID-19 it is difficult accurately to predict its impact on our business for 2020 as a whole, although we do expect a greater weighting of activity to the second half of the year.”

Separately, Savills announced the acquisition of Macro Consultants LLC, a project management firm in North America. The acquisition completed on March 11.

The deal is part of the firm’s strategy of expanding the complementary real estate consultancy services offered by Savills US and its other businesses around the world.

Macro employs more than 90 staff located in offices across New York, Los Angeles, Washington D.C, Denver and Philadelphia.

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Hammerson offloads seven UK retail parks for £455m

Hammerson has offloaded its out-of-town retail parks for £455m as it looks to reduce its £3bn debt pile and shield itself from the high street crisis.

The property group, which owns the Bullring shopping centre in Birmingham, is selling seven sites, including Elliott’s Field in Rugby and the Cyfarthfa park in Merthyr Tydfil, to the London-based private equity firm Orion for £400m. The sale of two other parks has raised another £55m.

However, in a sign of the tough market conditions faced by retail property groups, the parks are being sold at a knock-down price. The £455m raised is 22% less than the properties were valued at last summer.

Last year David Atkins, the Hammerson chief executive, promised to sell more assets after coming under pressure from an activist investor, the US hedge fund Elliott Advisors, to improve performance. The company’s share price has declined 40% in the past 12 months to 225p.

Atkins said: “Against a challenged retail and investment backdrop we have exited the retail parks sector. Having achieved disposals of close to £1bn since the beginning of 2019, our focus remains on strengthening our balance sheet to create further resilience.”

The sale of its stake in a French shopping centre raised £363m, with other retail park sales boosting the figure to £1bn.

Hammerson is trying to claw back credibility after a turbulent recent history that included the abandonment of a plan to buy smaller rival Intu Properties, the company behind the Trafford Centre in Greater Manchester. It also fended off a £4.9bn takeover approach from the French mall operator Klépierre.

The disposals come at a tough time for property groups, which have been hit hard by the high street crisis. Hammerson also owns a stake in Bicester Villlage, the Oxfordshire designer discount outlet, which is reported to be struggling as the coronavirus outbreak keeps high-spending Chinese shoppers away.

Retail failures and restructuring programmes have pulled down rents while even household names such as Marks & Spencer want to operate fewer stores as sales move online. Confidence was further undermined by the suspension of the £2.5bn M&G Property Portfolio fund – which remains closed – after it could not sell properties fast enough to repay investors who wanted out.

Intu is trying to persuade investors to back an emergency cash call despite a bombed-out share price of just 14p, which values the company at less than £200m.

Hammerson has now disposed of 14 retail parks and plans to sell its remaining interest in the Brent South site, which is part of Brent Cross. The company will update investors on Tuesday, when it is due to publish its annual results.

The Stifel analyst John Cahill said that despite the reduced price tag, the sale of the retail parks was “unequivocally good news” for Hammerson. “The sale of all the remaining retail parks in one go reduces contagion into the rest of the portfolio valuation and makes a substantial contribution to reducing leverage, plus exposure to the UK,” he said.

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