It’s March 31st, and rent’s due, presenting the first real test of how landlords and tenants will respond to this economic shutdown. In discussions with industry leaders, Origin’s Glenn Shyba is finding that landlords first real insight into potential impact on portfolio cashflows will be rent performance in April. Portfolios and operations will be stress-tested with limited predictability in rental income. Retail remains particularly challenged as most tenants are closed, with concerns over their ability to reopen. Residential apartments and Core Office Properties will fare better but not without some impact through missed rent and requests for deferral / abatement. Residential landlords have a gauge of what to expect through evidence of cancelled Pre-authorized rent payments.
Glenn flags another real estate sector concern for developers and property owners: a pending liquidity crunch, as banks and other traditional lenders are limiting new credit to real estate sector businesses and projects. If left unchanged, this could lead to a significant shortage of capital as facilities come due, but may also make room for non-bank alternative lenders to fill the void.
In the midst of these challenges, however, there is a silver lining: the fundamental outlook for most core real estate categories in principal markets remains favorable. Land values in industrial and residential are holding up somewhat, and although likely to experience a transaction pause in 2020 have not lost their inherent long-term value. Industrial, Core Office and Residential Apartment properties have strong fundamentals and benefit from predominantly institutional ownership. Fashion retail remains very challenged with service-based retail portfolios better positioned to deliver sustainable cashflow going forward. Clients are cautiously moving forward with transactions under contract but have paused new transactions until the landscape and timing is clearer.