A report from the Wall Street Journal. "Corporate travel was the be-all for Mint House Inc., a provider of short-term upscale apartment rentals. As the pandemic hit in March, Will Lucas, the chief executive of the New York-based startup, watched with horror as revenue evaporated. 'We saw cancellations go way, way up to levels we’ve never even contemplated before,' Mr. Lucas said. As bookings for April and May disappeared with equal speed, Mr. Lucas said that he and his executive team realized, 'You’ve got to rethink everything.'"

"At around the same time, Mint House saw a more than $4 million line of credit fall through a week away from the expected closing because of the pandemic, Mr. Lucas said. Mint House was forced to furlough about 20% of its team. Even as it was filling apartments, the company still was generating less revenue, as room rates declined. As the company works on expansion again, it is finding that landlords are more willing to negotiate management agreements because they are having trouble filling new apartment buildings."

From Housing Wire. "As travel has been significantly minimized and less people are renting out Airbnb‘s, it leaves vacation rental owners in a bind, with some paying multiple mortgages. 'I think that for many owners, particularly those who have multiple properties, the road to recovery will be challenging,' said realtor.com’s Senior Economist George Ratiu. 'Especially so because for most owners of multiple properties, they have financing so they have to meet mortgage obligations. These are investment properties. For many of them, the ability to leverage the option of selling them in the current environment is less desirable.'"

"45% of hosts won’t be able to sustain operating costs if the pandemic lasts another six months, as 16% have already missed or delayed a mortgage payment on one or more of their properties. On average, hosts have lost $4,036 since Covid-19 began to spread in the US, a survey said."

The Commercial Observer on New York. "The spread of coronavirus through New York City and the ensuing lockdown measures have shaken the city rental market in a way that has not been seen since the Great Recession, with New Yorkers fleeing the five boroughs to avoid the virus or save money after losing their jobs. StreetEasy released data showing that new rental inventory has risen from 1,750 listings during the last week of March to nearly 5,000 listings the week ending May 10."

"Asking rents on new listings have been declining since lockdown began in the city. Of rental listings that were on the market when the governor issued the PAUSE order and are still available, 70 percent of them have slashed their prices, according to listings site Localize.city. The lower end of the rental market could 'get hollowed out' as low-wage workers struggle to pay their rent amid staggering job losses, Localize CEO Steven Kalifowitz speculated."

From Bisnow on New York. "New reports released Wednesday reveal an increasingly stagnant deals market and a dire financial situation for the government budgets that rely on the commercial real estate industry. Tax revenue brought in to the city and state from real estate sales declined 48% year-over-year in April and 64% year-over-year in May, the Real Estate Board of New York said. Meanwhile, landlords are struggling to stay afloat and advocates are beseeching the federal government for some type of relief."

"'There are hundreds of buildings in New York City operating at a loss because of COVID-19, and many of them will not be able to survive another month without help,' CHIP Executive Director Jay Martin said."

The New York Times. "In Brooklyn, a nightclub has been closed for two months. In Manhattan, a travel agency says it is unlikely to ever reopen. Both have not paid rent since the coronavirus shutdowns began. As a result, their landlord, Jane Lok, collected roughly 50% of her monthly rent from her six commercial tenants in April and May, a drastic drop-off from normal times. She owes a $20,000 insurance premium this month and a much higher annual property tax bill in July, both of which have caused her to lose sleep over how she will pay."

"'I’m just running my numbers and seeing when I will run out of money,' Lok said. 'We are already dipping into savings.'"

From Patch Santa Monica in California. "It took a pandemic to make it happen, but Los Angeles rental prices appear to be on the way down for the first time since the Great Recession, according to a new report from real estate data tracker CoStar. Brand new units in particular could be difficult for property managers to fill at a time when public health officials have urged residents to avoid contact with those they don't live with, and stand at least six feet apart. The report notes that prices for newly built apartments in the Santa Monica area were on the way down prior to the outbreak; rents there have declined 4 percent since the beginning of the year."

From Bisnow on Texas. "The swift economic impact of the coronavirus pandemic pulled the brakes on a wide range of real estate transactions around the country. Value-add acquisitions, which have been a hot target for investors in the multifamily and office sectors for years, have tapered off, reflecting investor uncertainty around property values, projected rental income and leasing activity. Houston, which is dealing with the double blow of the pandemic and falling crude oil prices, could become a ripe market for value-add deals. But those opportunities could be as far as two years away, depending on how long economic recovery will take and when assets become distressed enough to be a good deal."

"'The big short-term question — for the U.S. or Houston — is: Can an owner get the rent growth needed to justify the upgrade to the product? The answer is probably not. That uncertainly leads to difficulty in pricing an asset by the buyer or lender,' said CBRE Americas Head of Multifamily Research Jeanette Rice."

The Houston Chronicle. "The coronavirus pandemic and the resulting economic crisis is driving dramatic and long-term changes in the commercial real estate industry as e-commerce adds to its dominance and companies cut overhead costs by keeping employees working from home. These changes not only pose threats to the companies that build and lease office towers, retail centers, industrial complexes and apartment buildings, but also to the banks, life insurance companies and pension funds that invest in them."

"Ultimately, how far the crisis and the disruptions it causes reach into the financial system could determine how quickly the commercial real estate sector recovers from the downturn. Commercial real estate investors are confronting issues similar to those faced by investors in residential real estate in the years leading up to the housing bust of more than a decade ago. As with homes, most commercial properties are purchased with mortgages, which are then bundled into securities and sold to investors, whose returns depend on property owners making their monthly payments."

"If the debt goes bad, it could blow a hole in the balance sheets of investors, dry up the capital needed to revive the commercial real estate market, and hurt the returns of institutions, such as pension funds, on which millions of Americans depend. Private pension funds own about $30.3 billion in commercial mortgages, according to the Federal Reserve."

"'How bad it’s going to be — I don’t know,' said Jeff Davis, managing director of the financial advisory firm Mercer Capital. 'It’s a stinking mess is what it is.'"

"While all commercial real estate debt is at risk, mortgages that are packaged into securities tend to cover a larger percentage of a property’s value. What’s more, many of the mortgages are interest-only, meaning borrowers never pay down the principal amount of money they borrowed. That’s a risk if rental incomes dry up and property values fall, because the foreclosure on the asset may not recoup the money that was lent, leaving a hole in the balance sheets of those who own the debt."

"The situation has echoes of the collapse of the market for residential mortgage-backed securities, which was at the heart of the financial crisis that began in 2007. A 2019 whistleblower complaint filed with the Securities Exchange Commission alleged lenders and security issuers have artificially inflated financial data in order to make larger loans, according to a ProPublica report. That would mean those mortgages cover a larger percentage of the properties’ values - and hold a higher risk - than investors had realized."

"Because commercial real estate derives much of its value from the rents, values could fall if tenants fail and remaining businesses have less need for physical space. 'People are going to offer fractions of what they offered before for properties,' said Manus Clancy, senior managing director at Trepp. 'You’re going to see values go down — for offices, retail, hotels, etc.'"

"If enough businesses go under to drive up vacancy rates and a pivot to a digital economy means companies that remain need less retail and office space, there will be a glut of commercial space on the market, driving down prices at the same time that landlords are likeliest to default."

"'In that scenario, the value of the underlying collateral for commercial mortgages is meaningfully impaired, meaning it has fallen dramatically because the cash flows from a given development have just declined,' Davis said. 'The bottom line is what’s going on is not good for the commercial mortgage industry.'"

"Different companies manage loan payments, and securities are split into various pieces, known as tranches, that represent a pecking order of who gets repaid first. The tranches that will only be repaid after other investors are known as B-pieces in the finance world, and the largest holders of that high-risk debt include asset managers and special servicers such as Rialto Capital Advisors, KKR Real Estate Credit, Eightfold Real Estate Capital and Prime Finance, according to Trepp data."

"Landlords with loans packaged in commercial mortgage-backed security could also face challenges because the loans were riskier to begin with. 'Those are loans that are typically more aggressively underwritten,' said Brian Stoffers, global president of debt and structured refinance at commercial real estate firm CBRE. 'They have higher loan values, higher rates, and they’ll lend on a broader array of property types and qualities.'"

"As a result, few are currently willing to buy commercial mortgage-backed securities, essentially freezing the market, he explained. 'That market has seized up,' he said. 'If you’ve aggregated it pre-COVID and the market turns, you’re now holding a portfolio of returns that are worth a whole lot less than what you originated.'"

"Commercial mortgage-backed securities are currently reporting how many of their loans missed their May payments. Of the roughly 70 percent that have already reported, 7.3 percent of loans - and 19 percent of hotel and retail loans -- are at least 30 days delinquent. 'All those statistics are front and center right now, kind of the same way subprime mortgages were front and center during the last financial crisis,' Clancy said."