Why Rent Strikes Are Bad for Everyone and What’s Going to be Done about Unemployment?
Since thousands of businesses were deemed non-essential and forced to shut their doors, reemployment assistance claims over the last six weeks have surpassed two million in South Florida. With a tourism-dependent economy plus an older population, Florida is more vulnerable to economic shock, which is why it is one of the top five states with the highest number of claims.
Since thousands of businesses were deemed non-essential and forced to shut their doors, reemployment assistance claims over the last six weeks have surpassed two million in South Florida. With a tourism-dependent economy plus an older population, Florida is more vulnerable to economic shock, which is why it is one of the top five states with the highest number of claims. The longer the standstill goes on, the worse the economic fallout will be.
As May rents come due and unemployment rates continue to jump, providing assistance to households should be a top priority for policymakers. The prospect of a rent strike has been trending in the news and on social media, but a voluntary movement to skip rent payments could destabilize not only the housing market, but the American economy as well. How many months of working capital do small businesses have to stay afloat, in order for those furloughed and laid off employees to have jobs to return to after nationwide and state stay-at-home orders are eased and how will South Florida’s real estate market fare in the coming months?
May Day: May 1st Is Here
Multifamily landlords were pleasantly surprised with April collections. In an exclusive webinar interview hosted by PROFILE last week, President of Tate Capital, James Tate, who has over $1B assets under management, told us “We’re 90% collected,” talking about his 10,000+ door multifamily portfolio. Now it’s May 1st and everyone is wondering what May rent collections will be. “May 1st will be a good deciding point to see how many people default,” added Allen Morris, Chairman and CEO of the Allen Morris Companies.
Morris said his April multifamily rent collections were at 95%. He’s opening two new apartment buildings in Orlando this summer and is taking a proactive leasing approach. “People are signing leases, assuming the University of Central Florida is holding its fall semester. We’re giving tenants a guarantee in their lease. If they delay opening the university, we will delay rent until school opens.” Offering tenants flexibility gives them the security to sign leases now and is helping to forge a positive landlord-tenant relationship that will be dependent on open communication, should issues with payment arise in the future.
Trending: Socialist Whispers
With talks of rent strikes sweeping the country, landlords have been portrayed as vultures preying on the pockets of financially insecure tenants, when they remain responsible for property taxes and other carrying costs that help pay for public improvements, education and other municipality benefits. Diligent landlords are communicating with their tenants and weeding out those who are taking advantage of the public health crisis, says Shahab Karmely, CEO of KAR Properties. Those who can, should pay rent to support the services their communities need. Those directing their frustrations toward landlords may have valid concerns: with the economy shut down by government-mandated order, how are people supposed to pay bills and keep businesses running?
In New York, politicians pushing socialist rhetoric and big government reach such as Alexandria Ocasio Cortez have called for rent strikes and rent cancellations. Movements in New York City even claim to have “identified” landlords who can take a “shave”. Lack of payment means that owners will not be able to stay in business and manage the building to the tenant’s expectations, including paying for things like common area maintenance (think: how much does it cost for a cleaning crew to wipe down all public surfaces in a building multiple times a day). Landlords also pay property tax, insurance, debt service, management fees and capital expenditures for improvements.
Most commercial real estate investments are made by an owner contributing an equity portion to a project, but a majority of the total costs are funded through debt that is usually collateralized by the asset (if it’s senior debt). Typical sources of debt include pension and life insurance funds, which could be the life savings of either a tenant or a landlord. When landlords are unable to meet their debt obligations, the cascading effects don’t stop at their coffers, but trickle down to all Americans. Not making rent payments could derail future opportunities for many, including someone’s retirement age.
Karmely added “The real pandemic to hit New York City multifamily was the legislature that strangled the landlords in this business,” which will continue to make Florida’s real estate investment climate more attractive. Multifamily product in New York City has been trading between 3-5% cap rate, depending on the neighborhood. The low trading cap rates for core product has made some investors nervous about paying such a premium for an asset that the New York government has so much control over.
Another risk for New York investors is that South Florida’s pricing for comparative rental and condo inventory is cheaper than it’s NYC counterpart, while providing higher quality-of-life with more space and building amenities. From an investment perspective, it is also easier to manage assets in Florida where there is no government-enforced rent control, rent stabilization, or near-impossible eviction procedures for delinquent tenants.
Opportunities on the Horizon
The cure to the virus is causing an economic calamity that is hitting everybody and everything, which means opportunities will be on the horizon three to four months from now when property owners' cash reserves run dry, especially for retail and restaurant real estate assets.
Many have posited, is the cure worse than the virus? How long can residential and commercial tenants pay their rent amid an economic shutdown? Will we be able to produce our way out of a recession with unemployment in the double digits? Likely not - Uncle Sam will be waiting in the shadows with hand outstretched to collect his dues. As we all sit on the sidelines, awaiting our fates, the solution appears to be a function of time.
“My biggest concern is that we were hit with an 11 magnitude earthquake, and we all got knocked down. Unfortunately, after a major earthquake in coastal areas there is a tsunami. My concern is how are these small businesses supposed to remain open and sustain themselves for the next six to eight months unless something material is done by the federal government? Who’s going to hire those 30 million unemployed people back? If you ask me why I can’t sleep at night, that’s what I’m really concerned about,” opined Tate to cheers of “Jimmy Tate for President!”
-- Special reporting by the PROFILEmiami Team. Isabella Zimmermann, Katya Demina and Demetri Demascus contributed to this article.
Rewind: W. Allen Morris, Shahab Karmely And Jimmy Tate On Emerging From the COVID-19 Crisis
On April 30, 2020 PROFILEmiami hosted an interactive webinar discussion focusing on emerging from the COVID-19 pandemic and the resulting economic fallout’s impact on the South Florida real estate market. The panel featured South Florida real estate titans W. Allen Morris, Shahab Karmely and Jimmy Tate.
On April 30, 2020 PROFILEmiami hosted an interactive webinar discussion focusing on emerging from the COVID-19 pandemic and the resulting economic fallout’s impact on the South Florida real estate market. The panel featured South Florida real estate titans W. Allen Morris, Shahab Karmely and Jimmy Tate who explored topics such as: what effects will we see on South Florida’s real estate markets, how are South Florida’s leading real estate professionals reacting to the crisis, how do you think the workspace landscape will look after we “get back to normal,” where will the smart investments be made and how are they preparing for future opportunities.
Speakers:
W. Allen Morris - Chairman, President & CEO, The Allen Morris Company
Shahab Karmely - CEO, KAR Properties
James D. Tate - President, Tate Capital
Moderator: Demetri Demascus - CEO & Co-Founder, PROFILEmiami
Watch:
Topics:
What is your personal outlook on how this will ultimately affect the South Florida real estate markets? Will there be permanent changes to the market or the industry?
How are you handling projects currently under construction? What lessons did you learn from past recessions and how did they shape how you’re handling today’s crisis? Have you learned any lessons from the COVID-19 crisis?
If you have capital to deploy, what are principals telling their acquisitions teams right now?
Where do you think we will see opportunity open up? Who is overleveraged? When will we begin to see properties fall into distress?
Does a property need to fall into distress for COVID-19’s impact to create an opportunity? What non-distressed opportunities will we see?
Will opportunity open up for different ways to add value to existing properties or will it change the way you think about developing new properties?
Where and how will the smart investments be made?
Who is willing to give you term sheets right now and what type of lenders pulled their term sheets?
How are you preparing to get your offices back to work and how will the work landscape have changed when we get back to the “new normal.”
Partners:
WEBINAR SPONSORSHIP
Interested in sponsoring PROFILEmiami events? Generate exposure for your brand and connect directly with some of South Florida’s top real estate professionals. Contact us today to inquire about Sponsorship Opportunities.
PLEASE COMPLETE THE FORM BELOW
Rewind: Edgardo Defortuna Jay Parker and Carlos Rosso on COVID-19 Impact on Residential Real Estate in South Florida
On April 22, 2020 PROFILEmiami hosted an interactive webinar discussion focusing on the impact that the COVID-19 pandemic will have on the residential real estate markets in South Florida. We explored topics such as how are South Florida’s leading real estate professionals are reacting to the crisis, how will the markets be impacted, what future opportunities may present themselves and how will lifestyle changes due to the pandemic, quarantine and social distancing change how we think about and develop residential real estate.
On April 22, 2020 PROFILEmiami hosted an interactive webinar discussion with over 500 viewers focusing on the impact that the COVID-19 pandemic will have on the residential real estate markets in South Florida. Condo titans Jay Parker, Edgardo Defortuna and Carlos Rosso explored topics such as how are South Florida’s leading real estate professionals are reacting to the crisis, how or will buyer behavior and demographics change, what future opportunities may present themselves and how will lifestyle changes due to the pandemic, quarantine and social distancing change how we think about and develop residential real estate.
Watch: https://youtu.be/xFQSR1naDoI
Panelists:
Speakers:
Edgardo Defortuna - President & CEO, Fortune International
Jay Parker - CEO, Douglas Elliman Florida
Carlos Rosso - President Condominium Division, Related Group
Moderator: Demetri Demascus - CEO & Co-Founder, PROFILEmiami
Topics:
What is your personal outlook on how COVID-19 will ultimately affect the South Florida residential real estate markets? Will there be permanent changes to the market or the industry? Which markets will see the most change?
How are you handling projects currently under construction?
What lessons did you learn from past recessions and how did they shape how you’re handling today’s crisis? Have you learned any lessons from the COVID-19 crisis?
How will quarantine and social distancing change the way we think about residential real estate?
How will it impact the design and development process?
How will it impact the sales and marketing process?
How will it impact consumer lifestyle at home? Will consumers want more space, more land, more amenities in their home? How will this differ between condo and residential?
How will the impact on the market differ between single family and condominium? Will we see a period of suburbanization?
What steps have you guys taken to position yourselves and your companies to emerge from the crisis when we can get back to work?
Partners:
WEBINAR SPONSORSHIP
Interested in sponsoring PROFILEmiami webinars? Generate exposure for your brand and connect directly with some of South Florida’s top real estate professionals. Contact us today to inquire about Sponsorship Opportunities.
PLEASE COMPLETE THE FORM BELOW
JOIN US FOR A WEBINAR: COVID-19 IMPACT ON RESIDENTIAL REAL ESTATE IN SOUTH FLORIDA
Join PROFILEmiami for an interactive webinar discussion focusing on the impact that the COVID-19 pandemic will have on the residential real estate markets in South Florida. We will explore topics such as how are South Florida’s leading real estate professionals reacting to the crisis, how will the markets be impacted, what future opportunities may present themselves and how will lifestyle changes due to the pandemic, quarantine and social distancing change how we think about and develop residential real estate.
Registration Link: https://us02web.zoom.us/webinar/register/WN_8CnLjRjVStabPaNH3ibChg
Join PROFILEmiami for an interactive webinar discussion focusing on the impact that the COVID-19 pandemic will have on the residential real estate markets in South Florida. We will explore topics such as how are South Florida’s leading real estate professionals reacting to the crisis, how will the markets be impacted, what future opportunities may present themselves and how will lifestyle changes due to the pandemic, quarantine and social distancing change how we think about and develop residential real estate. The webinar will be hosted on Zoom and will be open for anyone to join as a listener for free. If a listener cannot attend live, a recording will be sent after the webinar and it will also be uploaded to YouTube.
Where: Once you register, Zoom will send you a link to the webinar.
When: Tuesday, April 21, 2020 | 3-4 PM
Speakers:
Edgardo Defortuna - President & CEO, Fortune International
Jay Parker - CEO, Douglas Elliman Florida
Carlos Rosso - President Condominium Division, Related Group
Moderator: Demetri Demascus - CEO & Co-Founder, PROFILEmiami
Topics:
What is your personal outlook on how COVID-19 will ultimately affect the South Florida residential real estate markets? Will there be permanent changes to the market or the industry? Which markets will see the most change?
How are you handling projects currently under construction?
What lessons did you learn from past recessions and how did they shape how you’re handling today’s crisis? Have you learned any lessons from the COVID-19 crisis?
How will quarantine and social distancing change the way we think about residential real estate?
How will it impact the design and development process?
How will it impact the sales and marketing process?
How will it impact consumer lifestyle at home? Will consumers want more space, more land, more amenities in their home? How will this differ between condo and residential?
How will the impact on the market differ between single family and condominium? Will we see a period of suburbanization?
What steps have you guys taken to position yourselves and your companies to emerge from the crisis when we can get back to work?
Can’t tune in live? Sign up below now and we will share a recording after the webinar.
Registration Link: https://us02web.zoom.us/webinar/register/WN_8CnLjRjVStabPaNH3ibChg
Panelists:
Partners:
Register:
EVENT SPONSORSHIP
Interested in sponsoring PROFILEmiami events? Generate exposure for your brand and connect directly with some of South Florida’s top real estate professionals. Contact us today to inquire about Sponsorship Opportunities.
PLEASE COMPLETE THE FORM BELOW
Rewind: Michael T. Fay Tom Wood and Jacques Bessoudo Discuss COVID-19 Impact On Commercial Real Estate in South Florida Webinar
On April 3, 2020, PROFILEmiami hosted a webinar conversation around the impact that COVID-19 has, and will have, on the commercial real estate industry in South Florida. If you missed us live, or just want to revisit some of the insight our panelists had to offer, we have now posted the full webinar for you to sit back and rewind!
On April 3, 2020, PROFILEmiami hosted a webinar conversation with over 350 viewers on the impact that COVID-19 has, and will have, on the commercial real estate industry in South Florida. If you missed us live, or just want to revisit some of the insight our panelists had to offer, we have now posted the full webinar for you to sit back and rewind! Hear from some of Florida's leading real estate professionals about how they are reacting to the crisis, navigating the uncertain circumstances and preparing for future opportunities that may arise from the economic fallout.
Speakers:
Michael T. Fay, Principal and Managing Director, Avison Young
Jacques Bessoudo, Managing Partner, Galium Capital
Thomas D. Wood, President, Thomas D. Wood & Company
Moderator: Demetri Demascus, Co-Founder & CEO, PROFILEmiami
Topics:
What effects have we seen on valuations, leasing and sales velocity, construction, availability of capital, and tenants in the South Florida real estate market so far?
As a landlord, how are you managing your tenants right now?
In the face of negativity there is always opportunity. Where do you think we will see opportunity open up?
What is the current state of financing - are deals falling out of contract? Bank vs. non-bank sources of capital - who’s willing to lend?
How are you working with your teams remotely?
How is the current economic crisis due to COVID-19 different from that of 2008?
How will different types of lenders and loan products give different flexibility to the borrowers?
What advise do you have for those that currently have financing on their properties?
What is loan forbearance and how is it handled?
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