Many sectors of commercial real estate are facing significant challenges and falling valuations as the widespread social distancing required by the coronavirus pandemic empties office buildings, shops and other businesses. In some cases, property owners, including REITs, are working with tenants on rent relief packages to weather the crisis.
Activist investors might seek buying opportunities in the wake of the current market turmoil, and REITs should be prepared to deal with them, says John Haggerty of Goodwin. REITs can take several proactive steps, including forming long-term business plans and keeping the board involved as plans change, Haggerty says.
TPG RE Finance Trust is consulting with investment bank Houlihan Lokey to consider potential transactions as it grapples with the coronavirus pandemic, sources say. The REIT delayed its first-quarter dividend last month, pointing to a cash crunch.
A look back at the 2008 global financial crisis (GFC) shows the lead/lag relationship between REITs and unlisted (or private) real estate when market conditions change. Despite the underlying assets being substantially the same, REITs react in real time to market conditions while shocks to private real estate valuations are revealed over time as a result of reporting lags.
The 8 million individual landlords in the US will have a difficult time staying afloat as tenants are unable to pay the rent due to the coronavirus. The majority don't have access to lines of credit that could assist them, an Avail survey found.
J.C. Penney made its April rent payments for its nearly 850 US stores, the company said, but other retailers are planning to defer or cut payments amid the coronavirus outbreak that has forced stores and malls to close.
Mortgage rates have declined for the second consecutive week, while the coronavirus pandemic has led to dwindling applications and rocketing unemployment. The rate for a 30-year mortgage has averaged 3.33% this week, down from 3.5% last week, according to Freddie Mac.
The economy lost 701,000 jobs last month, and the unemployment rate climbed to 4.4%, according to the Labor Department, as companies struggled with the spread of the coronavirus. The numbers likely do not portray the full impact of the pandemic because they are based on a survey completed midmonth.
A federal program designed to provide relief to small businesses got off to an uneven start, with some banks saying they weren't ready to accept applications. The Paycheck Protection Program is expected to draw interest from millions of small businesses.