The retail sector vs. COVID-19

As restrictions continue to tighten, and fears continue to mount surrounding the spread of coronavirus, retailers are under immense strain. Many have temporarily closed their doors, either voluntarily or mandated by the government in efforts to help reduce the spread.

The World Health Organization declared coronavirus a pandemic on March 11. Total retail traffic in early March fell 9.1%, while retail traffic saw a dip by 3.9% and luxury retail took the deepest dive with a decline of almost 15%, according to Morgan Stanley analysts.

While this pandemic is certainly impacting retail in a big way, it’s also acting as a catalyst of broader trends that have already been happening. “Retail was undergoing fundamental change regardless of coronavirus. The virus is going to accelerate all the trends we’ve been seeing since the global financial crisis, namely brick and mortar retail disappearing in favour of online purchases,” said Tim Savage, clinical assistant professor of real estate at New York University’s Schack Institute of Real Estate.

The limiting factor in the scaling of e-commerce revolves around delivery mechanisms and the product itself, he added. E-commerce players are spending a lot of time and resources trying to solve the last-mile problem. This week, Instacart, an online grocery delivery service, announced its plans to hire 300,000 full-service shoppers over the next three months. Amazon and Walmart also recently said they intend to hire 100,000 drivers and warehouse workers to keep up with demand.

Despite e-commerce making up for some losses, a growing number of small businesses who may not have a strong online presence are uncertain about their survival and are looking to landlords for flexibility. Some landlords, if able, are opting to grant temporary moratoriums on rent.

“Maintaining positive tenant relationships and working with tenants who have bona fide needs will allow landlords to adopt successful relief strategies that provide tenants with sufficient relief for the tenant to remain viable, and ultimately return to full health at a cost the landlord can afford,” Sean Southard

, partner at commercial real estate law firm, Crosbie Gliner Schiffman Southard & Swanson told GlobeSt.com.

Landlords can also consider opting to allow deferred rent payments for a specified amount of time, setting up a payment plan to allow for lower amounts, or allowing tenants to tack payment on to the end of their leases. Both landlords and tenants should review lease agreements carefully to help mitigate risk in whatever ways possible.

Looking at the commercial real estate industry in its entirety, lodging and entertainment have been the first and most affected by the virus. Brick and mortar retail will also be adversely affected in the short run, but office space also stands to see some accelerated innovation.

“We are going to see another reimagining of what the workspace looks like. If we all can work remotely from our apartments, the need for liquid co-working space changes, and places like WeWork become less relevant,” said Savage

. Instead, interest in office space for a day or an hour might grow. Either way, the movement away from a traditional 10-year lease will continue, he added. Industrial real estate stands to benefit the most because of said continued reliance on e-commerce.

Fundamentally, Savage said it is a mistake to think of this through the same lens as the 2007/2008 financial crisis. Instead, it should be considered a natural disaster, and in the face of that, traditional monetary policy like lowering interest rates is effectively useless.

Savage suggests the Federal Reserve, Bank of Canada and other nations’ central banks should act as a lender of last resort and provide extremely low interest loans to credible businesses.

“They need to provide liquidity where it doesn’t otherwise exist. Their role is to prevent illiquidity from becoming a solvency issue, so lowering rates is not the solution; providing liquidity to markets is."

Tom Barrack, CEO of Colony Capital and a prominent real estate investor, believes this situation requires urgent action, according to a whitepaper he recently posted on Medium. Barrack said the US commercial mortgage market is on the brink of collapse, as revenues fall, layoffs continue, and consumption evaporates.

“Depressed revenues will increasingly depress, and when combined with hiccups in the credit markets, borrowing costs will continue to skyrocket, further compounding the inability of businesses to support jobs,” he said. “Without jobs, Americans will be unable to make payments on their mortgages, rent, credit cards, and automobiles.”

Source: MPA Magazine 3-26-2020 Author: Kasi Johnston

Are Prospective Homebuyers Still Optimistic?

A survey from Point2Homes says despite the COVID-19 outbreak, Americans are keeping an eye on the markets and those that are actively searching say they will focus on virtual tours.

Thirty-five percent of those surveyed said they are keeping an eye on the market and 22% said they restart their search once the virus outbreak is over.

Also, 19% said they are continuing their search despite fears surrounding COVID-19.

Despite lingering concerns surrounding the virus, 34% of those surveyed said they are looking to buy a home in the next six months. Twenty-five percent said they want to buy a home over the next year and 8% said over the next five years.

Additionally, 41% of people surveyed said they have no concerns around homebuying during these uncertain times and 42% said COVID-19 has not changed their approach to homebuying.

Nearly half of all surveyed said they are focusing their search on virtual tours, with 44% responding as such.

Forty-four percent of prospective buyers over the age of 55 are more cautious when it comes to homebuying during the COVID-19 outbreak.

The latest Primary Mortgage Market Survey from Freddie Mac could also lead to higher optimism, as it found the average 30-year fixed-rate mortgage fell to 3.50% on Thursday.

“The Federal Reserve’s swift and significant efforts to stabilize the market were much needed and helped mortgage rates drop for the first time in three weeks,” said Sam Khater, Freddie Mac’s Chief Economist.

“Similar to other segments of the economy, real estate demand is softening. However, the combination of the Fed’s actions and pending economic stimulus will provide substantial support to the mortgage markets.”

The 30-year fixed-rate mortgage fell from the prior weeks’ 3.65%. Rates for a 15-year fixed-rate mortgage fell to 2.92% from last weeks’ 3.06%.

Danielle Hale, Chief Economist for Realtor.com, said the mortgage market is beginning to settle due to recent actions by the Federal Reserve. However, those actions haven’t been enough to lure people back into the housing market.

“While rates are lower than a year ago, which would normally bring out home buyers, the pause in economic activity and the potential for layoffs and lower income that accompany it appear to be holding some home buyers back,” she said.

“In fact, this week 3.28 million individuals filed initial claims for unemployment insurance nationwide, far exceeding the previous 695,000 claim record set in October 1982.”

Source: MReport 3-26-20 Author: Mike Albanese

Citadel acquired by global investment firm

Non-QM lender Citadel Servicing Corporation has announced that it has been purchased by funds controlled by HPS Investment Partners.

HPS is a global investment firm founded in 2007. It has $61 billion in assets under management.

“We are excited that HPS has purchased CSC,” said Kyle Gunderlock, CEO of CSC.

“HPS have shown through past acquisitions the value they can bring. HPS’s financial and operational resources, as well as their confidence in what the CSC team has achieved, enhances our ability to continue to lead in the non-QM market.”

CSC said that the deal would bring it additional resources, as well as HPS’s “wealth of experience” in growing businesses.

Source: Mortgage Professional America 2-25-2020 Author: Ryan Smith