Real Estate’s Pandemic Aftermath
The Right Direction for Borrowers on a Two-Way Street
The CARES Act prohibits landlords from evicting residential tenants or charging late fees for nonpayment of rent during the program’s forbearance period (120 days). Additionally, landlords may not file any action for the removal of a tenant or serve a notice terminating the tenancy before the expiration of the Act. Said notice must give the tenant a 30-day period to vacate, thereby effectively turning the 120-day period into a 150-day prohibition. The CARES Act only applies to properties that are subsidized housing, receive Section 8 or federal funding, or have a mortgage that was made, insured, guaranteed, purchased, or securitized by any federal agency, Fannie Mae, or Freddie Mac. In the commercial arena, no federal prohibition on the filing of evictions exists. However, there may be prohibitions at the State or local level, including in Florida, where the Governor recently extended the statutory period for the filing of evictions until June 2.
By maintaining communication with lenders, borrowers can request modifications to their loan agreement through a reduction of interest rate, mortgage payments, or abatements, which in turn, can help provide rent relief to tenants. To preserve good relations with tenants, transparent communication across the business is required, especially to ensure compliance with requirements of the federal programs.
In a recent article, Multi-Housing News addressed the mortgage industry adapting to the unknown.
HOA: New Challenges & Emergency Powers
Homeowners and condo associations struggle to fund operational costs as condominium owners fall behind on mortgage or association fees. Ineligible for the Small Business Administration’s Paycheck Protection Program, HOA and COA’s are second in line to lenders and may suffer losses if a lender forecloses on a property. Associations can avoid cutting back on amenities or passing special assessments by cutting expenses temporarily and aggressively pursuing defaulting owners, either by entering payment agreements or foreclosing on unpaid amounts. Additionally, under Florida statutes, associations can collect unpaid assessment fees on leased properties by requiring tenants to forward all rent payments until the owner’s balance is liquidated.
The Real Deal shares more in this story about preparing for a drop in collections as owners and renters struggle to pay bills.
CRE…retail bankruptcies and its next evolution
Before the pandemic struck, the commercial real estate market was already softening, now exacerbated with worldwide shutdowns. Retailers and major brands are entering a state of pseudo- or full bankruptcy (i.e. J.Crew) or skipping rent after April’s ratio of collections landed at 20 to 40 percent. Rather than filing for Chapter 11 or refusing rent payment, retailers should negotiate their lease with lenders and landlords, which includes requesting forbearance or deferment. If landlords are unable to provide a relief strategy, they may end up losing thousands of dollars in uncollected rent that may be tied up in bankruptcy cases or evictions. Furthermore, if landlords fail to act quickly, opportunities to repurpose these properties and find new tenants or new uses will be lost. To avoid the uncertainty of a Court ruling, it is advised landlords execute addendums with their tenants offering discounts or payment agreements in response to COVID-19.
Daily Business Review story about how COVID-19 is impacting retailers that were previously struggling.