This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at https://www.nytimes.com/2020/06/05/business/economy/coronavirus-commercial-real-estate.html
The article has changed 17 times. There is an RSS feed of changes available.
| Version 10 | Version 11 |
|---|---|
| Tenants’ Troubles Put Stress on Commercial Real Estate | Tenants’ Troubles Put Stress on Commercial Real Estate |
| (about 5 hours later) | |
| In the middle of March, as Covid-19 was shutting down the U.S. economy, Hughes Marino, a West Coast commercial real estate brokerage firm based in San Diego, wrote an email to clients offering to haggle with their landlords for lower rent. The firm was ready to help companies “restructure their leases as rents collapse,” it said. | In the middle of March, as Covid-19 was shutting down the U.S. economy, Hughes Marino, a West Coast commercial real estate brokerage firm based in San Diego, wrote an email to clients offering to haggle with their landlords for lower rent. The firm was ready to help companies “restructure their leases as rents collapse,” it said. |
| After the email was sent, building owners and even rival brokers accused the firm of trying to cash in on an unforeseen pandemic that has rattled the foundations of the world economy. Jason Hughes, the company’s chief executive, makes no apologies. | After the email was sent, building owners and even rival brokers accused the firm of trying to cash in on an unforeseen pandemic that has rattled the foundations of the world economy. Jason Hughes, the company’s chief executive, makes no apologies. |
| Even with tenants besieged, “landlords are out there saying, ‘You’ve got to keep paying,’” he said. “We represent companies, not landlords, so when there’s an opportunity to renegotiate costs, absolutely, I’m there.” | Even with tenants besieged, “landlords are out there saying, ‘You’ve got to keep paying,’” he said. “We represent companies, not landlords, so when there’s an opportunity to renegotiate costs, absolutely, I’m there.” |
| Faced with plunging sales that have already led to tens of millions of layoffs, companies are trying to renegotiate their office and retail leases — and in some cases refusing to pay — in hopes of lowering their overhead and surviving the worst economic downturn since the Great Depression. This has given rise to fierce negotiations with building owners, who are trying to hold the line on rents for fear that rising vacancies and falling revenues could threaten their own survival. | Faced with plunging sales that have already led to tens of millions of layoffs, companies are trying to renegotiate their office and retail leases — and in some cases refusing to pay — in hopes of lowering their overhead and surviving the worst economic downturn since the Great Depression. This has given rise to fierce negotiations with building owners, who are trying to hold the line on rents for fear that rising vacancies and falling revenues could threaten their own survival. |
| Simon Property Group, the biggest mall operator in the United States, this week sued Gap, the owner of retail chains that include Old Navy and Banana Republic, for nearly $66 million in unpaid rent for April, May and June. | Simon Property Group, the biggest mall operator in the United States, this week sued Gap, the owner of retail chains that include Old Navy and Banana Republic, for nearly $66 million in unpaid rent for April, May and June. |
| “We remain committed to working directly with our landlords on mutually agreeable solutions and fair rent terms, just as our industry and government partners have sat with us in good faith to shape the post-Covid business landscape,” Mark Daniel Snyder, a spokesman for Gap, said in a statement. | “We remain committed to working directly with our landlords on mutually agreeable solutions and fair rent terms, just as our industry and government partners have sat with us in good faith to shape the post-Covid business landscape,” Mark Daniel Snyder, a spokesman for Gap, said in a statement. |
| In many cases, the strongest tenants — those most able to pay — are driving the hardest for a discount. They include brand-name companies like LVMH, the luxury goods conglomerate that owns Sephora and other outlets, and Starbucks, which had $2.6 billion of cash on hand at the end of March and would have little problem selling stock or bonds to raise more money. | In many cases, the strongest tenants — those most able to pay — are driving the hardest for a discount. They include brand-name companies like LVMH, the luxury goods conglomerate that owns Sephora and other outlets, and Starbucks, which had $2.6 billion of cash on hand at the end of March and would have little problem selling stock or bonds to raise more money. |
| “We are having ongoing conversations with our landlords in various markets regarding what may be commercially reasonable lease concessions in the current environment,” Patrick Grismer, Starbucks’s chief financial officer, said in April. | “We are having ongoing conversations with our landlords in various markets regarding what may be commercially reasonable lease concessions in the current environment,” Patrick Grismer, Starbucks’s chief financial officer, said in April. |
| Landlords say strong companies are taking advantage of the crisis to try to get better deals. Anthony E. Malkin, the chief executive of the Empire State Realty Trust, which owns the Empire State Building, said LVMH had stopped paying rent. “That is a massively creditworthy company with tremendous resources, a huge balance sheet and absolutely opportunistically has said, ‘We’re not going to pay,’” he said. | Landlords say strong companies are taking advantage of the crisis to try to get better deals. Anthony E. Malkin, the chief executive of the Empire State Realty Trust, which owns the Empire State Building, said LVMH had stopped paying rent. “That is a massively creditworthy company with tremendous resources, a huge balance sheet and absolutely opportunistically has said, ‘We’re not going to pay,’” he said. |
| Anish Melwani, chief executive of LVMH’s U.S. arm, said the company was in discussions with landlords to find “equitable solutions to mitigate the impact of store closures,” adding that “we are confident we will be able to reach constructive agreements.” | Anish Melwani, chief executive of LVMH’s U.S. arm, said the company was in discussions with landlords to find “equitable solutions to mitigate the impact of store closures,” adding that “we are confident we will be able to reach constructive agreements.” |
| Beyond the immediate impact of business closings on tenants’ revenue are larger questions, including the already-dire trends for malls and shopping centers, how office and consumer behavior might change after the pandemic, and the effects of recent looting and vandalism on retail corridors. Will companies need more space so that employees can spread out, or will they need less because they need fewer offices at all? | Beyond the immediate impact of business closings on tenants’ revenue are larger questions, including the already-dire trends for malls and shopping centers, how office and consumer behavior might change after the pandemic, and the effects of recent looting and vandalism on retail corridors. Will companies need more space so that employees can spread out, or will they need less because they need fewer offices at all? |
| “I’d like to say I have an opinion on all this, and it’s just as good as everybody else’s, because nobody knows,” said Michael Covarrubias, chief executive of TMG Partners, a San Francisco-based developer of office, retail and residential buildings. “We are in the dead zone. There are no leases, no sales, no purchases, no loans. So you can’t get your footing and say, ‘That’s where we are.’” | “I’d like to say I have an opinion on all this, and it’s just as good as everybody else’s, because nobody knows,” said Michael Covarrubias, chief executive of TMG Partners, a San Francisco-based developer of office, retail and residential buildings. “We are in the dead zone. There are no leases, no sales, no purchases, no loans. So you can’t get your footing and say, ‘That’s where we are.’” |
| Commercial real estate — any building that isn’t a home — might be called dull but important. There are no HGTV shows dedicated to the armies of mostly male brokers who rent out office buildings and shopping malls, but these properties are the bedrock of commercial life and are of paramount importance to the financial system. | Commercial real estate — any building that isn’t a home — might be called dull but important. There are no HGTV shows dedicated to the armies of mostly male brokers who rent out office buildings and shopping malls, but these properties are the bedrock of commercial life and are of paramount importance to the financial system. |
| Banks, which have $2.38 trillion of commercial real estate loans on their books, could face a stampede of landlords asking to restructure the loans they took out to buy properties where tenants are falling behind on their rents. After the last financial crisis, losses on commercial real estate lending peaked in 2009, when 3.3 percent of loans were written off, according to the Federal Reserve, but weighed on many banks for years. | Banks, which have $2.38 trillion of commercial real estate loans on their books, could face a stampede of landlords asking to restructure the loans they took out to buy properties where tenants are falling behind on their rents. After the last financial crisis, losses on commercial real estate lending peaked in 2009, when 3.3 percent of loans were written off, according to the Federal Reserve, but weighed on many banks for years. |
| Bankers have started to make concessions to borrowers under stress, like deferring payments and waiving late fees. “Borrowers are asking how we can get through this together,” said Nipul Patel, chief operating officer for Wells Fargo Commercial Real Estate. | Bankers have started to make concessions to borrowers under stress, like deferring payments and waiving late fees. “Borrowers are asking how we can get through this together,” said Nipul Patel, chief operating officer for Wells Fargo Commercial Real Estate. |
| Landlords for hotels and retail space have been hit hardest by the virus, with tenants falling behind on rents as foot traffic and travel have been eviscerated. In turn, landlords have begun to fall behind on the loans used to acquire or build properties. In May, 19 percent of loans backed by hotel properties were more than 30 days past due, and the figure was 10 percent for retail properties, according to Trepp, which collected the data from the loans bundled into commercial mortgage-backed securities. | Landlords for hotels and retail space have been hit hardest by the virus, with tenants falling behind on rents as foot traffic and travel have been eviscerated. In turn, landlords have begun to fall behind on the loans used to acquire or build properties. In May, 19 percent of loans backed by hotel properties were more than 30 days past due, and the figure was 10 percent for retail properties, according to Trepp, which collected the data from the loans bundled into commercial mortgage-backed securities. |
| Updated June 24, 2020 | |
| Scientists around the country have tried to identify everyday materials that do a good job of filtering microscopic particles. In recent tests, HEPA furnace filters scored high, as did vacuum cleaner bags, fabric similar to flannel pajamas and those of 600-count pillowcases. Other materials tested included layered coffee filters and scarves and bandannas. These scored lower, but still captured a small percentage of particles. | |
| A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico. | A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico. |
| The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth. | The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth. |
| The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. | The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. |
| So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. | So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. |
| Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. | Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. |
| A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. | A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. |
| The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. | The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. |
| Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. | Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. |
| If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) | If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) |
| If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. | If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. |
| Just over 2 percent of loans to office-space landlords were past due, but that figure could grow if the economic downturn deepens — and in some New York offices, the impact is already being felt. By June 1, Empire State Realty had collected 80 percent of the previous month’s office rents, its largest source of revenue, and 49 percent of rent from retail tenants. Manus Clancy, the leader of applied data and research at Trepp, said the situation could get as bad as the aftermath of the financial crisis, but with some property types “much, much worse.” | Just over 2 percent of loans to office-space landlords were past due, but that figure could grow if the economic downturn deepens — and in some New York offices, the impact is already being felt. By June 1, Empire State Realty had collected 80 percent of the previous month’s office rents, its largest source of revenue, and 49 percent of rent from retail tenants. Manus Clancy, the leader of applied data and research at Trepp, said the situation could get as bad as the aftermath of the financial crisis, but with some property types “much, much worse.” |
| In the meantime, landlords have to deal with brokers like Mr. Hughes, who argues that owners should renegotiate rents to share in the pain, and legislators like Scott Wiener, who is trying to give businesses a leg up in that transaction. Mr. Wiener, a California state senator, has introduced a bill that would force commercial landlords to negotiate with office and retail tenants whose revenues have been affected by the pandemic — or else allow them to cancel their leases with no penalty. | In the meantime, landlords have to deal with brokers like Mr. Hughes, who argues that owners should renegotiate rents to share in the pain, and legislators like Scott Wiener, who is trying to give businesses a leg up in that transaction. Mr. Wiener, a California state senator, has introduced a bill that would force commercial landlords to negotiate with office and retail tenants whose revenues have been affected by the pandemic — or else allow them to cancel their leases with no penalty. |
| While rent collections for office space are holding up better than for other property types, co-working and flexible space companies — a big source of growth for the commercial real estate industry — are being hit hard as customers pare their spending or avoid communal settings. | While rent collections for office space are holding up better than for other property types, co-working and flexible space companies — a big source of growth for the commercial real estate industry — are being hit hard as customers pare their spending or avoid communal settings. |
| WeWork, racking up losses and bleeding cash even before the pandemic, has stopped paying rent at some properties. Sandeep Mathrani, the chief executive, told CNBC last month that the company had paid “in over 80 percent” of locations in April and May. | WeWork, racking up losses and bleeding cash even before the pandemic, has stopped paying rent at some properties. Sandeep Mathrani, the chief executive, told CNBC last month that the company had paid “in over 80 percent” of locations in April and May. |
| WeWork is the largest private office space tenant in New York and accounted for nearly 5 percent of all new leases in the city last year — and over 7 percent in London, according to data from Cushman & Wakefield. | WeWork is the largest private office space tenant in New York and accounted for nearly 5 percent of all new leases in the city last year — and over 7 percent in London, according to data from Cushman & Wakefield. |
| Companies using co-working space often have shorter-term deals than conventional office tenants, and some are letting their leases lapse. “People are saying, ‘I don’t know if I need it — I don’t know if I’m coming back,’” said John Arenas, chief executive of Serendipity Labs, a company that offers flexible office space. | Companies using co-working space often have shorter-term deals than conventional office tenants, and some are letting their leases lapse. “People are saying, ‘I don’t know if I need it — I don’t know if I’m coming back,’” said John Arenas, chief executive of Serendipity Labs, a company that offers flexible office space. |
| But WeWork and other purveyors of co-working spaces hope to see demand from large companies that want to spread out their work force. Mr. Arenas said that while new inquiries for space were down by half from February, some 40 percent of recent inquiries were from companies looking to adjust after the pandemic. | But WeWork and other purveyors of co-working spaces hope to see demand from large companies that want to spread out their work force. Mr. Arenas said that while new inquiries for space were down by half from February, some 40 percent of recent inquiries were from companies looking to adjust after the pandemic. |
| “This crisis will have accelerated distributed work — and the move to flexibility,” he said. | “This crisis will have accelerated distributed work — and the move to flexibility,” he said. |
| That trend will take time to emerge, if it develops at all. More immediately, the reopening process is layered with complexities. Who is responsible for face masks and checking the temperatures of employees arriving for work? Should buildings leave their doors open to minimize handle touching, or hire attendants to open them? What measures will be needed to avoid crowding in bathrooms, break areas or elevators? | That trend will take time to emerge, if it develops at all. More immediately, the reopening process is layered with complexities. Who is responsible for face masks and checking the temperatures of employees arriving for work? Should buildings leave their doors open to minimize handle touching, or hire attendants to open them? What measures will be needed to avoid crowding in bathrooms, break areas or elevators? |
| “There are 10 emails per hour on how to reopen your buildings,” Mr. Covarrubias of TMG Partners said. | “There are 10 emails per hour on how to reopen your buildings,” Mr. Covarrubias of TMG Partners said. |