Commercial Real Estate Teeters on Brink as Tenants Struggle to Pay Rent

Chris Gaetano
Published Date:
May 22, 2020
Growing numbers of commercial real estate tenants are unable to pay rent, particularly in retail, sending shock waves throughout the industry, said Bloomberg. Landlords are sending out literally thousands of default notices to retailers who have not paid rent for as many as three months. In some cases, landlords have resorted to locking up stores. One analysis estimates that, in April alone, as many as 45 percent of rents, totaling $7.4 billion, went unpaid. Landlords, meanwhile, have their own bills to pay, such as mortgages, which puts increased pressure on them from their creditors.

The New York Times noted that many residential rents have also gone unpaid, but the damage is greater in the commercial real estate sector by far. In New York City, at least 25 percent of residential rents have not come in. Conversely, some commercial landlords are reporting delinquencies of 50 to even 80 percent.

The Times also pointed out that the current state of affairs carries public financing implications as well, given that property owners, facing shrinking rent revenue from customers, will likely be unable to pay their property taxes in full when the deadline hits.

Outside rent, sales also seems to be in a tough spot in this time of the coronavirus. Residentially, The National Association of Realtors reported that sales of existing homes plunged by 17.8 percent from March to April, and by 17.2 percent from the same time span last year. Those looking to sell their homes, however, have not yet considered lowering prices to attract buyers, because prices actually increased in the same time by 7.4 percent, the 98th straight month of year-over-year gains. With regard to commercial property, Commercial Real Estate Development Association reported earlier this month that the NAIOP CRE Sentiment Index, based on a survey of real estate practitioners, has dropped below 50 for the first time since its inception. The NAIOP CRE Sentiment Index for March 2020 is 45, falling below 50 for the first time since the index began in 2016. It is a substantial drop from 57 in September 2019. A score below 50 indicates unfavorable conditions CRE conditions are expected in 12 months.

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