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Posted by: | Posted on: September 24, 2020

The Percentage Lease Concept is Poised to Spread

The pandemic has opened the door to a whole host of negotiations about rent abatements, other concessions and lease adjustments between retail landlords and their tenants. 

“The pandemic has highlighted the need for many leases to have a greater degree of flexibility to accommodate significant business interruption better,” says Omar Eltorai, market analyst at Reonomy.

Eltorai says the pandemic has produced a greater interest in more flexible lease terms. Now, he expects the percentage lease concept to grow more popular. “While not new, the percentage lease concept will likely become more widespread – particularly in retail,” he says. 

Percentage have generally only existed for large retailers, according to Eltorai. “The way that the leases work is that they have one fixed rent component and one variable rent component,” he says. “The fixed component is the base rent, which is generally below market rate, and then the variable component is a

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Posted by: | Posted on: September 23, 2020

How Some Multifamily Metrics Can Mislead in This Current Environment

As a provider of joint venture and general partner equity, real estate investment firm RanchHarbor has been seeing an influx lately of multifamily investment opportunities presented by sponsors as value-add. However, upon a closer look at the underwriting, these deals do not actually fit the typical value-add investment profile, says Adam Deermount, co-founder and managing director of the company. Instead, these opportunities end up being cap rate compression plays under the guise of value-add and are priced to perfection in today’s market.

“Most of the return on investment is generated by rent inflation buoyed in the early years of the investment by positive debt service arbitrage due to interest only terms,” Deermount tells GlobeSt.com.

Now here’s the rub: If a value-add opportunity requires market annual rent growth of 3% over annual expense growth of 2%-3% over a five-year hold for the returns to work, it is not a really a

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Posted by: | Posted on: September 22, 2020

Equity Investors Feel the Pain from Missed Rents

With lockdowns and social distancing measures keeping people at home, tenants all across the US are having difficulty making their rent payments.

Their requests for rent relief are starting to affect equity investors, according to a new report from Bryan Reid, executive director of MSCI Research, and Niel Harmse, senior associate, Global Real Estate Research. Reid and Harmse analyzed fund- and asset-level data for 107 property funds in the UK, Europe, Australia and North America.

Not surprisingly, the pandemic hit retail and hotel rental incomes the hardest. From December to June, the NOI of retail assets declined by 21.4%, and hotel assets saw a 39.7% drop. NOI growth was flat in the office and residential sectors, while it grew 1.4% for the industrial sector, according to the MSCI Global Quarterly Property Fund Index. 

Reid and Harmse also evaluated distribution yields among the funds they tracked to see if they reveal

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Posted by: | Posted on: September 21, 2020

Regulatory, Legal and Debt Issues Matter in Tenant Negotiations

When a landlord is negotiating with a tenant, understanding its balance sheet, cash position and debt load and maturity schedule are key to a successful outcome. 

“If they have debt, has the tenant had any conversations with the lenders about potentially extending the period when they need to service it or move interest payments back on the calendar,” says Brad Tisdahl, Principal and CEO of Tenant Risk Assessment.

Getting answers to those questions can help a landlord understand the tenant’s balance sheet flexibility.

“We want to understand how flexible a company’s balance sheet is to ride out the pandemic and the surrounding uncertainty,” Tisdahl says. “When we’re thinking about that, we’re trying to assess whether we’re going to be granting relief to a tenant that may not survive the pandemic.” 

The lender’s relationship with the tenant is pivotal.

“We’re trying to understand whether a lender is going to be inflexible,

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Posted by: | Posted on: September 20, 2020

NAA Files Suit Against CDC Over Eviction Moratorium; Seeks Stay

The National Apartment Association has joined the New Civil Liberties Alliance in a lawsuit challenging the US Centers for Disease Control and Prevention’s national eviction moratorium that it ordered earlier this month.

The New Civil Liberties Alliance is a group focused on reigning in the expansion of federal agency powers.

The associations are seeking a stay to the CDC’s order as part of the initial filing, NAA President and CEO Bob Pinnegar tells GlobeSt.com. “Then we will move on from there.”

There is a two week waiting period after the filing, he explains, and the hope is to get a hearing as soon as October on the matter.

Richard Lee Brown, et al. v. Secretary Alex Azar, et al., has been filed in the US District Court for the Northern District of Georgia Atlanta Division.

The suit argues that federal agencies do not have powers to waive state laws

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