COMMERCIAL REAL ESTATE SUBDIVIDES

As more people work from home, shop online, and avoid unessential travel, hotels, shopping malls, and office buildings are rapidly losing their value and their owners are scrambling to survive financially.
Brookfield Property Partners, one of the U.S.’s largest mall owners, is laying off 20 percent of its 2,000 employees in its retail property division.
“Our business has been frustrated, interrupted, and constrained” by the pandemic and economic shutdown,” so “after thoughtful consideration, we have reached the heavy decision to reduce the size of our workforce,” the company said in an e-mail to its workers.
But owners of warehouses catering to e-sellers, self-storage centers, and restaurants and drug stores that have adapted or transformed their business models are holding on, said Michael DeGiorgio, CEO of CREXi, an online commercial real estate agency.
“Hospitality and retail have been decimated” but “the office side is still up in the air,” said Ivan Kaufman, CEO of Arbor Realty Trust, which invests in bundles of mortgages on commercial real estate and multifamily apartments. “The complete elimination of offices is not happening. Many companies realize they still need them. It’s not all doom and gloom. It’s an adjustment.”
Jerome Powell, Chair of the U.S. Federal Reserve, acknowledged commercial real estate’s struggle in a 16 September press conference. He noted that, due to restrictions in their current loan contracts, some property owners are unable to refinance to take advantage of lower interest rates.
Congress has pressed the Fed and U.S. Treasury Department to loosen more aid to commercial real estate owners to give them liquidity until the economy stabilizes.
TREND FORECAST: We maintain our forecast for sharply declining commercial real estate, particularly in densely populated large cities where people are fleeing to ex-urban areas, those who work there are afraid to commute and congregate… and tourism has greatly diminished.