REAL ESTATE DEAD? TIME TO BUY?


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With the economy at a standstill, U.S. office space under long-term leases is no longer a safe investment.
Long-term leases no longer offer a guaranteed return if the tenant can’t pay rent or goes out of business.
As a result, investors are bailing out of real estate investment trusts as tenants successfully pressure their landlords for lower rents.
In Manhattan, the pace of office leasing fell 46.9 percent in this year’s first quarter.
SL Green Realty, which touts itself as New York City’s largest commercial landlord, has one of the heftiest debt loads among large, publicly-traded real estate companies. Its’ share value has been halved this year; the stock price of Vornado Realty Trust, also with holdings concentrated in New York City, has dropped 44 percent since December.
Knotel, a New York company that leases office space and then re-rents it to gig workers and start-up companies, recently laid off 30 percent of its staff, temporarily suspended work for another 20 percent, and is surrendering one million of its five-million square feet of leased space back to its landlords.
WeWork, which also leases co-working space, has skipped April rent payment in several of its U.S. locations and is trying to renegotiate leases or convert them to management agreements.
WeWork has been in financial straits since last fall when its plan for an initial public offering fell apart, due in part to its high real estate expenses.
The company’s bond values have fallen from 90 cents on the dollar in February to below 40 cents now.
The Next Bonanza: Distressed Real Estate

Cash-rich property investors are getting ready to scoop up real estate they believe is coming to the market at bargain prices.
The virus-inspired economic crash has shuttered hotels, restaurants, and storefronts, leaving tenants unable to pay their rent and landlords unable to meet their mortgages.
To avoid the costly, time-consuming foreclosure process, many lenders often choose to sell these “distressed” loans at discounts to investors willing to take on the risk.
Properties that are foreclosed and put up for sale would be on the market at a time when prices are lower, and buyers more scarce, than they have been in years. Sellers would be more likely to accept low bids to escape their lingering liabilities.
Commercial real estate prices have more than doubled since the Great Recession, Real Capital Analytics reports. Many investors thought prices had peaked and so have been waiting for prices to fall before buying.
This might be that time. Commercial property prices fell 35 percent from 2008 into 2010 during the Great Recession, according to Real Capital Analytics. Investors who bought in that trough profited handsomely as prices recovered.
Private “vulture” funds that specialize in snapping distressed real estate are sitting on $142 billion in cash, compared to $94 billion in 2008, noted analytics firm Peqin.
The Blackstone Group closed a $20.5-billion real estate investment fund last September; Brookfield Asset Management raised a $15-billion fund last fall. New York real estate firm Greystone & Co. is assembling a $400-million fund to buy troubled loans, and the Fortress Investment Group was buying troubled mortgages before the pandemic arrived.
Mortgage-backed securities, the bundles of mortgage loans that were villains in the Great Recession, also are troubled assets once again.
Many are already on the market, put up for sale by real estate investment trusts, or REITs, that couldn’t produce the cash their banks demanded as extra security when the real estate market softened. Last month, the Royal Bank of Canada sought bids on $600 million in mortgage-backed securities it had seized from clients.
“Nobody wants to capitalize on anybody’s misfortune,” said David Schechtman at Meridian Capital Group. “But, when you take the emotion out of it, real estate investors… have been waiting for this for a decade.”
TREND FORECAST: We do not forecast a real estate rebound. Instead, we forecast a long and steady downhill slide, since prices in many parts of the world rose to new highs following the Panic of ’08 are overvalued.
Furthermore, it is long forgotten in the media that an economic contraction persisted before the virus hit, which was bringing real estate prices lower. And now, with millennials being economically battered and all generations out of work, deep in debt, and short on cash, what has transpired with the politicians shutting down the world economy is unprecedented in world history.
To believe that those who created the economic murder will resurrect it, as we see it, is incomprehensible.   
 Airbnb Pays Above 10 Percent Interest for $1 Billion in New Financing

To land $1 billion in new funding, Airbnb agreed to pay investors 10 percent interest plus the London Interbank Offered Rate, or LIBOR.
The company also made verbal commitments to reduce its fixed costs “significantly” and strengthen management by adding at least one new executive to aid CEO Brian Chesky.
The investors also received warrants that can be converted into Airbnb stock. The warrants are based on a company valuation of $18 billion, less than half of what it was calculated to be in February and $8 billion below the company’s own estimate of its value late last month.
Analysts expect Airbnb to lose as much as $1 billion this year as a result of the global travel halt.
TRENDPOST: That investors were able to extract such draconian terms for their support emphasizes the trouble that not only Airbnb is in because of the economic crisis, but also the trouble the entire hospitality industry faces. This deal does not bode well for the short- to mid-term financial future of innkeeping.
Moreover, it will dramatically hurt the tens of millions who rely on Airbnb rentals to boost their income.

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