April Rent Collections Suffer, Secondary Markets Thawing, More Stimulus?

Recently released statistics on approximate April rent collection by product type from NAREIT and NMHC: Apartments (93% but increases in late and partial payments), Industrial (99%), Grocery Anchored Retail shopping centers (46%), Retail Malls (approx.20%), Office (89%).  April collections are benefiting from tenants spending reserves/savings and following March’s partial shutdown. May collections are anticipated to be lower in the wake of April’s near total shutdown, especially for apartments and retail. The upcoming months are full of anticipation and uncertainty as society begins to reopen. The strength of the economy is based on consumer confidence which will be highly dependent on safety, both actual and perceived. Lending: The secondary market is so critical for overall CRE liquidity and is showing signs of life as some CMBS originators are considering new originations (typically 65% LTV, no hotels, limited retail, multi tenant). The industry continues to lobby the Fed and Congress to allow floating rate CLO paper to be purchased by the Fed. Life companies are still very cautious, but we are seeing more of them emerge from the initial market shock and start originating, albeit at low leverage. We are seeing the local banks continue to lend cautiously mostly on apartments. Rates/Inflation: Treasuries remain ultra low, negative oil prices are another signal that inflation is not anywhere on the horizon. The Treasury rate remains low even after the Fed cut its volume of Treasury purchases to “only” $15 billion (down from $30 billion). Stimulus: Congress passed a $480 billion bill to replenish SBA PPP program. These days that’s a relatively “small” bill. The next big multi trillion dollar package is being discussed for May (CARES2 or Stimulus 4). Infrastructure, tax incentives (restaurants, entertainment, sports, etc according to the President), and aid to state and local governments are the most discussed elements. The Mortgage Bankers Association would like to see forbearance policies codified by law and liquidity provided for loan servicers, allowing them to keep bondholders current. This would be another critical element towards restarting the securitized loan marketplace. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners