One Big Thing
The NMHC Rent Payment Tracker reported that 89% of tenants paid their June rent by the 13th, the same percentage as paid in 2019. This is clearly good news but I still think that the important date to watch is August, just after enhanced unemployment benefits are scheduled to expire. If enhanced UI is extended – even at a lesser amount – I would expect payments to remain high. If not, we will likely see tenant distress, especially at the lower end of the income and rent spectrum.
The big question remains whether or not the federal government has the stomach to continue extending them until employment recovers back near pre-pandemic levels. I suspect that they do in a general election year. After that, all bets are off.
What I’m Reading
Chopping Block: A recent CFO survey by research and advisory firm Gartner focused on companies from around the world with $50MM – $500MM in revenue found that real estate costs will be among the leading areas targeted for cuts for the rest of this year, and as budgets are put together for 2021. Real estate costs were the top item on the budget chopping block for next year at -3.4% after being cut by 8% in the first half of 2020 and a projected 8% in the second half.
Braced for Impact: Though the numbers haven’t shown it yet, many are bracing for a spike in personal bankruptcies once coronavirus relief efforts and stay-at-home orders have been exhausted.
Flex Space: The hub and spoke model – with a central headquarters located in a major city and smaller locations closer to suburbs where workers live – is likely to gain traction among large office tenants. This will put pressure on landlords to offer more flexible terms, especially on spoke locations where demand for space fluctuates. Somewhat ironically, this could look a lot like the much-maligned co-working model – just in more suburban locations and likely with different build-outs than WeWork..
Cash Crunch: Not only are restaurants struggling to finance their re-openings – often with no cash in the bank – they are also struggling to repay overdue bills. Combine this with higher food costs and reduced capacity due to social distancing and you have a big potential problem:
The biggest problem is cash. Many restaurants get their food on credit and pay 30 days later with the revenue they have earned from selling it. Many never sold the food they bought before the shutdown and haven’t paid for it. Some suppliers won’t deliver new food on credit unless some of the old bills are paid.
Chart of the Day
Source: The Real Deal
Coincidence? Ford is releasing a new Bronco SUV – which hasn’t been in production since 1996 – on OJ Simpson’s birthday.
Biological Weapon: Vienna police fined a man €500 for breaking ‘massive intestinal wind,’ aimed at officers when he was arrested (h/t Steve Sims). If I were ever arrested for this, I would frame the summons above my desk.
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