Landmark Links June 23rd – RIP

One Big Thing

As a result of the pandemic, California politicians predictably attempted to enact a lot of dumb shit in the name of helping citizens that would have ultimately made things much worse instead.  Thankfully, one of the worst ideas, SB 939 died last week when it failed to advance from the Senate Judiciary Committee. For those of you outside of California or living under a rock, here is a summary of what the bill would have done (emphasis mine):

  • SB 939 makes it illegal to serve notice to terminate a tenancy until a full year after the state’s COVID-19 emergency order expires.

  • SB 939 gives one party the upper hand by making the common act of serving a notice to terminate tenancy a violation of the state’s unfair business practices and creates a $2,000 penalty.

  • SB 939 creates a patchwork of local ordinances on the same topic, making it even more complicated for any business that has buildings in multiple jurisdictions.

  • SB 939 allows restaurants, bars and entertainment venues with a decline in revenue of 40% as compared to before shelter in place and facing an ongoing reduction of capacity of 25% or more to engage in good faith negotiations with their landlord to modify any rent or economic requirement regardless of the term remaining on the lease.

  • Under SB 939, should the tenant and landlord not be able to reach a mutually satisfactory agreement, the tenant shall have the option to terminate the lease and not be liable for more than three months’ rent from the start of the shelter in place to cover the entire rest of the lease term.

  • Under SB 939, any third party guarantees will expire with the lease termination.

  • SB 939 will be in effect for at least 22 months from March 2020 until December 31, 2021 or two months after the end of the state of emergency, whichever is later.

  • SB 939 does not apply to any publicly traded company or a company that is owned by or is affiliated with a publicly traded company (franchisee), creating even more unfair treatment of businesses.

Needless to say, this would have created a larger mess.  It would have completely invalidated contract law in California and encouraged all sorts of income statement shenanigans where tenants would have become highly incentivized to fudge the numbers to show revenue under the threshold to get relief.

Both tenants and landlords in the retail space are struggling right now and I’m fully aware of that fact.  However, the best way to deal with this is for the parties who entered into the actual legal agreements to address the issue on a case-by-case basis, not for the state government to attempt a one-size-fits-all solution that would greatly advantage one side.  While I’m relieved that this bill is dead for the time being, its also not a cause for celebration.  This is, after all, California and the next idea will almost inevitably be substantially worse.

What I’m Reading

Record Lows: Mortgage rates hit a new historical low point last week as spreads continue to compress.  But See: Jumbo mortgages are very cheap but tight lending standards make it very difficult to actually get oneAnd: Despite low rates, lenders are making it very difficult to get home equity lines.

Falling Behind: According to mortgage data firm Black Knight, more than 8% of all U.S. mortgages were past due or in foreclosure in May, the highest since late-2011.

Collateral Damage: Typically, an economic disaster like the one we are experiencing means that repo men and debt collectors are incredibly busy.  However, with so many loans in forbearance, these businesses have slowed to a crawl.

Shots Fired: Commercial real estate brokers are getting concerned about CoStar becoming a competitor after the data giant purchased auction platform Ten-X.

Long Way Down: Being the center of the tech universe, coupled with low supply, made San Francisco America’s most expensive apartment market.  Now those same tech firms are allowing for remote work en masse, sending vacancy surging and rents tumbling.

Double-Edged Sword: Many supermarkets are embracing delivery services yet remain skeptical of the now-popular services that boosts sales but hurts margins.  This was a long time coming.  The next step is more investment in efficiency like micro fulfillment centers to direct the process away from traditional retail locations.

Chart of the Day

Source: @LizAnnSonders


Withdrawals: An alcoholic killer monkey left one man dead and 250 injured after going on rampage when his owner passed away and his source booze supply dried up because India.

Necessity is the Mother of Invention: A Soho sex club is reopening with something called socially distanced orgies.

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