Landmark Links March 20th – Ground to a Halt

Must Read: It has now been a couple of weeks since the world largely stopped.  The speed with which this recession has hit has been nothing short of shocking.  I’ve spent a good portion of the past few days on the phone with contacts throughout the industry to get a gauge on what they are seeing out there and want to give you a sense of what we are seeing and hearing:

  1. Escrows: While there are still transactions moving forward, we are hearing more than a little anecdotal evidence of deals falling out of escrow.  Why?  There are quite a few reasons that I’ll get to later but they mostly all come back to the fundamental reason that its impossible to value an asset accurately in an environment like this so the spread between what a buyer will pay and a seller will accept has become substantial.  The deals that aren’t falling out often have buyers asking for price reductions or extensions or both.
  2. Rent: We have heard from several clients that tenants are giving notice that they will not be able to pay rent next month.  This is a problem for both tenants (who owe rent) and landlords (who have to make mortgage, tax, insurance, etc payments.  Economic life may have ground to a halt but the financial world has not.
  3. Leases: Leasing brokers are telling us that pretty much everything is on hold.  Have also heard some specific cases of substantial requests for lease abatements. Just as in the escrow section above, how does one commit to a lease in an environment like this when they have zero visibility as to their business prospects in the short to intermediate term?
  4. Equity Partners: Most of the institutional capital seems to be on the sidelines until things settle out a bit.  High net worth and family offices appear to be doing the same.  This is perhaps the understatement of the decade, but it is not a good time to raise equity.
  5. Banks: Banks are still mostly open for business but are cautious and highly unlikely to lend on anything that has hair on it until the dust begins to clear.
  6. Debt Funds: This is perhaps where the biggest problems are likely to occur.  We are already seeing some debt fund lenders dropping out of deals.  The CLO market – which is what many funds rely on for capital is unstable at best and we have heard anecdotal evidence of debt funds facing margin calls on their backleverage lines. There are still funds that are actively lending but they are definitely in a risk-off mindset and unlikely to get too creative on any new loans.  There has been a massive proliferation of capital in this space over the past few years and there are a lot of players that have not fully experienced a downturn.  This is where there is the largest distinction between high quality funds and the others.  If a fund has blue-chip banks providing its backleverage, its likely open for business.  If its funded by CLOs or lower-quality senior lenders, there is a good chance that its not.  We are entering a survival of the fittest environment in this space and things are changing quickly.
  7. CMBS: The CMBS market is a clusterfuck (that’s a technical term).

As I mentioned a week ago, the liquidity that has been propping up this market is now being sucked out.  This is what will ultimately lead to a correction in property prices. I am once again reminded of this excellent quote from Institutional Investor about default cycles.

Default cycles require not just insolvency, but also a lack of external funding to give highly leveraged companies another chance.  If there is no funding source to replace that which is lost, then the weakest companies default, trading and credit losses mount and fund flows get even worse.

Rent defaults and rising vacancy will lead to loan defaults.  In recent years, if a commercial real estate loan defaulted for these reasons, the borrower would simply refinance into a bridge loan to re-tenant.  Today, I believe that option is off the table as the liquidity in the bridge space will continue to recede substantially.

Taking all of the doom and gloom above into account, Landmark is still open for business and  in daily contact with capital providers that continue to have an appetite to invest in the right deals.  Please get in touch if there is any way that we can be of assistance during this challenging time.


Misbehaving: The $17 trillion bond market has become completely dysfunctional and may be worse than 2008 with yields whipsawing violently.  This Bloomberg interview with Jim Bianco of Bianco research is a must-listen.

Land of Plenty: Don’t let the empty shelves fool you. There is plenty of food in the US and the supply chain is ramping up.  The problem (beyond toilet paper hoarders) is the distribution time to restock shelves.

Pushing on a String: Gas prices have plunged but aren’t likely to spur much economic growth since the pandemic has resulted in a lot less driving.


Long Way Down: Top commercial real estate research shop Green Street Advisors is saying that asset prices have already fallen 24%, even if there are not sales to prove it yet.

Dropping Like a Rock: Restaurant traffic is dropping off dramatically and cities like Seattle and San Francisco and Boston are off between 60% and 70% YOY.  These are businesses that still have rent to pay (even if they close) to landlords who have mortgages, taxes, etc.  See Also: American restaurants will need a miracle in the form of a federal bailout to survive.

Unequal Impact: JLL put together a good summary of the likely impact of COVID19 on different segments of the commercial real estate market.  Mutli-family and warehouse will likely fare better than others.

Hardest Hit: The senior housing / assisted living industry is in complete free fall.


Abatement: Italy is cancelling mortgage bills and some other European countries are likely to follow suit.  However, don’t expect a mortgage holiday in the US due to the structure of our mortgage market.

They’re Baaack: In a move that could send rates below 3%, the Federal Reserve is ramping up its purchase of mortgage bonds again.

Virtual Reality: Realtors are postponing open houses which means that the virtual home tour trend is going to accelerate.


Lines Drawn: Coronavirus is showing a generation divide between young people – many of whom don’t seem to be taking it too seriously – and older people who are high-risk.

Back in the Saddle: As the rest of the world hunkers down, China, where the coronavirus began, is getting back to work.  Whether the disease continues to taper off there or begins to grow anew will have profound consequences for the world.

Now For Some Good News: South Korea is providing a template for other countries to fight COVID19 without a full scale lock down.

Blind Squirrel Finds Nut: Preppers are having a bit of a moment in the midst of the coronavirus fallout.

Chart of the Day

On Tuesday, restaurant bookings dropped to zero (yes, 0%) in all of the major cities listed below.  All of these businesses are highly unlikely to pay rent this month and many (most?) employees will be laid off.  This is a taste of what commercial real estate in general and the economy in particular is up against.

Restaurant Traffic

Source: Open Table


Arm and a Leg: A mother and daughter were caught illegally selling body parts from a Colorado funeral home.

Social Distancing: A strip club is now offering “drive though shows” as a way to fight coronavirus because Las Vegas.

All About the Klout: A man in full hazmat gear ran into Walmart, spraying an unknown substance in an effort to go “viral” on YouTube because Las Vegas.  Also, because millennials.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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