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Informational Fact Sheet

 


Do these eviction moratoriums mean my tenants won’t pay rent?

Not necessarily, fortunately for investment property owners, COVID-19 Eviction moratoriums do not absolve tenants from paying rent. It merely gives them time to pay. It’s our strong belief that nobody wants an eviction and residents and business owners want to be in their home/operating their business. Currently the most common strategy is setting up payment plans; i.e. getting at least something in April and paying the remaining balance over a period of time.

Is the debt market locked up?

Not yet, unlike the credit crisis of 2008, lenders are still trying to make loans. We expect to see a flight to quality as lender’s prefer strong sponsors and great properties. Those that have strong balance sheets and high quality assets should consider refinancing. Rates have gone down significantly.

What about 1031 Exchanges, have the Feds extended the 45 days?

We have been in discussions with numerous accommodators and attorneys, and at this point there has been no changes to the 45 day or 180 day exchange windows. From our discussions it sounds as if accommodators are optimistic ID and closing periods will extend the length of the state of emergency.

How does acts of God and Force Majeure affect me?

Commercial landlords need to review their leases for clauses allowing no payment or reduced payment for Acts of God or Force Majeure. We’ve heard from large clients and real estate attorneys that they are preparing to deal with tenant claims to reduce or not pay rent because of COVID-19. Should you have a lease allowing the tenant these provisions putting together a proactive strategy to retain the tenant is a sound decision.

Any relief for property owners?

The California Apartment Association said it “will work diligently to ensure that local governments that pursue such moratoria adopt reasonable measures for both rental property owners and renters and that their policies are consistent with the parameters in the executive order,” according to a spokesperson.

What are the latest due dates from the IRS regarding Tax Deadlines?

Following President Donald J. Trump’s emergency declaration pursuant to the Stafford Act, the U.S. Treasury Department and Internal Revenue Service (IRS) today issued guidance allowing all individual and other non-corporate tax filers to defer up to $1 million of federal income tax (including self-employment tax) payments due on April 15, 2020, until July 15, 2020, without penalties or interest. The guidance also allows corporate taxpayers a similar deferment of up to $10 million of federal income tax payments that would be due on April 15, 2020, until July 15, 2020, without penalties or interest. This guidance does not change the April 15 filing deadline. “Americans should file their tax returns by April 15 because many will receive a refund. Those filing will be able to take advantage of their refunds sooner,” said Treasury Secretary Steven T. Mnuchin. “This deferment allows those who owe a payment to the IRS to defer the payment until July 15 without interest or penalties. Treasury and IRS are ensuring that hardworking Americans and businesses have additional liquidity for the next several months.” Today’s guidance will result in about $300 billion of additional liquidity in the economy in the near term. Treasury and IRS will issue additional guidance as needed and continue working with Congress, on a bipartisan basis, on legislation to provide further relief to the American people.

Is there any data from Asia regarding transaction activity?

Transaction activity slowed significantly across Asia in the early parts of 2020. The region experienced almost a 50% drop in transaction volume. “The crisis started earlier in Asia Pacific and activity is off sharply there,” says Jim Costello of Real Capital Analytics. “Very early tabulations indicate that US volume may be down for March and a bit for February,” says Andrew Rybczynski, managing consultant for CoStar Portfolio Strategy. “Real estate transactions tend to take some time to complete, so transaction volume will be slow to react.”“There is an expectation that Coronavirus fallout will slow job growth and household formation,” says Rybczynski. In the long-term, apartment prices are not expected to fall too steeply. “Our general expectation is that apartments hold up relatively well through this,” says Rybczynski. “The demand for apartments is pretty sticky, in comparison to retail or office which can give up space in large quantities if a slowdown becomes too much for their businesses to bear.”

Why are interest rates and terms on the move?
 
10 Days ago, the market was hopeful that falling overnight Fed rates would work their way into the Commercial & Multifamily lending market, unfortunately, in the short term it hasn’t happened. Many lenders have increased rates by 75-100 basis points, increased underwriting vacancy to 10-15%, increased Debt Coverage Ratios, or required higher reserve balances. The reasons, could be many including; lender fears of tenants not paying rent in April and May, concerns over the ability to sell the debt on the secondary market and the ability of the government stimulus packages to reinvigorate the economy.
 
How do you make sure you say and do the right thing?
 
We encourage all owners to have the right plan in place when it comes to communicating with their tenants regarding COVID-19. The illness, classified as a disability requires owners to have a different response depending on whether your properties are multi-family or commercial. Of greatest concern is the owner who self-manages property and while trying to help prevent the spread inadvertently exposes themselves to future litigation. It’s not fun to think about but it whether it was frivolous Prop 65 litigation or increasing pressure from tenant’s rights groups, landlords need to be proactive in protecting themselves. Our team has been working with a number of professional commercial property managers and attorneys to understand the ins and outs.
 
What is the C.A.R. Forms Coronavirus Addendum?
 
The California Association of Realtors is the first to offer a Coronavirus Addendum to it’s purchase and sale agreement. The Addendum is in essence a “Acts of God,” “Force Majeure,” or “Unforeseen Events” condition that gives the buyer the right to; cancel, cancel if they can’t remove their loan contingency or extend escrow for a period of time. This contingency is in addition to the typical due diligence, title, financing and physical inspection contingencies.

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