Vacant offices. Shuttered restaurants. Empty hotels.
The pressure on real estate was relentless this year as the pandemic took down struggling sectors — and some healthy ones, too. Except for a few blessed sectors, such as industrial space (hello, Amazon!), fiascos were unavoidable.
To explain the catastrophe that was 2020, we picked 10 of the biggest real estate disasters to highlight.
Where is everybody?
Say this for the Partnership for New York City: It is no cheerleader.
The business group released surveys laying out in stark detail how empty city office buildings are. Attendance has risen — from horrendous to merely abysmal. First 8 percent, then 10 percent, then 13. President Donald Trump called Gotham a “ghost town” and his lie trackers didn’t argue.
But every office market struggled as the virus surged and work-from-home proved productive and popular. Dallas barely has 4 in 10 office workers showing up, but guess what? It’s the No. 1 market in the U.S.
“We need to get through a very difficult point now,” said Anthony Malkin, chairman and CEO of New York office REIT Empire State Realty. “We probably won’t see the bottom until the first quarter of 2022.”
Restaurants’ perfect storm
The restaurant business began 2020 stronger than ever. Then came a perfect storm: a deadly virus that spreads like wildfire when people gather indoors without masks. A month later New York limited service to takeout and delivery, triggering mass layoffs.
Reopening has been marked by caution and reversals, and as of October, 88 percent of NYC eateries still could not pay full rent. A month later, 54 percent statewide said they would likely not survive another six months without federal relief.
The experience has been similar elsewhere, including L.A., where even outdoor dining was banned to tamp down a second wave.
A Penney for your retail chain
For brick-and-mortar stores, the pandemic piled on to a retail apocalypse triggered by the e-commerce boom. Shutdowns and infection fears accelerated online shopping’s gains, and 25,000 stores were expected to close as a result of Covid.
Retail giants were among them: J.C. Penney filed for Chapter 11 in mid-May and has since closed 150 locations. (Simon Property Group and Brookfield Property Partners are now trying to salvage it.)
Other retail bankruptcies included Neiman Marcus, Ascena Retail Group and GNC, while many other stores, including Macy’s and Gap, pulled out of malls and pared down their store counts. Home improvement stores such as Home Depot and Lowe’s did thrive in 2020, but for the foreseeable future, it’s Amazon’s world.
Fire in the whole
Covid vaccines will solve many of real estate’s problems in the next year or two, but not the wildfires that have increasingly plagued the West Coast in recent years. And this fire season was the worst one yet in California.
Unfortunately, it is not clear what will keep the seemingly annual blazes at bay. Global temperatures will continue to increase, fostering conditions that put huge swaths of California, Oregon and Washington at risk. Some homeowners are seeing annual fire insurance premiums rise to tens of thousands of dollars, if they can get a policy at all.
One strategy would be to return large, fire-prone areas to nature, concentrate development in urban areas and relocate millions of people, something the real estate industry, especially in California, has never been inclined to do, let alone done.
Heading For Zero
When shaky sectors began to crumble under the pandemic’s weight, that meant trouble for New York’s oversaturated luxury condo market and the developers who created it. If one firm has emerged as the poster child for big bets and bad timing, it would be HFZ Capital Group.
HFZ has faced a reckoning across its multibillion-dollar Manhattan portfolio, with $300 million in collections piling up from its investors, lenders, contractors and other vendors. Sales have dragged and construction has stalled at the XI, its flagship project along the High Line. Making matters worse, the firm’s principals are personally liable for some loans.
While HFZ may be the first big Manhattan developer at risk of losing it all in the pandemic, it is far from alone when it comes to financial woes. Slow sales and a tight market for financing have pushed a number of major projects to the brink of distress and in some cases into foreclosure auctions.
And the supply problem shows no signs of dissipating. Unsold new-development units in Manhattan will take 8.7 years to sell, according to appraiser Jonathan Miller of Miller Samuel.
Anbang, you’re dead
Hotels are hurting like never before, so picking the hospitality sector’s worst fiasco of 2020 is like shooting fish in a barrel. But some fish are bigger than others. In one of the largest real estate deals undone by the pandemic, plans by Chinese insurer Anbang to sell a $5.8 billion luxury hotel portfolio collapsed as the coronavirus crushed the hospitality sector.
The prospective buyer, South Korea’s Mirae Asset Global Investments, pointed to non-pandemic factors as justification for backing out, including a bizarre deed fraud scheme involving a trademark troll, obscure Delaware arbitration laws and possibly high-ranking members of the Chinese Communist Party.
Not that it mattered in the end: In allowing Mirae to terminate the deal, a judge noted that contract terms required Anbang to operate the hotels in the “ordinary course of business” — which the pandemic had rendered impossible.
Pain All Year
Early this year, Yoel Goldman’s All Year Management was lining up a pair of big deals to alleviate the Brooklyn developer’s cash flow problems: a $675 million refinancing for its Denizen Bushwick luxury rental complex, and a $300 million-plus multifamily portfolio sale. Then the pandemic struck.
The portfolio deal seemed to fall through in May, then was renegotiated in July, but the buyers — led by investor David Werner — missed a deposit in September. Meanwhile, the refinancing deal earned provisional ratings from a ratings agency, but that loan didn’t close either. Things came to a head in November when All Year skipped a payment on its Tel Aviv-listed bonds and postponed its financial reporting, sending its bond prices plunging.
The firm is now in default on numerous loans, and the mezzanine lender on its prized Denizen Bushwick property has scheduled a UCC foreclosure sale for February. And on the final day of the year, it was reported that All Year defaulted on a $66 million loan for a property in Gowanus and, having failed to file third-quarter reports and make bond payments, would be delisted from the Tel Aviv Stock Exchange.
Take these jobs and…
The death of the Industry City rezoning reaffirmed local City Council members’ power and willingness to kill major development projects, and reopened real estate’s wounds from losing Amazon’s HQ2.
More than five years after unveiling its plans for a $1 billion commercial hub, the Industry City development team withdrew an application that would have allowed more retail, academic and commercial space, and instead will pursue permitted uses, such as a last-mile distribution center.
Local Council member Carlos Menchaca and other elected officials in Brooklyn opposed the project, arguing that its thousands of new jobs would accelerate gentrification and displacement in Sunset Park. Arguments that the city desperately needs jobs and tax revenue did not move Menchaca, who — far from being chastened — announced his candidacy for mayor.
When shutdowns crippled the economy, landlords braced for an eviction moratorium of perhaps three months. Instead, evictions have been on hold for more than nine.
After being peeled back slightly over the summer, this week the ban was broadened and extended until March 1, with an additional two months for tenants who declare hardship. Landlords say lawmakers are encouraging nonpayment of rent, which could cost them their buildings.
Tenants and their lobbyists will try to carry their political momentum into fights next year for taxes on second homes, universal rent control and canceling rent altogether.
High price of admission
It’s been a difficult year for many in real estate, but especially for Bob Zangrillo. An initial partner in the multibillion Magic City Innovation project in Miami, Zangrillo was charged in the college admissions scandal dubbed Varsity Blues. Zangrillo is also battling allegations by the Federal Trade Commission that a company he chaired was running scam websites that mimicked government sites. Zangrillo is fighting all of the charges, but other developers have already distanced themselves from him. In February, Avra Jain said Zangrillo is out at her Miami River project.
What Is the Canada Mortgage and Housing Corporation (CMHC)
The Canada Mortgage and Housing Corporation (CMHC) is a Canadian Crown Corporation that serves as the national housing agency of Canada and provides mortgage loans to prospective buyers, particularly those in need.
Understanding the Canada Mortgage and Housing Corporation (CMHC)
The Canada Mortgage and Housing Corporation (CMHC) serves as the national housing agency of Canada. CMHC is a state-owned enterprise, or a Crown corporation, that provides a range of services for home buyers, the government, and the housing industry.
CMHC’s stated mission is to “promote housing affordability and choice; to facilitate access to, and competition and efficiency in the provision of, housing finance; to protect the availability of adequate funding for housing, and generally to contribute to the well-being of the housing sector.”1
A primary focus of CMHC is to provide federal funding for Canadian housing programs, particularly to buyers with demonstrated needs. CMHC, headquartered in Ottawa, provides many additional services to renters and home buyers, including mortgage insurance and financial assistance programs. CMHC acts as an information hub for consumers, providing information on renting, financial planning, home buying, and mortgage management.
CMHC also provides mortgage loan insurance for public and private housing organizations and facilitates affordable, accessible, and adaptable housing in Canada.2 Additionally, CMHC provides financial assistance and housing programs to First Nations and Indigenous communities in Canada.3
Professionals and Consumers
CMHC provides services to both professionals and consumers. For professionals, CMHC aims to work in collaboration with different groups to provide affordable housing. Services include project funding and mortgage financing, providing information to understand Canada’s housing market, innovation and leadership networks to access funding and talent to spur housing innovation and increase supply, and providing speakers and hosting events for the industry.4
For consumers, CMHC seeks to provide all the tools an individual would need to either buy a home or rent a home and a variety of information and assistance for current homeowners, such as managing a mortgage, services for seniors to age in place, and financial hardship assistance.56
For financial hardship and mortgage assistance, CMHC provides tools that include payment deferrals, extending the repayment period, adding missed payments to the mortgage balance, moving from a variable-rate to a fixed-rate mortgage, and other special payment arrangements.7
Canada Mortgage and Housing Corporation (CMHC) and the National Housing Strategy
In November 2017, the Canadian government announced the National Housing Strategy.8 Rooted in the idea that housing is a human right, this 10-year, $70 billion project will largely be administered by CMHC, although some services and deliverables will be provided by third-party contractors and other Canadian federal agencies.9
Strategic initiatives of the National Housing Strategy include:
- Building new affordable housing and renewing existing affordable housing stock
- Providing technical assistance, tools, and resources to build capacity in the community housing sector and funds to support local organizations
- Supporting research, capacity-building, excellence, and innovation in housing research10
History of the Canada Mortgage and Housing Corporation (CMHC)
CMHC was established in 1946 as the Central Mortgage and Housing Corporation by the federal government in Canada with the primary mission of administering the National Housing Act and the Home Improvement Loans Guarantee Act and facilitating discounts to mortgage companies. Initially, CMHC began by providing housing to returning Canadian war veterans, and toward the end of the 1940s, CMHC began to administer a program providing low-income housing across Canada.11
In 1947, CMHC was responsible for opening Regent Park, a large low-income housing project, and Toronto’s first urban renewal project. By the 1960s, CMHC introduced co-op housing and multi-unit apartment buildings throughout Canada.11
In 1979, the Central Mortgage and Housing Corporation changed its name to the Canada Mortgage and Housing Corporation
Canadian home price gains accelerate again in May
Canadian home prices accelerated again in May from the previous month, posting the largest monthly rise in the history of the Teranet-National Bank Composite House Price Index, data showed on Thursday.
The index, which tracks repeat sales of single-family homes in 11 major Canadian markets, rose 2.8% on the month in May, led by strong month-over-month gains in the Ottawa-Gatineau capital region, in Halifax, Nova Scotia, and in Hamilton, Ontario.
“It was a third consecutive month in which all 11 markets of the composite index were up from the month before,” said Daren King, an economist at National Bank of Canada, in a note.
On an annual basis, the Teranet index was up 13.7% from a year earlier, the 10th consecutive acceleration and the strongest 12-month gain since July 2017.
Halifax led the year-over-year gains, up 29.9%, followed by Hamilton at 25.5% and Ottawa-Gatineau at 22.8%.
Housing price gains in smaller cities outside Toronto and its immediate suburbs again outpaced the major urban centers, with Barrie, Ontario leading the pack, up 31.4%.
On a month-over-month basis, prices rose 4.9% in Ottawa-Gatineau, 4.3% in Halifax and 3.7% in Hamilton.
The Teranet index measures price gains based on the change between the two most recent sales of properties that have been sold at least twice.
Canada‘s average home selling price, meanwhile, fell 1.1% in May from April, Canadian Real Estate Association data showed on Tuesday, but jumped 38.4% from May 2020.
(Reporting by Julie Gordon in Ottawa; Editing by Christopher Cushing)
Bank of Canada seeing signs of cooling in hot housing market
The sector surged in late 2020 and early 2021, with home prices escalating sharply amid investor activity and fear of missing out. The national average selling price fell 1.1% in May from April but was still up 38.4% from May 2020.
“You are starting to see some early signs of some slowing in the housing market. We are expecting supply to improve and demand to slow down, so we are expecting the housing market to come into better balance,” Macklem said.
“But we do think it is going to take some time and it is something that we are watching closely,” he told the Canadian Senate’s banking committee.
Macklem reiterated that the central bank saw evidence people were buying houses with a view to selling them for a profit and said recent price jumps were not sustainable.
“Interest rates are unusually low, which means eventually there’s more scope for them to go up,” he said.
Last year, the central bank slashed its key interest rate to a record-low 0.25% and Macklem reiterated it would stay there at least until economic slack had been fully absorbed, which should be some time in the second half of 2022.
“The economic recovery is making good progress … (but) a complete recovery will still take some time. The third wave of the virus has been a setback,” he said.
The bank has seen some choppiness in growth in the second quarter of 2021 following a sharp economic recovery from the COVID-19 pandemic at the start of the year, he added.
(Reporting by David Ljunggren and Julie Gordon; Editing by Peter Cooney and Richard Pullin)
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