Category Archives: Real Estate

Airbnb Bails Out Highly Leveraged Superhosts As Travel Industry Crashes

Airbnb CEO Brian Chesky wrote a letter to all hosts informing them that the company is committed to a $250 million bailout to cover some of the cost of COVID-19 cancellations. The canceled check-ins are for March 14 through May 31, Airbnb will pay hosts 25% of what they would’ve received via their cancellation policies, and the “payments will begin to be issued in April.”

Chesky said a separate $10 million Superhost Relief Fund would be designed for “Superhosts who rent out their own home and need help paying their rent or mortgage, plus long-tenured Experience hosts trying to make ends meet. Our employees started this fund with $1 million in donations out of their own pockets, and Joe, Nate and I are personally contributing the remaining $9 million. Starting in April, hosts can apply for grants for up to $5,000 that don’t need to be paid back.”

And here’s where the story gets interesting… 

Of the four million Airbnb hosts across the world, 10% are considered “Superhosts,” and many have taken out mortgages to accumulate properties to build rental portfolios. 

With the travel industry crashed, many of these Superhosts have seen their rental incomes plunge in March and risk missing mortgage payments in the months ahead. Chesky was forced to bailout Superhosts because some of these folks have overextended their leveraged in building an Airbnb portfolio and risk imminent deleveraging.

Highly leveraged Superhosts could be the first domino to fall that triggers a housing bust this year. Superhosts can have one property and or have an extensive portfolio, usually built with leverage. So when rental income goes to zero, that is when some have to make the difficult decision of missing a mortgage payment or having it deferred or liquidate the property to raise cash. These decessions are all happening all at once for tens of thousands of people not just across the world but all over the US and could trigger forced selling of properties into illiquid housing markets in the months ahead.

Some of the horror stories are already playing out on Twitter: 

And just like in 2008, when the rent payments stopped, landlords also felt the crunch and went belly up. What’s happening with highly leveraged Airbnb Superhosts is no different than what happened a decade ago. Again, no one has learned their lesson. And we might have discovered the next big seller that could ruin the real estate market: Airbnb Superhosts that need to get liquid. 

Source: ZeroHedge

Retailers Prepare For Civil Unrest; Boarded-Up Stores Seen From SoHo To Beverly Hills

High-end stores across the country have been boarding up their stores in anticipation of civil unrest due to the Chinese coronavirus pandemic.

In Beverly Hills, the Pottery Barn and West Elm stores near Rodeo Drive were spotted with boards across the windows according to TMZ.

Meanwhile, stores in New York, San Francisco, Seattle, Chicago, Paris, Vancouver and elsewhere were similarly boarded up.

Thanks China.

Source: ZeroHedge

“Widespread Panic” Hits Commercial Property Markets: Deals Implode, Renters Disappear, Businesses Shut Down

As a result of the coronavirus outbreak, and the ensuing lock down, the commercial property market has essentially frozen. 

Buildings that were used for all types of purposes: offices, diners, restaurants, hotels – they’ve all been shut down. And industries like the travel industry are forgoing $1.4 billion per week in revenue, according to Bloomberg.

The shutdown is also having an effect on apartment buildings and industrial properties. Nothing is off limits, and it’s sending the commercial property market into chaos.

Alexi Panagiotakopoulos, partner at Fundamental Income, a real estate strategy firm, said: “On the investor side, there’s widespread panic. There’s downward pressure on every aspect of every asset class.”

And there’s no way to value a market when you don’t have a bid and an offer – and you’re not sure when the market will “re-open”. Further, there’s no way to try and model the future value of such properties when everyone is unsure of what the real estate landscape will look like when everything is said and done. 

Scott Minerd, chief investment officer at Guggenheim Partners said: “There will likely be long-lasting changes.”

It’s estimated that investment activity in the space could fall by 45% this year, which would be further than post-9/11 or the 2008 financial crisis. 

Viacom also announced last week that it’s suspending its plans to sell the Black Rock building in Manhattan because potential buyers can’t visit the property. Simon Property Group’s proposed acquisition of Taubman Centers, Inc., is also now up in the air. 

More than $13 billion in funds in the UK has been frozen in property funds while appraisers warn that the virus makes it impossible to assess their value. China’s office market has been devastated with plunging rents and spiking vacancy rates, which could climb as high as 28% next year in Shanghai, according to estimates.

REITs in the U.S. have been destroyed. Names like Brookfield Property Partners, which made a $15 billion bet on malls in 2018, expects “severe consequences” in coming weeks. The company’s CEO says it has $6 billion in undrawn credit lines and cash.

Matthew Saperia, an analyst at Peel Hunt, commented on the potential threat to landlords: “The implications could be far-reaching, but quantifying these is highly speculative at present.”

As the uncertainty grows, the level of credit available begins to shrink. Financing has dried up for hotel, mall and senior living projects and it’s estimated that up to 15% of loans on commercial property could default over the next couple of years if the recession continues.  The value of commercial mortgage-backed securities is collapsing…

Mark Fogel, CEO of Acres Capital, commented: “Nobody knows where deals will be priced and nobody knows just how long this issue is going to affect the world and how much it’ll affect the underlying collateral.”‘

And Minerd believes there won’t be a “back to normal” once this is all over: “I think there’s going to be a permanent change. People are more comfortable at home. Why do they need to commute?”

Source: ZeroHedge

Collapse Review

We just witnessed a global collapse in asset prices the likes we haven’t seen before. Not even in 2008 or 2000. All these prior beginnings of bear markets happened over time, relatively slowly at first, then accelerating to the downside.

This collapse here has come from some of the historically most stretched valuations ever setting the stage for the biggest bull trap ever. The coronavirus that no one could have predicted is brutally punishing investors that complacently bought into the multiple expansion story that was sold to them by Wall Street. Technical signals that outlined trouble way in advance were ignored while the Big Short 2 was already calling for a massive explosion in $VIX way before anybody ever heard of corona virus.

Worse, there is zero visibility going forward as nobody knows how to price in collapsing revenues and earnings amid entire countries shutting down virtually all public gatherings and activities. Denmark just shut down all of its borders on Friday, flight cancellations everywhere, the planet is literally shutting down in unprecedented fashion.

Source: by Sven Henrich | Northman Trader

Anxiety or Covid-19: What is the Real Danger to Your Realty Business?

(Denise Lones) There are many ways to react about the virus breakout. It doesn’t seem to matter where you go – the news is talking about it everywhere. It is completely normal to feel concerned, unsure, nervous, worried, and more.

However, the reality is that there is not a lot that any of us can do about the virus other than be informed and be aware of the things that we can do to keep ourselves and our families safe. From a business perspective it may seem like there is a lot of doom and gloom out there, but there are many things you could be doing to keep yourself busy and productive.

If you find yourself more home bound than usual, there are some things that you can do to make that time productive. You can:

  • Catch up on your client connections by sending out a mailer or cards,
  • Work on your Annual Client Reviews which often get put off because you are too busy,
  • Do custom research for each of your potential clients and send it to them now, while they too may be home bound and have extra time.

While it may feel like the world is slowing down and that real estate may come to a screeching halt, that is just not realistic, and it is not worth worrying about. Stop panicking and start taking action to catch up on projects or to help your potential buyers and sellers plan to do the things that they haven’t had time to do. How many times does a seller tell you that they can’t put their home on the market until they paint a room or put away their belongings or do a deep cleaning? This could be the perfect time for them to complete this project that never seems to make it into their regular schedule.

While the rest of the world may be focusing on only the negative try to keep your mind focused on something more positive and productive. Sit down and make a list of all the projects you would love to complete and then start tackling them.

Don’t spend your time focusing on the “what ifs” of this virus. Focus on what you have control over which is making a huge dent in the things you have been putting off. It is normal to worry, but try to put things into a more positive light. 

Source: By Denise Lones CSP, M.I.R.M., CDEI | Active Rain

Zillow’s Spencer Rascoff Lists His California Brentwood Park Home for $7M Over Zestimate

Rascoff purchased the house in 2016 for $19.7 million

Spencer Rascoff and the property (Credit: Twitter, Zillow, and Google Maps)

Spencer Rascoff, the co-founder and former CEO of Zillow, has put his Brentwood Park estate on the market for $24 million, according to Redfin. The asking price is $7 million over the “Zestimate,” or Zillow’s appraisal of what the home is worth.

Property records show that Rascoff paid $19.7 million for the property in 2016.

The listing states that the 12,700-square-foot home – remodeled by architects Ken Ungar and Steve Giannetti – is located on a half acre in a gated neighborhood. The Zillow Zestimate for the house suggests it’s worth $16.7 million.

Josh and Matt Altman of Douglas Elliman have the listing.

Rascoff purchased the house from investment banker Michael J. Richter, who reportedly paid $9.3 million for the Parkyns Street manse in 2012.

The home has six bedrooms and nine bathrooms, along with a “spectacular” chef’s kitchen, a state-of-the-art theater with stadium seating, a fitness studio and a large master suite with a large balcony. The estate also features a two-bedroom guest wing, a motor court, and a spa, pool and mudroom.

Rascoff is currently launching dot.LA, a news and events company that will cover the tech scene in Los Angeles.

Last year, Rascoff stepped down from Zillow, which has pivoted to an ibuyer model with Rich Barton at the helm.

Source: by Tina Daunt | The Real Deal

UBS’ Flagship Real-Estate Fund Hit With $7 BIllion In Redemptions

The pain for active investors who have under performed the broader market for over a decade, has claimed its first notable casualty for 2020: according to the WSJthe flagship real-estate fund of Swiss banking giant UBS has been hit with about $7 billion in redemption requests following a lengthy period of under performance. As a result, UBS has stepped up efforts to stem the bleeding at its $20 billion Trumbull Property Fund flagship real-estate fund amid concerns over its retail holdings, “as some investors move away from more conservative, lower-return funds.”

The UBS woes follow two months after M&G, a London-listed asset manager, said it has been unable to sell properties fast enough, particularly given its concentration on the retail sector, to meet the demands of investors who wanted to cash out. The investor “run” led the fund to suspend any redemption requests in its £2.5 billion ($3.2 billion) Property Portfolio in early December 2019.

While UBS hasn’t followed in M&G’s footsteps yet and gated investors, the Swiss bank has offered to reduce fees for investors who stay in the fund and to charge no management fee for new investments, according to an analyst presentation to the City of Cambridge. Mass., Retirement System. The bank also recently replaced some in the fund’s top leadership, including Matthew Lynch, the head of U.S. real estate, the WSJ reports.

A mall owned by the Trumbull Property Trust

Alas, once a fund faces a rise in redemption requests – and this becomes mainstream knowledge – the redemptions cascade and capital outflows can be hard to stop. If a fund manager doesn’t have enough cash to meet the requests, it has to sell properties. That often takes time, causing a backlog and increasing pressure on the fund to sell; what usually happens next is a “gate” barring investors from withdrawing funds.

“When there is a redemption queue investors often feel they have to get in line so they aren’t the last ones left to turn off the lights,” said Nori Lietz, a senior lecturer of business administration and faculty member at Harvard Business School.

And as in the case of numerous funds discussed previously, analysts believe that is the case with Trumbull, where the withdrawal backlog in June was little more than a third of where it is today, according to a report by consulting firm RVK for the Ohio Bureau of Workers’ Compensation.  In one of the more recent redemptions, the board of the Kansas Public Employees Retirement System last month voted to ask for some of its money back from Trumbull.

Some background: started in 1978, Trumbull is one of the oldest and largest real-estate funds. It is known as a core fund, a type that focuses on less risky properties and pursues lower but steadier returns than riskier opportunity funds that aim for annual returns around the midteens. Unlike riskier private-equity style funds, which have stricter rules about investors pulling out money before the end of the fund’s life, most big core funds have open-ended withdrawals and no expiration date.

Trumbull and other core funds performed well after the financial crisis, when investors flocked to safer, more predictable strategies after a number of high-performing but riskier real-estate funds blew up in 2008 and 2009.

In fact, as late as June 2015, Trumbull had a $1.2 billion backlog of funds looking to invest, and no backlog of investors looking to get out, according to a report by consulting firm RVK for the Ohio Bureau of Workers’ Compensation. Core funds “just had incredible market tailwinds,” said Christy Fields, a managing principal at consulting firm Meketa Investment Group, Inc.

But over the past year, real returns have fallen back to their historical average, and now funds which as recently as 5 years ago had a wait list for investors, are suddenly hurting. And while J.P. Morgan’s Strategic Property Fund and other funds are experiencing outflows, Trumbull has been the hardest hit. It has performed worse than the core-fund benchmark index for 11 of the past 12 quarters, according to a December performance review by the City of Burlington, Vt., Employees Retirement System.

Between June 2018 and June 2019, the fund had a negative net return of 0.63% compared with a positive return of 5.46% for the NCREIF NFI-ODCE index, according to the RVK report for the Ohio Bureau of Workers’ Compensation.

To bolster the fund, UBS brought in Joe Azelby, a former professional football player with the Buffalo Bills and veteran of JPMorgan’s asset-management division and Apollo Global Management. He took over UBS Asset Management’s real-estate operations in March.

Meketa’s Ms. Fields said some core funds were losing investors in part because of their exposure to the struggling retail sector.

But the biggest culprit for the fund’s woes: Amazon, which has put countless bricks and mortar retailers out of business, and converted many of America’s malls into ghost towns. Trumbull owns across the U.S., many of them acquired when the outlook for the retail sector looked less dire, property records show. The mall sector is struggling with store closures as online retail expands its market share. These properties still account for nearly 20% of Trumbull’s assets, slightly above the industry average.

One of its largest malls, the Galleria Dallas, is expected to lose one of its department stores, Belk, in late March, according to the company. The fund plans to redevelop some malls in a bid to make them more profitable and sell others, according to a person familiar with the matter. At the CambridgeSide mall in Cambridge, Mass., UBS plans to convert some retail space into offices.

Source: ZeroHedge