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As the coronavirus pandemic bore down on the economy, veteran investor Tom Barrack emerged as one of the loudest voices urging a lifeline for the real estate industry.

Barrack, a longtime friend of President Donald Trump, penned a series of much-discussed blog posts and took to the airwaves, warning that the real estate industry could collapse. His alarm hit close to home when Colony disclosed this month that it had defaulted on $3.2 billion worth of loans backing the company’s hotel and health care properties.

How this Real Estate Recession is Different

One of the biggest differences is that the current crisis hasn’t resulted in a breakdown of the banking system — at least not yet. Some lenders may be skittish and hesitant to make loans, but the global and U.S. financial industries are, by and large, still working. Although that could change if massive defaults lead to a banking crisis.

And this time around, investors are game planning and looking at opportunities a lot earlier.

When the housing and financial markets collapsed in 2008, people were afraid of their own shadows. It took a year and a half for people to invest in opportunistic and distressed deals. This has now happened in two months.

Hotel Industry Real Estate Woos

Hotels have been among the hardest-hit asset classes as the pandemic brought business conferences, tourism, and travel to a virtual halt. The national occupancy rate bottomed out at about 25 percent in late April, according to the hospitality data firm STR. Had many of the emptiest hotels not closed, removing their vacant rooms from the calculation, the rate would have been far lower.

The Retail Real Estate Industry

The retail market is also in trouble as a domino effect of store chains failing to pay rent puts mall owners and other landlords on the defensive.

National retail chains paid just 58 percent of their rent in April, according to data firm Datex Property Solutions. That was down from 96 percent during the same period last year. H&M, Gap, Foot Locker, Barnes & Noble, and two dozen others among the 135 chains in Datex’s report paid little or no rent at all.

At the same time, a growing number of popular brands, including J. Crew and Neiman Marcus, have filed for bankruptcy in the past two months.

The whole transition from bricks and mortar to online shopping got sped up by 10 years in the last few weeks,

The Residential Real Estate Industry

On the residential real estate side, there’s been much hand-wringing over whether tenants would be able to pay rent. By early May, roughly 80 percent of 11.4 million U.S. households surveyed by the National Multifamily Housing Council said they paid all or part of their rent. The survey, it should be noted, is heavily weighted toward large institutional property owners.

At the same time, institutions insured by the FDIC had $458.7 billion in outstanding multifamily loans at the end of 2019, the agency’s data show. And as U.S. unemployment surges higher — with jobless claims hitting 36 million since the beginning of the pandemic — renters increasingly lack the resources to compensate for major income losses, according to Harvard University’s Joint Center for Housing Studies.

No “forbearance fairy” for the Real Estate Industry

As more residential tenants begin to skip out on rent checks, a growing number of property owners are turning to their lenders for relief. But that can only go so far for some borrowers and it can be an arduous process.

About 26 percent of borrowers with CMBS loans have asked their special servicers about relief since the coronavirus started, according to Fitch Ratings. Of those requests, just 3 percent have been transferred to special servicing. The number of calls for help dipped in late April, but that’s expected to be just a lull before more borrowers seek a break.

Investors are lining up to buy stressed or nonperforming loans, hoping they can turn a profit by reworking the loans or, in some cases, taking control of the properties. But if opportunities don’t arise the way they imagine, those funds risk posting underperforming returns.

Capitalism without bankruptcy is like Catholicism without Hell.

There’s also a question about how deep the hit on real estate will — or should — be.

The federal government’s $6 trillion intervention thus far will soften the blow. That figure includes the $2.15 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act and trillions the Federal Reserve has spent to prop up financial markets by buying bonds and mortgage-backed securities.

Small landlords, who own about half of the country’s 43 million rental apartments, are lobbying Washington for a $100 billion aid package to make up for unpaid rents. Without it, they fear they’ll get taken out by big Wall Street firms looking to snap up distressed properties.

Others argue the system works better when companies are allowed to fail.

Boston Real Estate and the Bottom Line

When it looks like the world is totally ending, that’s the hardest time to actually push the button and buy Boston real estate for sale.

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