New York State plans to extend mortgage tax to mezzanine financing and preferred stock financing
In January, the New York State Legislature introduced a (newly amended) bill that would impact mezzanine, preferred stock, and other non-traditional financing methods. Proposed bill (currently in committee) would amend the Real Property Act and Uniform Commercial Code to require the filing of a UCC-1 financing statement in real property registries to perfect a security interest in debt mezzanine and preferred stock investments. In addition, it would change tax law to require a mortgage registration tax on mezzanine debt. The bills define “mezzanine debt” and “preferred equity investments” as “debt carried by a borrower that may be subordinated to the principal lien and is senior to an entity’s common stock or equity of the borrower and reported as assets for the purpose of funding this principal lien. It would not apply to any debt on a co-op or common shares of a residential dwelling where the owner of a co-op apartment is a shareholder of the owning entity, has exclusive occupation of that dwelling and has established and delimited rights under a right of ownership rent.
Washington D.C. Council passed omnibus tenant protection and eviction reform measure
Since the start of the pandemic, at almost every meeting, the Washington DC Council has taken action to protect tenants from eviction. These measures included the initial eviction ban, subsequent extensions of the eviction moratorium, and prohibitions on landlords issuing eviction notices, but in each case these legislative measures were directly tied to the declaration emergency COVID-19. At its last meeting, Council passed an omnibus tenant protection and eviction reform bill that makes permanent changes to district laws. Passed as an emergency measure, the bill will go into effect for 90 days after approval by Mayor Muriel Bowser. The measure includes provisions that:
- Require time-stamped photographic evidence of an eviction notice posted at a tenant’s address.
- Require the Superior Court to seal certain eviction records and allow other records to be sealed in certain cases.
- Require landlords to provide thirty days written notice before beginning the eviction process.
- Prohibit landlords from initiating an eviction for an unpaid amount less than $600.
- Prohibit evictions by landlords who do not have a current business license.
- Prohibit landlords from requesting information from potential tenants about past evictions that did not result in a repossession.
- Prohibit landlords from requesting information about evictions from potential tenants that occurred three or more years ago.
- Prohibit evictions based on a breach of lease that occurred when the tenant was the victim of a crime.
- Require a landlord to disclose in writing the grounds for any punitive action against the tenant.
- Give the tenant the opportunity to challenge these grounds.
- Express Council’s sentiment that the Superior Court should increase the eviction filing fee from $15 (one of the lowest) to $100.
- Require landlords to disclose to potential tenants how they will be screened prior to their rental and provide them with an opportunity to correct any errors in screening data.
Council also passed another measure at the last legislative meeting that would reform the district’s emergency rental assistance program to reduce some barriers and make it easier to access the funds provided under the program for those who have difficulty paying their rent.
Heard in the industry
More than fifty percent of retailers received rent relief during the pandemic: According to a survey by PJ Solomon, a global investment services firm, and the National Retail Federation (NRF), 73% of U.S. retail chains had closed at least three-quarters of their physical stores, including stores located in enclosed malls and retail outlets. centers, at the height of the pandemic. The survey found that less than a third of respondents were paying at least three-quarters of their June rent, but 65% had paid at least three-quarters of July’s rent. Among retailers who have not paid rent, nearly three-quarters said they would repay at least half of all rent owed and more than half said they were able to obtain some form of relief. rent relief from their landlord. The most common landlord concession involved deferred rent arrears to the end of 2020 or 2021 in exchange for reduced roommate rights and delayed exit clauses.
Increase in concessions on office rents: A recent report prepared by Trepp and Compstak revealed that the gap between starting rents and net effective rents increased by 27% in major hub cities including New York, Los Angeles, San Francisco/Bay Area, Chicago, Boston and Washington DC. The increase follows an upward trend similar to that which occurred during the Great Recession, when rent differentials from 2009 rose about 106% for three quarters and peaked ten quarters after the trough. market. In addition to the increase in the rent gap, the amount of rent incentives has also increased during the pandemic. This happens for both direct leases and sub-leases. For example, for two New York properties, after re-exchange negotiations, one landlord provided six months free rent in a direct rental transaction, while another tenant received five months free rent during of the re-exchange of his sub-lease. The number of free months on a lease as a percentage of the total lease term increased to more than 5%, an increase of approximately 30% over the same period last year.
Commercial real estate values have fallen during the pandemic: A recent report from Wells Fargo analyzed the appraised value of 116 properties that had been sent to special services since April 1, 2020. Appraised values for these properties have on average dropped about 27% from the value at origin, according to the report. The majority of distressed properties are in the hospitality and retail sectors. Based on revised valuation figures from the Wells Fargo report, the average LTV in CMBS transactions was 60%, the average LTV is now close to 90%.
Additional information can be found here
Commercial real estate prices increase slightly in August: The latest CoStar Monthly Repeat Selling Indexes (“CCRSI”) showed that commercial real estate prices rose slightly in August after suffering losses in the first few months after the pandemic hit, but are still below pre-pandemic levels. CCRSI uses both an equal-weighted US composite index and a value-weighted composite index. The equal-weighted US Composite Index, which reflects sales of more but cheaper properties typical of smaller markets, rose 0.2% in August. However, it was still down 2.3% from pre-pandemic levels. The value-weighted U.S. Composite Index, which reflects ongoing stronger asset sales in major markets, rose 1.4% in August, down 0.4% from its peak. before the pandemic. Sales volumes for the year totaled $56.2 billion in the first eight months of the year, down 40.8% from the same period in 2019. the investment grade segment and 28 .4% in the general commercial segment in the first eight months of 2020 compared to the same period in 2019.
The performance of CMBS loans is improving but the special service rate is climbing: The Commercial Real Estate Finance Council (CREFC) reported that the overall delinquency rate in the CMBS market fell for the third consecutive month to 8.9% in September, down from its 10-year high, 3% in June. According to analysis provided by Bank of America, of the loans that went from thirty days or more past due in August to current in September, 43% were hotel properties and 39% were loans to individuals who had previously benefited from relief related to COVID-19. However, while the overall default rate has declined, the rate of loans transferred to the special service has increased from 10% in August to 10.3% in September. The increase was driven by loans to hotels and retail businesses. The CREFC report also noted that a quarter of all CMBS-funded hotel loans by outstanding balance are in special management and 18.3% of retail loans are in special management. This contrasts sharply with the end of 2019, when 1.9% of hotel loans and 5% of retail loans were in special management.
The total number of residential mortgages in the forbearance period decreases to 6.87%: The most recent forbearance and call volume survey prepared by the Mortgage Bankers Association (MBA) found that the total number of loans forbearance fell from 6.93% of managers’ portfolio volume the previous week to 6.87% as of September 20. that 3.4 million owners are in forbearance plans. Fannie Mae and Freddie Mac loan forbearance percentage fell for the 16th straight week to 4.46%, an improvement of 9 basis points. The percentage of Ginnie Mae loans forborne remained stable at 9.15%, and the share of forbearance for portfolio loans and private label securities also remained stable at 10.52%. The forbearance percentage for custodians decreased by 7 basis points to 7.11%, while the forbearance percentage for independent mortgage bank managers decreased by 3 basis points to 7.23%.
Additional information can be found here.