Green Street Advisors

Property Insights: Towards the Fiscal Cliff

State and local government leaders are tallying the economic damage inflicted by the Covid-19 recession. Budget shortfalls and poor pension fund performance compound pre-existing fiscal conditions. Cities/states in poor health have taken a precarious step towards the fiscal cliff. Greater urgency to address their daunting obligations carries under-appreciated implications for property investors.

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Missing Rents and Declining Property Values

The degree of pain inflicted by coronavirus in terms of rent deferral, rent relief, and tenant BK's/distress causes a major blow to the fragile ecosystem of tenants, landlords, and lenders. This report provides initial guesswork across property types on near-term cash rent collection (or lack thereof) and previews forthcoming reductions in unleveraged real estate values and NAVs.

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The Never-Ending Uphill Retail Struggle: Who Will Prevail?

Covid-19 has accelerated retail decline by virtually eliminating international tourism and triggering compulsory quarantines that keep consumers at home. Rent deferrals are now a forgone conclusion and rent concessions likely forthcoming. Despite the apparent constant stream of bad news, there are always relative winners and losers in the sector. This provides an opportunity to make investment decisions based on property-type, tenant concentration and the financial situation of each owner.

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Property Insights: Everybody CARES

The CARES Act arrives at a critical time for commercial real estate as difficult decisions are made on April rent and mortgage payments. The stimulus bill is most clearly supportive of individual and small business tenants. However, some aspects of the CARES Act could prove to be quite helpful for large tenants. Additional insights in this report include:
  • What does this stimulus plan mean for real estate?
  • How exactly do individuals and business benefit?
  • Clarifications to keep an eye out for.

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Heard on the Beach: The Sum of All Fears

The fallout from what promises to be a record-breaking plunge in GDP should have somewhat predictable impacts across property sectors. The outlook is complicated, however, by outsized effects on properties that serve as gathering spots and/or cater either to tourists or an older crowd. The market has had time to pass a preliminary judgment on how these risks add up. Less clear is whether the market has discounted the impact that cash flow disruptions/excessive leverage might have on REITs with less-than-pristine balance sheets. And there are plenty of them.

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Socially Distanced Pricing Behaviour Can Pay Dividends

Volatility has naturally spiked during this pandemic and is likely to remain elevated. Agile investors can take advantage of inter-sector property price movements that deviate substantially from their underlying historical economic sensitivity. The key is to focus on the GDP sensitivity of property sectors as well as the balance sheet position of individual PropCos as they make relative valuation moves. Those willing to make directional bets should use this information across and within sectors to generate outperformance.   

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