Resources to help navigate implications for global real estate markets
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Company Communication
COVID-19 Perspectives
A Message From our CEO
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Pandemic: A Period in Time and the Path Forward
RESEARCH SPOTLIGHT
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Scenario Planning is Back: Preparing for the Unexpected
PERSPECTIVE
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Coronavirus Aid, Relief, and Economic Security (CARES) Act
research spotlight
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
ngkf.com
03.26.20
03.24.20
03.16.20
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Multifamily Capital Markets: Covid-19 Impact
market update
03.27.20
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Capital Markets: Weekly Update 3/23/20
market update
03.23.20
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The CARES Act and Federal Reserve Policy: A Response to COVID-19
research spotlight
03.28.20
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Capital Markets: Weekly Update 3/30/20
market update
03.30.20
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The CRE Liquidity Crisis and Government’s Response
research spotlight
04.01.20
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Capital Markets: Weekly Update 4/6/20
market update
04.06.20
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Remote Work Strategies in the Time of COVID-19 and Beyond
PERSPECTIVE
03.13.20
Supporting the Cause: Click to Support the Organizations on the Front Lines of the Coronavirus Fight.
Supporting the Cause: Click to Support the Organizations on the Front Lines of the Coronavirus Fight.
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Resilient Occupiers: The Industries Best Positioned for Current Environment
research spotlight
04.08.20
Archives
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Support the Organizations on the Front Lines of the Coronavirus Fight
Company Communication
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Pandemic: The Path Forward in the Washington CRE Market
research spotlight
04.08.20
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A "Tenant's Playbook" to COVID-19
insight
04.09.20
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Global Healthcare Services: Healthcare Real Estate Update
insight
04.10.20
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Survey Results: Responses & Strategies For the Current Crises
research spotlight
04.14.20
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Valuation & Advisory: Hotel Market Occupancy Approaching Zero?
insight
04.14.20
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Global Corporate Services: COVID-19 Office Re-Boarding Roadmap
insight
April 2020
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Property Management: Post COVID-19 Property Enhancements
insight
04.16.20
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CARES Act's Tax Implications for CRE Investors
research spotlight
04.21.20
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Managing Anxiety & Maintaining Productivity While Working From Home
insight
04.24.20
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Fireside chat: How COVID-19 is shifting the workplace culture
International desk
04.24.20
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COVID-19: What we know, what we expect, what we question
International desk
05.01.20
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Market Pulse: The Sublease Conundrum
research spotlight
05.04.20
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Global Corporate Services: COVID-19 Re-Occupancy Guide
insight
05.04.20
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Global Corporate Services: COVID-19 Landlord Re-Boarding Roadmap
insight
May 2020
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Fireside chat: The Post-COVID-19 Workplace in APAC
International desk
05.11.20
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Capital Markets: Weekly Update 5/11/20
market update
05.11.20
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Valuation & Advisory: Property Tax Impacts by State
insight
May 2020
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Real Insight: COVID-19 and the Future of the Life Sciences Sector
research spotlight
May 2020
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COVID-19: What We Know, What We Expect, What We Question
International desk
May 2020
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Connect Conferences: National Multifamily Update - June
insight
06.11.20
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Newmark, CDC-NIOSH & FDA Leaders Discuss A Path Forward
insight
June 2020
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Proactive Property Plans: Helping Tenants Across the U.S.
insight
June 2020
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Global Corporate Services: COVID-19 Situation Report Product
insight
June 2020
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2020 Life Sciences: National Overview and Top Market Clusters
research spotlight
June 2020
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Asia-Pacific Bulletin Recovery from COVID-19
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The Pandemic and Global Retail Markets
research spotlight
June 2020
June 2020
International desk
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CRE Policy Challenges: Navigating an Environment of Increasing Taxes and...
research spotlight
June 2020
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The Economic Recovery and Outlook for U.S. Capital Markets
research spotlight
July 2020
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CRE Policy Challenges: Navigating an Environment of Increasing Taxes and...
research spotlight
06.26.20
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Global Healthcare Services: Healthcare Provider Post-COVID-19 Strategies
insight
July 2020
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The Impact of Health and Wellness on Office and Multifamily Design...
research spotlight
July 2020
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Newmark Knight Frank: Global Capital Markets Webinar
insight
July 2020
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COVID-19: Spain What We Know, What We Expect, What We Question
International desk
July 2020
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Transportation, Office Assets, and COVID-19: Property Management Survey Results
research spotlight
July 2020
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COVID-19: Spain What We Know, What We Expect, What We Question
International desk
July 2020
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Transportation, Office Assets, and COVID-19: Property Management Survey Results
research spotlight
July 2020
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India Warehousing Market Report 2020
International desk
august 2020
Back
Insight
At a time when things feel unpredictable, know that we at Newmark are here to serve as a source of stability and reliability, both from a business perspective and a personal one. Our company’s continuity plan is strategically designed to ensure that our service continues uninterrupted, both from the office and remotely. We’re grateful to have the technology and methodology to stay seamlessly connected to our clients and one another. We’re here not only to provide the same level of support as always, but also to advise our clients during these uncertain times and help them revise their strategies to meet the moment. No matter what happens, our team is committed to navigating the current challenges together. Now is when relationships really matter—let’s take care of each other and our people.
I hope this note finds you healthy and safe. We are clearly living through an unprecedented moment in time, and the situation is evolving rapidly. I want to assure you that we are taking every precaution to protect the well-being of our community, consistently anticipating change and adapting accordingly.
All the best, Barry Gosin Chief Executive Officer Newmark Knight Frank
A Message From Our CEO
We’re here not only to provide the same level of support as always, but also to advise our clients during these uncertain times and help them revise their strategies to meet the moment. No matter what happens, our team is committed to navigating the current challenges together. Now is when relationships really matter—let’s take care of each other and our people.
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Of all the major property types, the CARES Act likely will have the greatest direct impact on multifamily, both in terms of tenant relief for various age and income levels, and for asset owner relief in the form of tax credits and suspension of loan payments. Aid for tenants will come in the form of $260 billion in additional unemployment benefits and insurance, which will help renters who were recently laid off or furloughed from their jobs remain in their units and pay their rent. Suspending payments through September for the federal government’s student loan program will support renters, who tend to be younger and indebted by student loans. Tenants who have had a significant loss of income will also be able to apply for Housing Choice Vouchers ($1.25 billion is earmarked), which will help them pay their rent in market-rate housing. For asset owners, the legislation will allow for certain forbearance periods for multifamily owners who have GSE loans (Fannie Mae and Freddie Mac). However, as a condition to this forbearance, multifamily owners cannot charge late fees and/or evict tenants. For multifamily developers who currently have PBS projects, $1 billion has been earmarked to provide additional funds to help maintain and run operations of these properties. Though not included in the CARES Act, municipalities across the country have indicated that they too will enforce limits on rent increases and evictions, which could impact certain asset owners more acutely than others. The legislation is geared specifically toward standard multifamily assets, and the impact on both student and seniors housing remains vague. Student housing may face headwinds with a sizable international enrollment decline in the fall, which will also negatively impact university system revenue. Seniors housing may have to adapt to new ways of protecting the older age cohort, as the COVID-19 crisis represents a greater threat to that demographic. There is a lack of support for lease-up or other value add situations as well.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27. It provides economic support for American businesses and individuals affected by the COVID-19 pandemic. The provisions of the $2 trillion spending measure are wide-ranging and involve relief for tenants and owners of commercial real estate. Following is a summary of the law’s implications for stakeholders across the major commercial real estate property types.
The CARES Act and Federal Reserve Policy: A Response to COVID-19
Multifamily
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Newmark Knight Frank’s professionals stand ready to advise our clients on how the CARES Act and the Fed’s recent actions can support their business activities. We invite our clients to call on us for guidance. Sources: Bisnow, Federal Reserve, Kalibri Labs, MarketWatch, NAHB, NAREIT, The New York Times, NKF Research, NREI, The Washington Post
03.28.20
IMPLICATIONS FOR THE MAJOR COMMERCIAL REAL ESTATE PROPERTY TYPES
Office tenants at all levels, from large Fortune 500 companies to small businesses, stand to benefit from a combination of CARES Act relief and accommodative Federal Reserve policy, while considerable attention is being paid to supporting small businesses through the worst of the crisis. In addition to benefits for employees who have been furloughed, the legislation will create a $500 billion fund to make loans and loan guarantees to—or investments in—businesses. While the implementation of this process remains vague, the funding is expected to provide short-term relief and liquidity to businesses that need it most, including many office-using companies. Small businesses are expected to receive $350 billion, which is contingent on the loan funds being used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments. Crucially, lease payments are included in the provision, which will ultimately benefit office asset owners, who are less likely to have to endure missed payments or tenant defaults. Sector-specific stimulus, such as the $25 billion earmarked for grants to airlines and $4 billion to cargo carriers, will help major office markets such as Dallas and Atlanta, where airlines have a large presence and represent a material share of office occupancy. Further sector stimulus will be provided to “businesses critical to maintaining national security,” which likely includes companies in the aerospace and defense industry, such as Boeing, but also companies in the biotechnology and pharmaceutical spaces who are on the front lines of the COVID-19 crisis. Critically, the Federal Reserve will now be the backstop to the largest office-using employers in the country, as long as they have investment-grade credit, and will be the lender of last resort if those companies are unable to sell corporate bonds on the open market. Office as a product type remains on sound footing, despite the increase in telework arrangements. Even before the COVID-19 crisis, many technology and financial services companies allowed flexible work arrangements but continued major office expansions, often including more flex and amenity spaces rather than pure office buildouts. Other components of office real estate stand to benefit, such as life sciences lab space. While clusters across the United States were developing in urban areas before the COVID-19 crisis, established markets, such as Cambridge, San Diego and the Research Triangle in North Carolina will likely continue to expand as pharmaceutical and biotech companies become even more critical components of the post-COVID economy. Data center properties have represented a growth opportunity for investors during the current cycle, even before the COVID-19 crisis, and likely will continue to benefit from the increased demand for data services across all segments of the economy and population—particularly if more employers expand their telework policies.
Office
The CARES act will provide direct relief for consumers of retail goods, via direct payments of up to $1,200 per taxpayer, as well as provide $350 billion in loans for small businesses, of which many are retail-oriented local businesses. The retail sector will also benefit from relief to the unemployed and those in the middle- and lower-income brackets, who will continue to spend money on consumer staples. However, the overall impact on retailers has varied greatly during the COVID-19 crisis, with some tenants being hurt badly due to a lack of customers while tenants in grocery, pharmacy, and essential goods and services categories are benefiting as consumers prepare for long stays at home. Notably, several national and regional retailers have announced that they will not pay rent beginning as early as April 1. Retail tenants with large e-commerce footprints have best absorbed the economic impact from the current health crisis and stand to benefit from the relief provided to consumers by the CARES Act. Consumer discretionary retail, on the other hand, will be severely impacted: retailers such as restaurants, wellness/fitness centers or those located on urban high streets are seeing significantly reduced demand due to mandated closures and drastically reduced foot traffic. Some restaurants with robust delivery and takeout services will be able to maintain moderate levels of business. Dense retail contained within regional malls, shopping centers, and food halls will feel more acute pain, as consumers remain at home and continue to avoid large gatherings of people. Ultimately, asset owners and tenants will have to work collaboratively to find a path forward outside of the CARES Act. Local tenants are expected to need and receive more leeway than national tenants, who generally have longer term business plans and more cash. Relief sought by tenants from asset owners will vary but so far often includes the following:
Retail
Short-term rent relief: 30 to 90 days Renegotiation of agreements to percentage rents with significant concessions Free rent, especially if their space is currently being built Long-term reduction in price/rent
Retail and industrial have become more integrated in the current cycle through e-commerce, particularly for firms like Amazon and Walmart, and consequently industrial logistics stands to benefit from the continued demand for consumer staples that the CARES Act will enable. While e-commerce was already benefiting from rapidly increasing adoption in the current cycle, the COVID-19 crisis has introduced online delivery to even more of the U.S. population by necessity and will likely see strong retention of new users even after the crisis has abated. The largest users of warehouse and distribution warehouse space are already planning to expand their operations in major metropolitan areas that have been hardest hit by COVID-19, and are actively hiring workers to handle the increase in demand. Warehouse and logistics space has been the fastest growing segment of commercial real estate in the current cycle, with the largest firms such as Blackstone allocating an increasing amount of capital to the space, anticipating secular growth. This trend is likely to accelerate, as institutional investors will continue to seek well-located last-mile real estate just outside of major metropolitan areas. Companies with a significant e-commerce presence will reevaluate their supply chains after the current crisis and will likely factor future pandemic scenarios into their business plans. The CARES act specifically provides $16 billion for the strategic national stockpile of pharmaceutical and medical supplies. While some of this supply will likely come from foreign sources, there has been renewed national interest in harnessing domestic production to produce the most essential medical supplies and drugs. The pandemic could lead to domestic expansion in the medical device sector, with the largest firms such as Abbott Laboratories, Medtronic and Thermo Fisher Scientific possibly expanding operations. Producers of masks and personal protective equipment (PPE), such as 3M and Prestige Ameritech, might also be encouraged to expand, providing a boost to manufacturing-oriented industrial real estate.
Industrial
Logistics Subsector
Manufacturing Subsector
Hospitality workers are likely the largest beneficiary of the CARES Act, as many have been furloughed or let go as the COVID-19 crisis has severely reduced hospitality and leisure spending by individual consumers and businesses. Hotel operators will benefit from the Act’s retention stimulus, which will help them keep essential staff during the crisis while enabling them to reactivate furloughed employees once the threat of COVID-19 has passed. Prior to the CARES Act stimulus, modeling by Kalibri Labs estimated that a 50% or greater reduction in cashflow due to the COVID-19 crisis would result in nearly two million layoffs in the hospitality sector alone. For most hotels operating in the U.S., a mere 15% decline in revenue would be enough to push a hotel into negative cashflow territory. The CARES Act is expected to more than halve that layoff figure. Regardless, most of the U.S. lodging inventory, despite assistance from the government, will be offline in the weeks ahead. Capital assistance for lenders will be important to regenerate transaction demand and would therefore enhance asset value. Since valuations are generally forward-looking, the recovery of asset values will be quicker than lodging fundamentals (such as RevPAR). Typical demand drivers, including global travel buyers such as major consultancies, national corporate conferences, music festivals, and other cultural events will be absent until the current crisis has abated.
Hospitality/Lodging
INITIAL MARKET RISK ASSESSMENT OF THE COVID-19 CRISIS
The COVID-19 crisis has placed varying levels of pressure on different segments of the commercial real estate market. Based on year-to-date REIT performance as of late March, the spectrum of pressure levied by the crisis is reflected in the diagram below.
While the CARES Act provides direct payments or tax relief for millions of Americans, the Federal Reserve also has been active in order to enhance market liquidity. Following is a summary of the Fed’s recent actions and their implications for commercial real estate stakeholders across all major property types.
FEDERAL RESERVE POLICY: IMPLICATIONS FOR COMMERCIAL REAL ESTATE
Even before the CARES Act was passed in the Senate on March 25, the Federal Reserve Bank of New York put in place an unprecedented financial support policy, allowing investment grade companies to borrow unsecured from the Federal Reserve for up to four years. Traditionally this primary market credit facility arrangement has been reserved exclusively for banks but has now been loosened to include regular investment grade companies, who often finance via corporate bond issuances. This step will shore up liquidity in the corporate bond markets, which can dry up in recessionary environments and leave large companies with fewer financing options in a time when they need cash the most. The Fed will also engage in a secondary market credit facility, where it will buy investment grade corporate bonds on the open market, and even shares of corporate bond Exchange Traded Funds (ETFs). Additionally, for the first time since the financial crisis, the Fed will buy asset-backed securities (ABSs) backed by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA). These measures, in addition to quantitative easing, rate cuts and continuing purchases of treasury securities, are moves to signal that the Fed will remain an active participant in the market and will act quickly—and with innovation—to tackle the current crisis.
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Multifamily Capital Markets: COVID-19 Impact
We hope that you, your colleagues, family and friends are safe and well in this challenging time. As events unfold, we will provide regular updates on multifamily market conditions and related topics.
Market Update
Sales activity
We are seeing a drop in Broker Opinions of Value (BOVs), listing activity and tour volume amid travel restrictions and shelter in place orders. However, activity remains surprisingly strong with transactions still coming to market this week and scheduled closings largely proceeding as planned. Though yesterday's unemployment report was bleak, we believe the multifamily sector remains a preferred asset class over the long term, as layoffs or reductions in pay impact home ownership in favor of rental properties. Demand for multifamily among investors has not abated. While several early stage marketing efforts are on hold as markets adjust daily to the current environment, virtually all delayed transactions are expected to ramp up fairly quickly when we return to a more normalized capital markets environment. Transactions with the highest probability of getting done right now typically involve private capital in local markets, 1031 exchanges and recapitalizations. When clarity and stability return, transaction volumes are expected to surge dramatically as the significant capital currently on the sidelines is once again deployed.
Given the “risk off” mood of many secondary market investors and the liquidity events over the past few weeks, commercial mortgage-backed securities (CMBS) lenders, mortgage real estate investment trusts (mREITs) and levered private investors are predominantly out of the market. Most life companies and pension funds have taken a pause or are pricing to floors which preclude much if any new volume. Transitional financing for lease-up and acq/rehab opportunities is generally unavailable. Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) remain a bright spot for Multifamily, Seniors and Healthcare lending, actively quoting, underwriting and closing transactions.
Lending activity
Effective March 24th, Fannie Mae is requiring a debt service reserve for all loans > 55% leverage and/or < 1.55x debt service coverage ratio (DSCR). This additional reserve includes amortizing principal & interest, taxes, insurance and replacement reserves in an amount equal to six to 18 months depending on the loan’s leverage and underwritten cash flow, with higher leverage and smaller loans requiring a larger reserve. The reserve will be held for a minimum of six months from the origination date plus two consecutive quarters of achievement of the approved DSCR. Variable rate loans will be calculated based on a comparable fixed rate equivalent. Freddie Mac will implement more conservative leverage and cash flow requirements for cash-out refinances, supplemental loans and loans in certain markets expected to be most affected by the virus on a case by case basis. We expect additional guidance over the next few days which we will forward when received. Both government-sponsored enterprises (GSEs) are taking a conservative approach to underwriting commercial income, properties and products that rely heavily on underwriting future income projections – including Student Housing, lease-up or nearly stabilized assets and value-add or rehab properties. According to the Centers for Disease Control (CDC), those age 65 and older or those who live in a nursing home or senior care facility are most at risk for severe illness. Newmark, working in tandem with the GSEs, will closely evaluate each Seniors Housing transaction in order to determine whether a reasonable loan can be structured during this time. FORBEARANCE On March 23rd, the Federal Housing Finance Agency (FHFA) issued a directive that Fannie Mae and Freddie Mac will offer multifamily property owners mortgage forbearance with the condition that they suspend all evictions for renters unable to pay rent due to the impact of coronavirus. For loans and borrowers that qualify, both GSEs will offer three consecutive months of forbearance with the forborne payment total to be repaid over the ensuing 12-month period, without additional interest, late fees or change in amortization. Similar to prior disaster relief recovery plans, the Borrower must demonstrate financial hardship due to COVID-19 through required documentation. Borrowers are asked to contact their Newmark portfolio manager for details if they can no longer meet debt obligations. PRICING The 10-year Treasury swung over a 137-basis point range in the last 90 days, reaching a low of 0.54% on March 9th, one day after Italy placed all 60 million residents on lockdown. Volatility has continued over the last four weeks as the World Health Organization (WHO) declared the outbreak a pandemic, the President issued travel bans, numerous states issued stay-at-home orders and the number of confirmed cases in the US continued rising. Although the current 10-year Treasury hovers around 80 basis points (as of March 25th), all-in interest rates for most full-leverage loans are near or exceeding 4.0%.
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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03.27.20
Fannie Mae and Freddie Mac have made the following adjustments to their lending requirements to prepare for the impact of COVID-19:
jeff.day@ngkf.com
President and Head of Multifamily Capital Markets, Chief Strategy Officer
Jeff Day
Please be well during this unprecedented time and feel free to contact me or your NKF teams with any questions. Sincerely,
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Provide direct payments of up to $1,200 for individuals and $2,400 for couples, with $500 added for every child, based on 2019 tax returns for those who filed them and 2018 if they have not. Benefits begin to phase out above $75,000 in income for individuals and $150,000 for couples, with no benefit above thresholds of $99,000 and $198,000 respectively Add $600 per week in unemployment insurance benefits to current levels for up to four months. Expansion of eligibility to self-employed people and independent contractors Create a $500 billion fund to make loans, loan guarantees or investments to or in businesses, states and municipalities damaged by the crisis Give $25 billion in grants to airlines and $4 billion to cargo carriers to be used exclusively to pay employee wages, salaries and benefits, and set aside another $25 billion and $4 billion, respectively, for loans and loan guarantees Provide $17 billion in loans and loan guarantees for “businesses critical to maintaining national security.” Those industries/businesses have not yet been identified Allocate $117 billion to hospitals and veterans’ health care Provide $16 billion for the strategic national stockpile of pharmaceutical and medical supplies Provide $350 billion in loans for small businesses to cover salary, wages and benefits equal to no more than 250% of an employer’s monthly payroll, with a maximum loan of $10 million Offer a tax credit for employee retention worth up to 50% of wages paid during the crisis for businesses forced to suspend operations or that have seen gross receipts fall by 50% from the previous year Require group health plans and insurance providers to cover preventive services related to coronavirus without cost sharing Delay payroll tax for employers, requiring half of the deferred tax to be paid by the end of 2021 and the other half by the end of 2022 Ban companies who accept government loans from buying back stock until a year after the loan is paid back Bar employees or executives of companies who accept government loans who made at least $425,000 last year from getting a raise Suspend federal student loan payments through Sept. 30 with no accrual of interest on those loans Exempt the President, Vice President, heads of executive departments, members of Congress and their family members from receiving relief under the bill
The CARES Act addresses the economic impacts of, and otherwise responds to, the COVID-19 (coronavirus) outbreak. The bill authorizes emergency loans to distressed businesses, including air carriers, and suspends certain aviation excise taxes. It is also designed to offer relief to individuals, the health-care system, and entire corporate sectors ravaged by the outbreak.
Summary: CARES Act Coronavirus Aid, Relief, and Economic Security Act
The bill would:
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Source: NKF Research and major media outlets
03.26.20
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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jmazur@ngkf.com
Senior Managing Director, National Research
Jonathan Mazur
apaul@ngkf.com
Senior Managing Director, National Research
Alexander (Sandy) Paul
As we at Newmark Knight Frank isolate ourselves physically and care for our families, we remain committed to providing our clients not only with the latest market information but also with actionable intelligence to help support your business activities during and after this crisis. As of late March, here is a data-driven assessment of the U.S. commercial real estate market and potential action steps for investors and tenants of the major property types to consider. We will continue to report on evolving market conditions throughout the COVID-19 crisis, emphasizing market data and actionable intelligence, including from proprietary NKF surveys. Please call on our professionals for guidance—we stand ready to help you remain prepared as this crisis evolves. We extend our compassion to those who are suffering, and we wish you and your families good health.
The human toll of COVID-19 and the spread of the coronavirus is the world’s greatest concern today.
Pandemic: A Period in Time and the Path Forward
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Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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03.24.20
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Direct Relief is a humanitarian aid organization, active in all 50 states and more than 80 countries, with a mission to improve the health and lives of people affected by poverty or emergencies. Direct Relief is coordinating with public health authorities, nonprofit organizations and businesses in the U.S. and globally to provide personal protective equipment and essential medical items to health workers responding to coronavirus (COVID-19). In the U.S., Direct Relief is delivering protective masks – along with exam gloves, isolations gowns, and other protective gear to healthcare organizations across the country. Direct Relief is also staging personal protective equipment with regional response agencies across the world, including in the Caribbean and South America through the Pan American Health Organization.
As the world rallies to combat Coronavirus, we appreciate that our colleagues and clients might be looking for ways to support those on the front lines, as well as those most impacted by the current crises.
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Feeding America is the nation’s largest domestic hunger-relief organization. Every year, Feeding America helps 1 in 7 Americans. No one should go hungry during the COVID-19 pandemic. With school closures, job disruptions, and health risks, millions of Americans will turn to food banks for much-needed support. They can't do it alone and you can help.
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The Cantor Fitzgerald Relief Fund's mission is to support families impacted by emergencies and natural disasters. CFRF provides direct financial assistance to hundreds of charities around the world, and are proud to help raise awareness to small charities that have the potential to make big impacts. 100% of every dollar raised by the CFRF goes as direct financial aid to those affected by natural disasters and emergencies, direct service charities, and wounded members of our military. In these difficult times CFRF is staying true to their mission – 100% of monies raised will go to elementary schools in disadvantaged communities to provide direct financial aid to families with young children in need.
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Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Capital Markets: Weekly Update
Market Update
Weekly Market Recap: Commentary & Headlines
The S&P 500 tumbled to its lowest in three years and the Dow marked its worst weekly performance since 2008 as investors grappled with the continued rise of infections around the world and its grave economic implications. Treasury yields spiked as investors shifted to cash amid dire corporate warnings, but reversed momentum after the Fed coordinated with global central banks to increase access to dollars. Governments around the world announced stimulus packages to prop up the economy, with the U.S. calling for a near $2T plan and European countries announcing a combined $1T in new fiscal spending. Risk premiums on investment grade debt rose to levels not seen since 2009 as investors poured out of those funds, as corporate funds contracted by $36B and municipal funds by $12B. With the volatility, the 10 year Treasury yield swung within a 65 basis point range last week and ended the week lower around 0.85%.
CENTRAL BANKS As governments around the world enacted more stringent measures to contain the virus' spread, central banks followed with measures to bolster their respective economies and keep credit flowing in lending markets. In the U.S., the Fed lowered the rate on its discount window, reopened credit facilities last used during the financial crisis to help banks increase lending to smaller businesses and consumers, and extended its asset purchase program to include short-term municipal bonds. The Fed also announced on Friday an arrangement with global central banks to increase swap lines and prevent a shortage of U.S. dollars. Outside of the U.S., the Bank of England delivered another emergency rate cut and ratcheted up its bond-buying program, just after the ECB pledged to buy 750 billion euros worth of securities to help support the European economy. CMBS/AGENCY CMBS The conduit deal from CCRE, KeyBank, Starwood, and Deustche Bank was pulled from pricing last week, as the price talk on the AAA class was marked at S+250, over 100 bps wider than the previous deal from the prior week. Freddie Mac priced its standard 10 year fixed rate deal, K-106, early in the week, with the benchmark A2 class getting done at S+90, in line with guidance but over 30 bps wider than the last deal in early March. Freddie is not expected to price anything until the week of March 30th, which is expected to include a standard 10 year fixed rate deal (K-107) and a 7 year floating rate deal (K-F77).
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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03.23.20
CENTRAL BANKS Investors will continue to monitor the count of new coronavirus cases around the world this week, as well as the global responses to the pandemic, especially central banks. The Bank of England and Bank of Mexico are scheduled to meet this week, and some analysts are projecting a 75bp rate cut from the Bank of Mexico. The Bank of England already delivered an emergency rate cut last week, so markets will be looking for any hints of additional stimulus in the bank's statement on Thursday. ECONOMIC DATA Domestic economic releases this week include March consumer sentiment, February durable goods, March PMIs, and most notably jobless claims on Thursday. Jobless claims for the week ending March 21st are forecast to spike to 1.5 million, reflecting the impact of layoffs at restaurants, stores, and other business that were forced to close with the spread of the coronavirus. Fresh data on manufacturing and the service sector is due Tuesday when Markit releases its flash Purchasing Manager Indexes, which are both expected to fall into contraction territory.
The Week Ahead
Disclaimer: This email is for informational purposes only and none of the content is intended to advise or otherwise recommend a specific strategy. It is not to be relied upon in any way to predict market movement, investment in securities, transactions, investment strategies or any other matter.
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Capital Markets: Weekly Update
Market Update
Weekly Market Recap: Commentary & Headlines
Last week, the Dow posted its biggest weekly gain since 1938 as market sentiment improved with the passage of an unprecedented U.S. stimulus package, meant to offset the fallout from the coronavirus pandemic. The Fed's announcement of an unlimited Treasury and agency MBS purchase program also boosted sentiment, evidenced by the solid demand at Treasury auctions throughout the week. Despite the optimism, jobless claims showed that a record 3.28 million U.S. workers applied for unemployment benefits in a single week, nearly five times the previous high, and consumer sentiment plummeted in March by the most since October 2008.
FED The Federal Reserve announced on Monday that it would buy unlimited amounts of Treasuries and agency mortgages, beginning last week, to support the flow of credit and address the liquidity strains. The Fed directed the NY Fed to purchase a total of $125B each day, with $75B allocated for Treasury and $50B for agency MBS. After the first week of purchases, the Fed announced on Friday that it will reduce its daily Treasury purchases to $60B beginning this Thursday and reduce agency MBS to $40B each day this week. The Fed was also included in Congress' efforts to boost lending on the front end, with over $450B set aside in the U.S. stimulus package for Treasury to backstop lending by the Fed. Fed Chair Powell commented on the program and said, “when it comes to this lending, we’re not going to run out of ammunition.” Analysts have commented that the recent “helicopter credit” moves made by the Fed are aimed at preventing a credit crunch that could make a potential recession worse. AGENCY CMBS Included in last week's announcement from the FOMC was the directive for the NY Fed to purchase agency CMBS in its broader effort to boost market liquidity. Details regarding the operation surfaced throughout the week, including hiring Blackrock to interact with the primary dealers, and the Fed completed its first operation on Friday. The desk at the NY Fed received $1.825B of securities up for offer from primary dealers, but only purchased $1.038B. Investors will continue to monitor the volume of the Fed's purchases this week, in addition to the scheduled $850MM 7 year floating rate securitization (K-F77) from Freddie Mac.
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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03.30.20
ECONOMIC DATA Focus will likely be on U.S. jobs data this week, specifically jobless claims and nonfarm payrolls, as investors begin to digest the economic impact of the coronavirus pandemic. Initial jobless claims are expected to hit over 3 million again for the second straight week and nonfarm payrolls are expected to show its first negative reading since October 2010. Other notable U.S. economic releases this week include the Conference Board's consumer confidence survey and March manufacturing activity, which are both expected to drop from the prior release. Outside of the U.S., China’s March official PMI reading, due Tuesday, is expected to show a rebound from February's number as many parts of the economy in March have resumed production.
The Week Ahead
Disclaimer: This email is for informational purposes only and none of the content is intended to advise or otherwise recommend a specific strategy. It is not to be relied upon in any way to predict market movement, investment in securities, transactions, investment strategies or any other matter.
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Capital Markets: Weekly Update
Market Update
Weekly Market Recap: Commentary & Headlines
Equities posted a weekly decline as the virus' global impact continued to escalate and U.S. jobs data soured investor sentiment. Jobless claims totaled near 10 million for the past two weeks and the March jobs report reflected a higher than expected unemployment rate of 4.4%. Oil climbed over 30% on prospects of production cuts by OPEC+ and talk of a possible truce between Saudi Arabia and Russia. The Fed also introduced a temporary repurchase agreement facility that will let other central banks swap Treasuries for dollars, especially as foreign central banks sold off more than $100B in Treasuries throughout March as cash demand surged.
NY FED The NY Fed held three purchase operations for agency CMBS last week, totaling nearly $2.5B across securities backed by Freddie Mac, Fannie Mae, and Ginnie Mae. In the first auction on Tuesday, the Fed purchased $421MM of seasoned Freddie Mac 10-year fixed rate A2 classes. The Fed purchased $1.5B on Thursday’s DUS purchase operation, with over $6B in submitted offers. Compared to the prior DUS auction which focused just on 10-year fixed rate, the purchases included all terms with a weighted average life of 7 years or greater. The Fed purchased close to their targeted amount in Friday's Ginnie Mae auction, purchasing $497MM with over $2.5B submitted for offer. The NY Fed’s desk bought Project Loan pass-throughs with a weighted average life of 3 years or greater and where the prepayment penalty does not accrue to the tranche. AGENCY CMBS Freddie Mac launched and priced its latest 7-year floating rate deal (KF77) last week. The LIBOR based class priced at L+70, which was in line with guidance but around 10 bps wider than its most recent deal in early March. The SOFR based class priced at the wide end of guidance at SOFR+90, widening the basis between the two classes from previously 1 bp to now 20 bps. Freddie Mac is expected to market and price a $1B 10-year floating rate deal (KF78) this week.
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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04.06.20
NY FED/CENTRAL BANKS The Fed will conduct three agency CMBS purchase operations again this week, with up to $2B in DUS purchases on Tuesday and up to $1B for Freddie Mac K-series bonds on Thursday. Tuesday's auction will focus again on DUS securities with a weighted average life above 7 years, while Thursday's auctions will include the A1 and A2 classes of Freddie Mac 10-year fixed K-series deals. Outside of purchase operations, investors will be watching Wednesday's release of the FOMC's special March meeting, where officials made an emergency cut in interest rates to zero. The Reserve Bank of Australia also meets on Tuesday and the EU finance ministers are expected to hold a virtual meeting early this week to discuss coordinated efforts to combat the fallout from the virus.
The Week Ahead
Disclaimer: This email is for informational purposes only and none of the content is intended to advise or otherwise recommend a specific strategy. It is not to be relied upon in any way to predict market movement, investment in securities, transactions, investment strategies or any other matter.
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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ECONOMIC DATA Investors will continue to watch oil prices as OPEC+ officials are expected to meet regarding production cuts early this week. The U.S. jobless claims release on Thursday will also be an area of focus, as analysts expect the U.S. to add another 5 million in unemployment claims - bringing the three week total to nearly 15 million. Investors will also look towards a preliminary consumer sentiment survey for April and March consumer/producer prices, all expected to decline from prior releases, before the market holiday in observance of Good Friday.
ECONOMIC DATA Focus will likely be on U.S. jobs data this week, specifically jobless claims and nonfarm payrolls, as investors begin to digest the economic impact of the coronavirus pandemic. Initial jobless claims are expected to hit over 3 million again for the second straight week and nonfarm payrolls are expected to show its first negative reading since October 2010. Other notable U.S. economic releases this week include the Conference Board's consumer confidence survey and March manufacturing activity, which are both expected to drop from the prior release. Outside of the U.S., China’s March official PMI reading, due Tuesday, is expected to show a rebound from February's number as many parts of the economy in March have resumed production.
ECONOMIC DATA Investors will continue to watch oil prices as OPEC+ officials are expected to meet regarding production cuts early this week. The U.S. jobless claims release on Thursday will also be an area of focus, as analysts expect the U.S. to add another 5 million in unemployment claims - bringing the three week total to nearly 15 million. Investors will also look towards a preliminary consumer sentiment survey for April and March consumer/producer prices, all expected to decline from prior releases, before the market holiday in observance of Good Friday.
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Scenario Planning is Back: Preparing for the Unexpected
Tough situations build strong people. Necessity is the mother of invention. Pick your cliché. Both apply as organizations worldwide grapple with the fallout from COVID-19 and the uncertainty it's triggering at virtually every point in their value chains. Of course, the Coronavirus isn't the first unanticipated disruptor we've faced, and it won't be the last. Every manmade and natural crisis over the decades, from political unrest, trade wars, tight labor markets and cyber-attacks to earthquakes, tsunamis and pandemics, should stand as a stark reminder for business leadership: the plans being made today must be informed by what could happen in the future. Scenario planning should be front-and-center.
Perspective
A multi-level, multi-disciplinary challenge
I recently participated in a 10-day scenario planning conference at Oxford University. Leaders of global firms worked through various globally disruptive scenarios, brainstorming everything from the headlines that might appear in the media to the impact on supply chains and business continuity planning. We learned a successful business continuity plan facilitates organization-wide communication and transparency at the business-unit level, the division-level and the corporate-level and across all business functions, from HR to Operations. It comes down to managing emotions and reactions to rapidly changing conditions and having visibility into all the moving parts of the organization. Organizations have to know where their people are and how to contact them. Additionally, it’s important to map all facilities and assets, know where each link in the supply chain resides and plan for a range of contingencies. When it comes to organizational focus, the multi-level/multi-disciplinary involvement required for scenario and business continuity planning typically takes a back-seat to core issues, like revenue and production. The only effective time for planning, though, is ahead of needing the plan. At the Oxford University conference, executives from oil and gas companies credited their scenario planning and training efforts with equipping them to weather the constant turmoil in the energy market and their own adversities.
For years, the allure of China as the world's factory and its number-2 economy has tempted companies to continue placing eggs in the China basket. Even 2019's trade war didn't dissuade companies from tying their fortunes to China. As many companies took tactical actions to mitigate the impacts of the trade war and others stood pat, hoping the U.S.-China Phase-1 trade agreement would trigger a rebound, they postponed significant strategic business decisions. COVID-19, however, could very well erode supply chains and severely impact China's economy. Though not much can be done to alleviate the short-term damage to those supply chains, part of scenario planning is considering whether or not one is too invested, geographically speaking, in China or any single region. Consider whether the supply chain, real estate footprint and employee locations are as geographically distributed as they could be. Some forward-thinking companies have applied the 'too many eggs in one basket' lesson to their facilities and location strategies, splitting their headquarters operations - and risk - among different locations. Now is the time to analyze supply chains and establish redundancies - smaller suppliers in less risky or less affected regions that could step-up temporarily if primary suppliers are affected by an unanticipated disruption. It's also an excellent time to evaluate real estate footprints and other capital investments. Decide if the company is flexible and nimble enough to react to marketplace shifts and let that guide location strategy decisions moving forward.
Facilities, asset and people-mapping
It's a testament to scenario planning and preparedness that Y2K is a footnote - if it's remembered at all. Granted, nobody took it lightly at the time, but this potent would-be disruptor was reduced to a relatively benign historical blip precisely because nobody took it lightly. Business and government partnered, anticipated and planned. Strong public and private sector partnerships aren't necessarily the rule across the U.S. and around the world, but there is tremendous power when industry and government share responsibility and coalesce around investment, research and planning. With that in mind, an important aspect of any organization's scenario and business continuity planning is gauging the strength of the public/private partnership in the countries, regions, cities and neighborhoods they're considering for their capital investments and in their facility location strategy. Warren Buffett once said, "In the business world, the rearview mirror is always clearer than the windshield." He didn't follow that up by urging businesses to stop the car and get out. Organizations have no choice but to continue moving forward into an uncertain future. The question is, have we taken the time to prepare for uncertainties? The Coronavirus, the 2011 Thailand floods and Fukushima Daiichi nuclear disaster, and even the China-United States trade-war didn't grant businesses and governments the luxury of planning for a date several years in advance as did Y2K, but that is precisely why scenario planning is so critical. It may be impossible to have a plan covering every scenario. Still, a company can develop contingency plans and frameworks for mobilizing its organization in the face of any unforeseen, globally disruptive event.
A lesson from Y2K
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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03.16.20
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Vice Chairman, Global Corporate Services
Robert Hess
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Research
The COVID-19 pandemic has precipitated a heightened level of global economic disruption. Though not driven by traditional cyclical market forces, it has triggered a liquidity crisis in the commercial real estate market. Commercial mortgage debt is at record highs and many commercial occupiers across the major property types—as well as millions of multifamily tenants—may be unable or unwilling to make their April 2020 rent payment. This scenario will have a direct effect on owners of commercial and multifamily properties, precipitating cascading loan defaults and subsequent deleterious ripple effects throughout the real estate market. In the face of a looming liquidity crisis, the federal government and the Federal Reserve mobilized in late March to provide stability and relief across the spectrum of commercial real estate lenders, borrowers and occupiers. This sweeping response, much of which was embedded in the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27, includes notable directives around the issue of forbearance and massive economic support for businesses including owners and occupiers of commercial real estate.
Commercial Real Estate’s Liquidity Crisis and the Large-Scale Response from Government
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Newmark Knight Frank’s professionals stand ready to advise our clients on how GSE initiatives, Federal Reserve actions, and the CARES Act may affect their business activities. Sources: Barron’s, Brookings Institution, CNBC, CNN, Federal Reserve, GlobeSt.com, Mortgage Bankers Association, National Public Radio, NKF Research, The Wall Street Journal
04.01.20
The easing of lender-borrower tensions and provision of aid to borrowers has been central to the government’s economic response to COVID-19. Notable forbearance provisions and economic aid include:
Forbearance and Economic Aid
The CARES Act allows for up to a three-month forbearance period for multifamily asset owners who have loans through government-sponsored enterprises (GSEs) Fannie Mae and/or Freddie Mac, contingent upon proof of economic disruption due to COVID-19. Owners receiving loan forbearance must suspend evictions of coronavirus-impacted tenants through the term of forbearance, defined as three (3) months for Freddie Mac and up to fifteen (15) months for Fannie Mae. Fannie Mae requires that affected tenants must be given the option to repay any missed rent payments over a twelve (12) month period, without late charges, together with their regular monthly rent. Freddie Mac is not requiring owners to adhere to any type of obligation with regards to repayment options or rent forgiveness for tenants. The FHA is expected to release guidance on forbearance within the next week. Lenders have been given strong encouragement and leeway by the FDIC in concert with other regulatory agencies to provide short-term mortgage forbearance, and to work constructively and on a good-faith basis with borrowers to restructure debt obligations. As a part of the CARES Act, the Small Business Administration (SBA) was allocated $10 billion to offer emergency fund grants to cover immediate operating costs, $350 billion to offer in forgivable loans, and $17 billion to payments for small businesses already benefitting from SBA loans. The loans will support commercial rent payments. The CARES Act allocated $500 billion in loans and other monies for major employers, with varying requirements and special oversight—better allowing them to retain employees, which ultimately supports consumer spending and the retail market.
While government policy intervention was well received, there remain many concerns and unknowns surrounding the unintended consequences of the legislation. Notably, there are not yet adequate provisions for relief for all lenders and borrowers. Non-bank lenders are at risk as they do not have access to liquidity facilities provided by the Federal Reserve. Non-agency CMBS and certain other commercial assets are currently excluded from Federal Reserve announcements, although commercial real estate trade organizations are lobbying to expand the Federal Reserve’s recently announced Term Asset-Backed Securities Loan Facility to include private-label CMBS loans. Despite these measures, liquidity is the immediate crisis at hand, while the longer-term issue is solvency. If businesses and commercial real estate owners are unable to generate the revenue needed to service long-term debt obligations, there will be a solvency crisis that will not reveal its full scope for months or perhaps years to come.
Open Ended QE: The Fed announced unlimited QE including Treasuries, agency MBS and agency CMBS, acquiring over $355 billion in Treasuries and mortgage-backed bonds in the past week. Related to multifamily and commercial real estate, on March 27, the Fed conducted its first purchase of up to $1 billion DUS 10/9.5s with a weighted average life greater than or equal to 7 years. During the week of March 30th, the Fed is expected to purchase approximately $3 billion in Agency CMBS across fixed-rate FNMA DUS pools, fixed-rate Freddie K deals and Ginnie Mae Project Loan pools. As experienced this past week, Fed intervention in the markets has had a very beneficial impact on price stability of GSE paper. SMCCF and PMCCF: The Fed established two facilities to support credit to medium and large employers. This support is expected to assist many major U.S. companies in their need for liquidity and financial support during this period of economic stress: TALF 2.0: The Fed revived the TALF program to support the flow of credit to consumers and businesses. TALF will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans and loans guaranteed by the SBA and certain other assets. AAA CMBS is not yet one of the eligible securities. Municipalities: With the flight to cash over the past few weeks, many creditworthy municipalities saw their borrowing costs soar to as much as 10%. The Fed has stepped in by expanding the mandate of the Money Market Mutual Fund Liquidity Facility (MMLF) to include Municipal Variable Rate Demand Notes and bank certificates of deposits. The Commercial Paper Funding Facility (CPFF) has been expanded to include high-quality, tax-exempt commercial paper. These actions resulted in stabilization of municipal bond pricing, but do not address the longer-term concern of significant budget deficits due to COVID-19.
The balance sheet of the Federal Reserve expanded by more than $500 billion in the past nine days, reflecting a record total of $5.3 trillion in assets. On March 23, the Federal Reserve announced several measures intended to provide liquidity to the markets and assuage concerns over rapidly falling prices of various financial instruments. These actions ranged from what we would now consider to be relatively conventional measures in a crisis including Quantitative Easing (QE), Term Asset-Backed Securities Loan Facility (TALF), and the Secondary Market Corporate Credit Facility (SMCCF), to less conventional methods such as the Primary Market Corporate Credit Facility (PMCCF). Below is a summary of certain measures most germane to multifamily and commercial real estate:
Federal Reserve Actions
SMCCF: The SMCCF allows the Fed to purchase corporate bonds and ETFs in the secondary market to provide liquidity for outstanding corporate bonds. This is intended to provide price discovery to stabilize demand for these instruments. PMCCF: The PMCCF allows the Fed to purchase corporate bonds from and provide loans to eligible issuers. This is a slightly more controversial provision of the recent measures, as it allows the Fed to become a direct lender to businesses under certain conditions. This is reflective of a need for price support due to a lack of liquidity and a concern over credit quality and the impact of COVID-19 on the performance of American businesses.
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While many commercial real estate occupiers will be compromised depending on the depth and length of the coronavirus pandemic, there are companies whose services are—and will remain—in great demand. These include entities providing essential goods such as grocers, and those directly tied to fighting the COVID-19 outbreak, such as government agencies. Other well-positioned sectors include technology—especially those firms that process vast amounts of data and support connectivity for work and entertainment as the nation adjusts to life under stay-at-home orders. When the world begins to normalize, these sectors may continue to expand in response to longer term shifts in demand. Other changes to market fundamentals will be driven by efforts to bring more of the manufacturing supply chain back to the U.S., affecting demand for industrial space. Also, changing preferences for remote work have the potential to reshape the office market, as might a possible reversal of densification due to greater emphasis on healthy environments. The merging of health care and retail, which already was occurring before the pandemic, may accelerate. In short, there will be long-lasting changes to how businesses operate and which ones build the capital for expansion in the months and years ahead. Which occupier types are most likely to increase their space needs during or immediately following the current crisis?
Resilient Occupiers: The Industries Best Positioned for the Current Environment
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Newmark Knight Frank’s professionals stand ready to advise our clients on how the current crisis may affect their business activities across these and other segments of the market. Sources: Amazon, Apptopia, Forbes, Indeed, LinkedIn, The Nielsen Company, NKF Research, Urgent Care Association, U.S. Bureau of Labor Statistics, U.S. Department of Commerce, World Health Organization, Zoom
04.08.20
Government/Utilities Public agencies are coordinating emergency services and implementing economic relief policies. Not specific to the pandemic, public sector agencies and government contractors, as well as utilities providers, are typically resilient during downturns. Healthcare Providers While bans on elective procedures will impact the bottom lines of many healthcare organizations in the short term, their role as essential services on the front lines makes them uniquely resilient. In addition to short-term space needs by health systems that are combating the virus, medical office users may need additional facilities following the outbreak as they plan for future waves or other pandemics over the longer term. Pharmaceuticals/Biotechnology Life sciences firms are being tasked with discovering treatments as well as a vaccine to combat the virus. As of early April, at least 17 U.S. companies are working on the development of a COVID-19 vaccine. The need for these firms’ work is more visible than ever—and their funding from private and public sources is likely to increase. Telecommunications With businesses and individuals physically separated, staying connected virtually is more essential than ever. The beneficiaries of this trend include telecommunications giants such as AT&T and Verizon as well as video-conferencing services including Zoom, which has seen a 20-fold increase in daily users over the past three months. Distance learning—a sector already expanding before the COVID-19 pandemic and now being tried on a grand scale—will likely accelerate, with education technology a new demand driver for office space and data center space. (See the adjacent table, where the number of jobs in each sector gives a sense of the potential market impact.) Lessons learned during this crisis will be top of mind as companies prepare for future disruptions. Television/Media The average American is spending 36% more time streaming TV and movies compared with one month ago, boding well for office occupiers in this market segment, such as Netflix and Hulu. Cable providers and television news networks, with many more people tuning in, are also well positioned. Even once the pandemic has ended, brand awareness and new consumer habits established during this time should fuel future growth.
Office
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Resilient Occupiers by Property Type
7-Eleven Convenience Store 161,400 Retail
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Army National Guard Government 2,841,000 Office
KPMG Accountants 1,144,900 Office
Amazon E-Commerce 363,700 Industrial
Genentech Biotech/Pharma 308,400 Office/Industrial/Flex
Lowe's Home Improvement 1,267,800 Retail
HCA Healthcare Healthcare Provider 5,256,100 Office
Intuit Technology 484,900 Office
Nepris Technology 484,900 Office
Whole Foods Grocery Store 2,692,400 Retail
Organizational Rankings By Number of Open Positions United States
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Organization Occupier Type Total Jobs in Sector Primary Property Type
Sources: Organizational rankings via LinkedIn as of March 26, 2020; total jobs in each sector via Bureau of Labor Statistics as of April 7, 2020; NKF Research
Data Centers With much of the nation working from home, demand for data accessibility has surged. COVID-19 will drive more companies to the cloud, if they are not already migrating there, and to implement business continuity and disaster recovery plans, which will require additional capacity for data center backup. Distributors Last month, the warehousing and storage sector added 8,200 jobs. Third-party logistics providers will keep moving essential goods and medical supplies as individuals stay home, although workers in those sectors are subject to the same health challenges all others are, which may slow operations. E-Commerce As many retail stores are forced to close—at least temporarily—e-commerce firms such as Amazon and Wayfair stand in. During March, Amazon announced it is opening 100,000 positions to meet increased demand for the delivery of essential items. Consumers may continue to rely on these services post-crisis more than they had previously as their shopping habits evolve. Food/Beverage With grocery and liquor stores open for business, many food and beverage warehouse users are busy, with the notable exception of restaurant suppliers. Daily downloads of Walmart Grocery and Instacart, popular grocery delivery apps, surged by 218% and 160% over the past month. As more Americans turn to online grocery delivery as well as meal kits (for example, Blue Apron and HelloFresh), there may be an increased need for cold storage space. Manufacturers In addition to producing essential goods, such as perennially out-of-stock paper products, manufacturers are being enlisted to help make ventilators, masks, gloves and other supplies to fight the outbreak. Ford and GE are currently reconfiguring their production lines to manufacture everything from hand sanitizer to respirators. Some of this production is likely to be permanently re-shored to the U.S. as the government prepares for future pandemics.
Industrial
Grocery Stores Weekly sales of rice and certain canned goods more than doubled toward the end of March compared to the previous year. Superstores with groceries, such as Walmart and Target, are also remaining open as essential businesses. Shopping centers anchored by these tenants are likely to fare well, reinforcing the value of daily goods vendors as a component of investors’ portfolios. Pharmacies Online postings for pharmacy jobs are up 11.5% over the past year despite widespread slowdowns in hiring across other industries. Net-leased properties with pharmacy chains, such as CVS and Walgreens, may prove to be especially valuable investments in the current environment. Other Essential Retailers Home improvement as well as convenience, cell phone and dollar stores generally remain open in states with stay-at-home orders. While sit-down restaurants and bars are suffering, take-out businesses are addressing the need for prepared foods, with consumers more frequently employing mobile delivery apps such as Grubhub and UberEats. Urgent Care Centers Already a growing sector, with the number of locations up 44% compared with 2013, urgent care centers such as MedExpress and CityMD lease space in shopping centers and urban storefronts throughout the country. If patients receive effective treatment at urgent care centers, the spreading out of demand for health services from hospitals to storefronts is likely to persist even after the current pandemic has passed.
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Global Corporate Services: COVID-19 Landlord Re-Boarding Roadmap
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During these challenging times, Newmark Knight Frank remains committed to providing our clients with the latest market information and data-driven, actionable intelligence. We are here to support your business activities during and after the coronavirus pandemic. As of early April, here is an assessment of the effect of COVID-19 on the Washington metro area’s major commercial real estate property types, as well as potential action steps and opportunities for investors and tenants to consider.
Pandemic: The Path Forward in the Washington Commercial Real Estate Market
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Newmark Knight Frank’s Tenant Playbook is intended to be a resource to help tenants gain a clearer understanding of existing leases and challenges and devise a strategy, during the pandemic.
A "Tenant's Playbook" to COVID-19
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04.09.20
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Newmark Knight Frank’s Tenant Playbook is intended to be a resource to help tenants gain a clearer understanding of existing leases and challenges and devise a strategy, during the pandemic.
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In this report, our Global Healthcare Services team assesses several of the initial impacts and analyzes possible adjustments. We have included a financial outlook for providers, along with highlights from the stimulus package that will help mitigate some of the impact. Additionally, we have outlined preliminary thoughts on issues and strategies around real estate and capital markets that providers may be facing.
COVID-19 Healthcare Real Estate Update
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04.10.20
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NKF is focused on delivering substantive guidance and real-time solutions to the challenges our clients are facing as a result of the global coronavirus pandemic. As such, we continue to develop industry-specific data to assist with understanding how the commercial real estate markets are evolving and adapting to the health and economic crises. Individual surveys by line of business are also available.
Survey Results: Responses & Strategies for the Current Crises
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04.14.20
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As hotel operators grapple with the best strategies to get through the COVID-19 crisis, all are generally experiencing fallout in demand regardless of which tactics are being employed. It is important to recognize that the intensifying demand vacuum is not currently the result of a systematic economic downturn, but that of a natural disaster.
Valuation & Advisory: Hotel Market Occupancy Approaching Zero? This Time it's Different.
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04.14.20
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As hotel operators grapple with the best strategies to get through the COVID-19 crisis, all are generally experiencing fallout in demand regardless of which tactics are being employed. It is important to recognize that the intensifying demand vacuum is not currently the result of a systematic economic downturn, but that of a natural disaster.
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COVID-19 has upended the world and as much as we all want to return to normal aspects of business and the office will change. In the short-term we are all sheltering at home and eventually we will be distancing ourselves in the office, all in an effort to save lives. There are things we know about COVID-19, for example, returning to the office will likely happen in the same way that the infection happened - state by state, geography by geography. The ultimate goal is to save lives, and how we re-board the office while maintaining safety, reducing anxiety and managing cost will be the test.
COVID-19 Office Re-Boarding Roadmap
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04.15.20
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As we plan for the re-occupation of our buildings, it is our responsibility as management professionals to protect the health and safety of our building occupants, as well as our own employees, assessing how COVID-19 has affected building operations and what we can do to return to normalcy. Detailed plans for each individual site are being developed, in coordination with our landlord ownership teams, that follow the guidelines of the CDC and local health departments. In the coming weeks, maintaining open and transparent communication and coordination with our tenants will play a crucial role as many of them will have corporate guidelines and continuity plans of their own. Listed in the Property Enhancements PDF are some of the potential steps and systems that could be affected by enhanced plans along with budgetary associated costs.
Property Management: Post COVID-19 Property Enhancements
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04.16.20
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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CARES Act: Largest Allocations
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, Newmark Knight Frank hereby notifies you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code; or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Further, under no circumstances shall Newmark Knight Frank be deemed a tax advisor and no information provided to you shall be deemed to be tax advice in any matter.
04.21.20
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020. While the headline stimulus measures come in the form of loans, grants and financial assistance to both large and small businesses, the third-largest allocation—estimated at $290 billion—is focused specifically on tax cuts and tax relief. For real estate investors suffering from the impact of COVID-19, the various tax breaks outlined below may provide immediate tax relief from current, past and future losses. The legislation will also provide relief in proportion to how severely investors’ asset value is impacted—which may be particularly important for those with exposure to the hospitality and retail sectors.
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
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How Can the CARES Act’s Tax Provisions Benefit Commercial Real Estate Investors?
Rather than having to depreciate certain building improvement expenses over 39 years, asset owners can realize the bonus depreciation in the first year; qualified improvements (QIP) are wide in scope and are generally considered to be interior improvements to nonresidential real property, not including size enhancements or changes to structural components like elevators. This represents a significant “technical” correction to the 2017 Tax Cuts and Jobs Act (TCJA). The CARES Act has also reversed the TCJA provision capping excess business losses for non-corporate taxpayers, retroactively providing them with 2018 and 2019 refunds and removing the limits on 2020’s excess business losses. This is perhaps the most notable provision for individual real estate investors. Real estate investors can convert paper losses due to a decline in real estate value into direct tax relief for non-business realized profit such as capital gains resulting from the sale of stocks or private equity investments. The previous legislation only allowed this to occur on the first $500,000 (for joint-filers) in non-business income, but this limit has been temporarily lifted. Similarly, CRE firms may take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years. The NOL limit of 80 percent of taxable income is also suspended, so firms may use their NOLs to fully offset their taxable income.
Summary of Notable CARES Act Tax Provisions Aimed at Commercial Real Estate Owners
The QIP change is retroactive which may present opportunities for asset owners to amend prior returns.
Additionally, firms can use the carryback provision to use deductions and losses in pre-TCJA years against a 35% corporate tax rate, instead of the current 21% rate, yielding an even more substantial tax benefit.
Employers are eligible for a 50 percent refundable payroll tax credit on wages paid up to $10,000 during the crisis as part of an employee retention credit. The credit would be available to employers whose businesses were disrupted due to virus shutdowns and those that had a decline in gross receipts of 50 percent or more when compared to the same quarter last year. The credit can be claimed for employees who are retained but not currently working due to the crisis for firms with more than 100 employees, and for all employee wages for firms with 100 or fewer employees. The 6.2% portion of the employer-side Social Security payroll tax payments may be delayed until January 1, 2021, with 50 percent owed on December 31, 2021 and the other half owed on December 31, 2022. Individuals paying a self-employment tax are provided the same relief. The net interest deduction limitation has been loosened, easing the burden of interest payments on debt used to maintain operations (particularly as debt levels are expected to rise in order to weather the crisis). Under the CARES Act, the limitation of business interest expense deduction to 30 percent of adjusted taxable income was expanded to 50 percent of adjusted taxable income for 2019 and 2020.
This provision has the potential to increase the NOL of a firm, particularly in 2020, and therefore factor into the CARES Act carryback provision on NOLs, further offsetting the amount paid on taxable income.
Other Notable Tax Provisions That Will Benefit Businesses, Including Those in Commercial Real Estate
Sources: Bloomberg, NKF Research
The coronavirus pandemic is disrupting the real estate industry and impacting investors and operators across all product types. The tax-related provisions of the March 27 legislation are aimed at offsetting losses related to the pandemic and providing retroactive relief for many firms that qualify. By reducing the tax liabilities for real estate investors, and offering them flexibility in NOL carryback provisions, the stimulus package is allowing firms to be strategic in how they handle the current crisis and receive refunds to sustain current operations.
Implications of the CARES Act’s Tax Provisions for Commercial Real Estate Investors
Newmark Knight Frank’s professionals stand ready to advise our clients on how the CARES Act and other federal action may affect their business activities. We invite our clients to call on us for guidance and for more market information. Sources: Bisnow, Bloomberg, Deloitte, Grant Thornton, NKF Research, Morrison Foerster, Tax Foundation
CARES Act's Tax Implications for CRE Investors
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Newmark Knight Frank Global Corporate Services’ Workplace Strategy and Human Experience team worked with Dr. Page Anderson, a leading expert in anxiety research, treatment and technology and Associate Professor of Psychology & Neuroscience at Georgia State University, who offers the following recommendations for managing anxiety while working from home.
With the spread of COVID-19, more employees are working from home than ever before. Yet, many of us don’t have home offices that support the way we need to work or our long-term ergonomic needs. It's also natural to feel stress, anxiety, and grief in the ever-changing COVID-19 environment. Every person perceives and reacts to crises differently and must prioritize emotional health during these times in order to think clearly and balance personal and work responsibilities.
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Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Remote working can be challenging, and the more we understand and acknowledge the challenges, the more productive we can be. Stay safe and productive. For more information about remote work please reach out to the Newmark Knight Frank Workplace Strategy & Human Experience Team.
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04.24.20
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Remember this is a change for everyone on your team.
Respect life’s rhythms. Be aware.
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INTERNATIONAL DESK
The COVID-19 pandemic is unlike previous shocks, and its impact on the global economy and real estate markets does not fit neatly into traditional models and research approaches. This short summary highlights some of what we understand with relative certainty, some of our current expectations, and some of the questions we feel are relevant. Knowledge of the pandemic and its market impact is expanding daily and our expectations are evolving. But while it is still too soon to make absolute judgements about the eventual impact on markets, we can usefully pose some of the most pertinent questions.
COVID-19 What We Know, What We Expect, What We Question
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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05.01.20
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
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COVID-19 What we know, what we expect, what we question
INTERNATIONAL DESK
05.01.20
april 2020
May 2020
COVID-19 What We Know, What We Expect, What We Question
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Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, Newmark Knight Frank hereby notifies you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code; or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Further, under no circumstances shall Newmark Knight Frank be deemed a tax advisor and no information provided to you shall be deemed to be tax advice in any matter.
05.04.20
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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As office tenants assess the financial implications of COVID-19 on their businesses, many will be making decisions about whether to return space to the market, and if so, how much. Considering the economic challenges, including job losses, wrought by the coronavirus, it may seem likely that the amount of sublease space on the market will rise materially in the months ahead. However, the decision calculus for office tenants is not straightforward. Limiting the spread of disease—and being more mindful of health matters generally—has become a top consideration for corporate leaders as they develop plans for returning their employees to the office. While reducing the amount of space leased per employee—and in turn reducing occupancy costs—was paramount for those who signed leases in the immediate aftermath of the Great Recession, the dense layouts that resulted increased the risk of illness. Densification of the office environment also reduced productivity for many companies, with employees routinely complaining about visual and aural distractions hampering their ability to concentrate. Privacy was lost to efficient benching setups. In a low unemployment rate environment, some firms also lost their maximum capacity to attract and retain top talent. These considerations did not stop densification, but they did slow the trend before COVID-19 struck. Now, as decision-makers grapple with whether to place sublease space on the market, they need to consider the potential for redesigned office space. Is 150 square feet per worker appropriate in a post-COVID world, or should that figure rise? How far apart should desks be positioned? How high should partitions be to reduce the transmission of pathogens, and what does that mean for office design? Is the space devoted to common areas during the last cycle better suited to private offices once again? At the same time, not only are tenants likely to be seeking ways to reduce costs during and after a recession, they also will be considering their experiences with remote work. Some tenant types had substantial experience with teleworking before COVID-19, but many of those that did not have been forced into an urgent experiment. To what extent has that experiment proven successful? Have employees been productive? Is it clear that some work must be done collaboratively and in person? Can some teams work remotely while others return to the office? Is a rotation feasible? To what extent is their need for space reduced if remote work becomes a larger part of their approach? Early data suggests that while sublease inventory increased in early 2020 in most major markets, some tenants are holding back space to accommodate social distancing plans once workers return to the office, thus yielding an increase in square feet per employee for those who are present. Office sublease availability has risen in eight of nine large markets since the end of 2019, as shown in the adjacent graph, although some of that change had occurred prior to the pandemic—such as in San Francisco, where more sublease space was put on the market in January and February than in March and April, meaning the data is not yet reflecting an escalation due to COVID-19. On average, for these markets, the sublease availability rate has increased only 32 basis points in the past four months. In fact, between the week of April 20 and the week of April 27, the sublease rate was little changed, based on available data, although there may be some lag in reporting. Tenants’ generally careful approach to leasing during the recent growth cycle—with little excess space under long-term lease even before the pandemic arrived—means there is less to give back during this transition period.
The challenge to asset owners should not be underestimated; it is very likely that the sublease rate will rise over the next few months as corporate leaders have more time to consider their real estate decisions. For context, during the past two downturns, the sublease availability rate in Manhattan nearly doubled within two years. However, sublease availability may not rise as much as economic conditions suggest it will, given the design questions noted above. While an increase in remote work likely will offset an increase in square feet per workstation to some extent, the amount of that offset will vary by industry. In summary, it is too soon to know whether changes to office design driven by COVID-19 will yield more or less net demand over the long term, although it is likely that tenants’ need to market sublease space will be more than a reversal of densification can offset. Markets with a significant coworking presence may face a relatively higher degree of difficulty during this rightsizing period. Another action step that tenants can take, in addition to revising their workplace strategy, is carefully considering the financial implications of subleasing space in terms of write-offs and depreciation. For example, say a tenant is paying $65 per square foot on a ten-year lease term and spent $100 per square foot on construction and furniture, fixtures, and equipment (FF&E). If that tenant generates $45 per square foot in sublease rent for the final five years of the term, the total P&L impact could be a one-time write-off of $150 per square foot related to the disposition of the premises. Specifics will vary, but there are opportunities to address the potential impact on earnings in a thoughtful way. Ultimately, the sublease conundrum for office tenants is how to control occupancy costs during a period of economic dislocation while also retaining the space needed to implement a new workplace strategy—and remain flexible enough to accommodate growth as the economy cures.
Newmark Knight Frank’s professionals stand ready to advise our clients on how the current crisis may affect their business planning. We invite our clients to call on us for guidance and for more market information. Source: NKF Research
The Sublease Conundrum
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The challenges resulting from COVID-19 are escalating, and landlords of all types are among those most affected. The need to get back to work as we transition from sheltering in place at home to social distancing back in the workplace has many unsure of how buildings will be managed, at least for a while. Additionally, as buildings prepare to come back online, landlords and tenants will have to work together to address the anxiety of the occupants, the safety protocols required, and dynamically adapt to the continually-changing status of the pandemic.
COVID-19 Landlord Re-Boarding Roadmap
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
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05.06.20
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
Discussion of Forward-Looking Statements about Newmark
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Capital Markets: Weekly Update
Market Update
Weekly Market Recap: Commentary & Headlines
Equities added over 2% across the board last week as markets seemingly shrugged off weak economic data and bet on a swift economic recovery as countries begin easing lockdowns. The April jobs report marked the largest decline in jobs on record and an unemployment rate of nearly 15%. Throughout the week, several Fed officials remarked that they are expecting the road to recovery to be gradual and continued support from the Fed and government will be needed to effectively combat the economic fallout. The two year Treasury yield fell to a record low last week as markets began pricing in the possibility of negative interest rates in the next year, amid worries that the Fed has expended all its tools to cushion growth.
NY FED OPERATIONS The NY Fed accepted under half of its targeted amount in Tuesday’s Fannie Mae DUS purchase operation, accepting $200MM with $2B submitted for offer. The Fed has not purchased close to its targeted amount in DUS operations since April 7, when the Fed purchased $2B in just one operation. The NY Fed accepted close to its targeted amount in Thursday’s Ginnie Mae purchase operation, accepting $236MM with $984MM submitted for offer. This week, the NY Fed is scheduled to hold only one purchase operation, purchasing up to $500MM of Freddie Mac K-series A2 bonds on Tuesday. CMBS / AGENCY CMBS The only conduit deal to price last week was the $771MM offering from Goldman Sachs and Citigroup. The benchmark AAA 10-year fixed rate class priced at S+145, which was the tight end of official guidance and 10 bps better than initial guidance circulated the week prior. Freddie Mac priced K-738 last week and the 7-year fixed rate A2 class priced at S+53, a few bps inside of initial guidance but over 10 bps wider than the last print in late January. The K-deal calendar is quiet this week until the week of May 18th, when Freddie is expected to bring K-109, a $1.3B 10-year fixed rate deal.
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
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05.11.20
CENTRAL BANKS In addition to monitoring developments as countries begin to ease coronavirus lockdown measures, central banks will also be a focus with two central bank meetings and various Fedspeak throughout the week. All eyes will be on Fed Chair Powell on Wednesday morning as investors look for some clarity as to how much more stimulus can financial markets expect. The Reserve Bank of New Zealand also meets on Wednesday and analysts will be looking for any additional clues on negative interest rates after Governor Orr said they were “not off the table.” The Bank of Mexico meets on Thursday and consensus expects the bank to cut rates for the fourth time this year.
The Week Ahead
Disclaimer: This email is for informational purposes only and none of the content is intended to advise or otherwise recommend a specific strategy. It is not to be relied upon in any way to predict market movement, investment in securities, transactions, investment strategies or any other matter.
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
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ECONOMIC DATA Notable economic data this week includes U.S. initial jobless claims, University of Michigan consumer sentiment, and both U.S and China retail sales and industrial production. Investors will focus heavily on China's numbers released on Friday, as critical April economic data will show how fast their economy is bouncing back. Jobless claims are expected to rise another 2.5 million and preliminary consumer sentiment for May is expected to drop further from late April’s survey. U.S. retail sales are expected to fall over 11% month over month, further declining from March, while China retail sales are expected to climb back from March's drop. U.S. industrial production is also expected to drop over 10% month over month, while China’s YoY number is estimated to rebound to post a slight gain.
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Newmark Knight Frank Valuation & Advisory is compiling the evolving state-by-state summary of property tax provisions at a state (county and municipality) level, as information becomes available. This document is updated in real-time. Please check back frequently for updates or changes that may affect property tax deadlines and the extension of any property tax payment deadlines. As the COVID-19 pandemic impacts and disrupts the real estate industry across all asset types, we are committed to serving as a resource to help our clients manage and minimize property tax liabilities. Newmark Knight Frank continues to provide trusted insight, information and assistance in these uncertain times so that our clients can act with confidence.
Valuation & Advisory: Property Tax Impacts by State
05.13.20
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
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Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
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Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
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ABOUT THE AUTHORS: Andrea Arata is Director of Research in Newmark Knight Frank's San Francisco office. Lisa DeNight is Research Manager in Newmark Knight Frank's Philadelphia office. For more information: Alexander (Sandy) Paul, Senior Managing Director of National Research
05.19.20
Statements in this document regarding Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s Securities and Exchange Commission filings, including, but not limited to, the risk factors and Special Note on Forward-Looking Information set forth in these filings and any updates to such risk factors and Special Note on Forward-Looking Information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.
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The national trend: demand for innovative healthcare solutions has catalyzed need for specialized commercial space in established and emerging life sciences markets.
Sources: Bureau of Labor Statistics, CoStar, Crunchbase, NKF Research, Pitchbook
COVID-19 and the Future of the Life Sciences Sector
The global spread of COVID-19 and ensuing economic volatility has highlighted the critical importance of the Life Sciences sector. In this health-driven crisis, Life Sciences companies around the world are on the forefront of the fight against the virus, mobilizing to create, test, produce and disseminate a vaccine. The U.S. Government alone has invested hundreds of millions of dollars through its Biomedical Advanced Research and Development Authority (BARDA) to support clinical testing and eventual production of a vaccine, which is still months away in a best-case scenario. Prior to COVID-19, the Life Sciences sector was booming. In recent years, accelerating scientific discovery in the Life Sciences field brought cutting-edge therapies and healthcare solutions to meet human needs, and this expanding activity has driven demand for specialized Life Sciences space—research and development (R&D) labs and office buildings, medical testing facilities, and advanced manufacturing environments that comply with Good Manufacturing Practices (GMP). Annual venture capital (VC) investment flowing into Life Sciences deals increased substantially over the past decade, and in the first quarter of 2020, VC funding reached $9.1 billion, the highest quarterly funding volume in four years. With strong investment flowing into the sector, employment increased by 19% between 2010 and 2019, exceeding overall national employment growth of 16% over the same period. While overall employment has been severely affected by COVID-19, dropping 14.0% from February to April 2020, employment in Scientific Research and Development Services has fallen only by 2.5% over the same period, less of a decline than experienced by most other major industry sectors. (For example, Financial Services employment declined by 3.0% and Information employment declined by 8.9%.) This modest decline demonstrates this essential field’s resiliency even at a disruptive point in the cycle. A sustained, elevated demand for specialized space remains in effect, particularly in the country’s premier Life Sciences hubs. At the end of the first quarter, Boston’s Life Sciences market had an availability rate of 7.3%, and within the market Cambridge was even tighter at 3.2%. San Francisco Bay Area’s market had an overall availability rate of 5.7%, with the Mid-Peninsula at just 2.5%. While new deliveries will help alleviate the pinch—anticipated 2020 deliveries of 4.5 million square feet are more than double the prior five-year average—many of these deliveries will be pushed back to 2021 as construction has been halted due to the coronavirus.
More Life Sciences space will likely be needed in the long term as a direct result of the impact of COVID-19 and in preparation for future pandemics. Problems in the Life Sciences supply chain have been exposed: beginning with China, national shutdowns around the world constrained the flow of materials for drug development into American Life Sciences firms at a time when they were most needed. To address these supply chain concerns going forward, firms may trigger a repatriation of manufacturing, driving greater need for GMP manufacturing space in major Life Sciences markets. This crisis has also revealed specific challenges within the United States surrounding the decentralized nature of Life Sciences material development and production. With heavy restrictions on travel, necessary in-person oversight of production activities has been interrupted for Life Sciences firms in which contract manufacturing and R&D facilities are often hundreds of miles apart; this may drive future development in an effort to bring production closer to the core R&D. FEATURED MARKETS: BAY AREA AND PHILADELPHIA The Bay Area is the country's largest and most established Life Sciences market with a lab inventory of 27.7 million square feet. In a market where demand has dwarfed supply for years, new developments currently under construction total 2.9 million square feet, equal to 10.5% of existing supply. Tenants such as Amgen, AbbVie, and Celgene have already preleased 74.5% of this new space. Pressure on tenants in this market to find space and a diversity of innovation across the industry is leading to emerging hubs of specialized practice. Philadelphia is one such emerging market, on the map because of its burgeoning gene and cell therapy innovations which are helping drive a wave of new development of Life Sciences space. In Philadelphia, 621,000 square feet of Life Sciences space is under construction (equal to 7.6% of standing inventory), a significant portion of which is advanced manufacturing space, including Bay Area-based Iovance Biotherapeutics’ 136,000-square-foot facility under development in the Philadelphia Navy Yard. Even in the midst of disruption, the Bay Area and Philadelphia markets are seeing interest in both well-established and early-stage Life Sciences companies looking to expand. In the first seven weeks of the Bay Area’s shelter-in-place order, seven Life Sciences companies signed for 160,000 square feet in new leases and renewals. Additionally, Bayer HealthCare submitted a development agreement to the City of Berkeley in early April for a 30-year plan to expand its facilities by nearly 1.0 million square feet and 1,000 employees. Further, after receiving a $100 million Series C funding round, Pivot Bio announced at the end of April it would hire an additional 50 employees this year. In Philadelphia, Spark Therapeutics, a premier gene therapy company, signed a lease in April to expand to the 60,000-square-foot building at 3000 Market Street in what is the epicenter submarket of the local Life Sciences landscape, University City. Also, multiple R&D lab and contract manufacturer space requirements remain in the market, including some new inbound users. With the anticipation that firms may bring even more manufacturing closer to “home base,” there are multiple proposed Life Sciences projects in the pipeline that may commence construction later this year or in 2021 in order to meet tenant demand. WHAT ARE THE IMPLICATIONS FOR OUR CLIENTS? COVID-19 has catalyzed new demand for Life Sciences space directly related to combatting the virus, such as new space requirements for firms awarded contracts for test, treatment and vaccine development. Looking forward, the sweeping impact of COVID-19 and refreshed awareness of the dangers of pandemics may catalyze further development even after the virus has been contained. In the immediate term, tenants needing critical expansion space will be stymied by delayed construction timelines. In the intermediate term, the current dip in new development will continue to result in pent-up demand. Overall, the combination of an increased need for lab space with a relatively constrained supply could mean that Life Sciences buildings will remain an attractive opportunity for investors and developers, despite the high cost of entry. The Life Sciences sector is supported by strong venture capital investment; development opportunities may be particularly appealing in hubs where there has been a persistent deficit of new supply for specialized practice areas.
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As parts of the world tentatively ease isolation measures, we are beginning to get a glimpse of a path back to activity, if not yet a return to a previous normality. This short summary highlights some of what we understand with relative certainty, some of our current expectations, and some of the questions we feel are relevant. Knowledge of the pandemic and its market impact is expanding daily and our expectations are evolving. But while it is still too soon to make absolute judgements about the eventual impact on markets, we can usefully pose some of the most pertinent questions. In the following pages we set out our thoughts on the macro background, investment markets, occupier markets, London offices, UK offices, retail and logistics. As ever, our diverse research team is always on hand to discuss any of these viewpoints in more detail.
COVID-19 What We Know, What We Expect, What We Question
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05.20.20
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Newmark Knight Frank Global Corporate Services’ Global Tech team has developed a series of dashboards designed to visualize Portfolio and Employee Headcount data as it relates to COVID-19 cases.
The dashboards show key data around high risk and rising risk areas based on the client’s specific data.The dashboards also show trending information for global, US and UK data, including new cases, active cases, case statistics and recoveries. The US data is visible to a county level and in the UK to a NHS defined area (typically aligned with county). Employee data can be normalized to the closest airport code or zip code.
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COVID-19 DATA SOURCES Data loaded nightly from the Humanitarian Data Exchange (HDX) and Public Health England. COMPANY-SPECIFIC DATA IMPORTED Easy to follow template instructions for submitting data (2-3 business day turnaround). NO COST Data Load and up to 4 logins provided to clients and prospects at no cost.
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05.13.20
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05.13.20
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The economies of Asia-Pacific will take a significant hit in 2020, with the IMF's recent Global Economic Outlook predicting a contraction in output across the region for the first time in 60 years. While short-term challenges will undoubtedly be a concern for many occupiers and investors - whether it is a short term lease renewal, disposal of a non-core property or repositioning an asset - planning for a recovery and future oportunities is critical. Should the virus be contained in the second half of the year - and a second wave avoided - the region should see recovery in 2021. While there remains lots of uncertainity, corporate occupiers and investors should be prepared for the opportunities this could bring.
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06.24.20
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Asia-Pacific Bulletin Recovery from COVID-19
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Commercial Real Estate Policy Challenges: Navigating an Environment of Increasing Taxes and Regulations
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This white paper examines several recent policy measures that impact commercial real estate taxes and regulations and explains how stakeholders can navigate this environment of increasing policy challenges.
Relevant U.S. tax policy changes and regulations have an immediate and long-term impact on commercial real estate. Laws aimed at addressing housing affordability and climate change have become more prevalent in recent years, and some of those measures are being altered in response to the disruption caused by COVID-19. This white paper presents a balanced look at several current policy measures that either adversely or beneficially impact the real estate sector, with examples from jurisdictions across the U.S. The report concludes with action steps for commercial real estate owners, investors and tenants in light of these changes.
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Findings of this report were covered in the June 24 issue of Real Estate Alert.
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05.19.20
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Insight
Depending on the initiatives that providers are focusing on to help offset the financial impact, there will be several real estate strategies that can achieve short- and long-term financial benefits. A roadmap of the various initiatives should be outlined to make sure critical dates are met and that the estimated benefit to the healthcare provider can be quantified appropriately. As health systems are expected to see $50B in revenue over the next few months, it will be important to harness available real estate data and analyze the various opportunities available to healthcare providers, as its overall strategy evolves throughout the COVID-19 recovery phase.
Global Healthcare Services: Healthcare Provider Post-COVID-19 Strategies
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07.07.20
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This report outlines specific data points that illustrate the impact of the COVID-19 pandemic on independent medical practices and health systems. It also highlights certain initiatives that providers can implement to mitigate the financial losses that are incurring as a result of the COVID-19 pandemic.
Global Healthcare Services: Healthcare Provider Post-COVID-19 Strategies
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INTERNATIONAL DESK
In Europe and all over the world, every business sector is reeling from the effects of the coronavirus (COVID-19) pandemic. At the time of writing, we feel that the past is no longer a reliable guide to the future. Instead of looking back, this report presents our take on the market as it is today. Given the uncertainty surrounding the ongoing impacts of COVID-19 on the real estate market, and the dearth of recent comparables, we aim to sketch an overview of the market situation at this moment in time. However, it is important to emphasise that things could change rapidly as circumstances evolve.
COVID-19: Spain What We Know, What We Expect, What We Question
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07.22.20
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july 2020
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Following months of lockdown in virtually every country in the world, here in Spain the path to recovery is now coming into view. Nonetheless, we must proceed with caution and adhere to the proper safety measures if we are to see a swift return to normality.
COVID-19: Spain What We Know, What We Expect, What We Question
july 2020
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Providing insights and perspectives on India's transforming logistics sector, this new report highlights key trends in several of the countries key warehousing markets.
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08.05.20
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2020
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Following months of lockdown in virtually every country in the world, here in Spain the path to recovery is now coming into view. Nonetheless, we must proceed with caution and adhere to the proper safety measures if we are to see a swift return to normality.
COVID-19: Spain What We Know, What We Expect, What We Question
july 2020
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