I was April 1st yesterday and the rent and/or mortgage was due. But how do you pay for it if you just lost your job and your employer is closing up shop. This is putting the housing market in a situation that can rival the Great Recession. However the government is in the process of imposing a nationwide halt to foreclosures and evictions for more than 30 million Americans with home mortgages backed by the Federal Housing Administration or two government-controlled companies, Fannie Mae and Freddie Mac.
OK, great, but what if you are landlord of a business. Department stores and other retailers are fighting for the lives. Many of these storefronts could declare bankruptcy if closures continue through May as their line of credit runs dry. This is already affecting the commercial real estate investment trusts (REITs) that own America's shopping malls. But things could get a lot worst in the coming weeks and months.
In an effort to stay alive the Pennsylvania Real Estate Investment Trust cut its dividend by 90%. This will give the Philadelphia-based owner of malls an addition $300 million in liquidity. We are starting to see these type of moves at other REITs as well. Simon Property Group, another mall owner is furloughing 30% of its workforce and laying off employees as a means to lower expenses.
Then there is Tanger Factory Outlet Centers Inc. I’m very familiar with Tanger because when I was younger and wanted the latest in fashion at a discount, instead of going to the mall or the department stores, I would hit out the “outlets.”
Tanger Factory Outlet Centers Inc. (NYSE: SKT) announced Tuesday that it has "drawn down substantially all of its capacity under its $600 million unsecured lines of credit."
CEO Steven Tanger said in a statement that the company entered 2020 with "one of the strongest balance sheets in our peer group and no borrowings outstanding under our lines of credit. Liquidity and capital preservation are critical in times of uncertainty."
Tanger said most stores in the company's outlet centers are currently closed, with many having already been so for two full weeks. Operations in more than half of Tanger Outlet Centers are restricted by order of the local and state authorities, and additional orders are expected.
Tanger said it has also taken steps to reduce cash outflows, including the reduction or deferral of certain operating and general and administrative expenses, as well as the deferral of the Nashville project and certain other planned capital expenditures.
Tom Barrack, founder and executive chairman of Colony Credit Real Estate, Inc. said the U.S. commercial-mortgage market is on the brink of collapse and unless the government takes more action, a catastrophic economic “domino effect” of margin calls and ultimately defaults will occur.
When I keep reading about the REITs and their challenges I keep going back to Carl Icahn. Carl is short credit default swaps, or “CDS,” which are assets that back mortgages of corporate offices and shopping malls. Back in 2012 banks made loans to shopping malls, office buildings, hotels and retail outlets. The banks then sold bonds against these mortgages. It’s Carl’s belief that shopping malls and others in commercial real estate will default on these loans. And it is his biggest position currently.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
