How to industry sign banking hawaii presentation now
thank you for that oh shoot I missed the first part so start over start over thank you everyone for joining us by the way we like questions please put them into chat someone will pick it up if it's you know if we can do something with it or I'll give you a some intelligent answer I because commercial roundtable today and most everything commercial in my opinion since I am one starts with the agent who gets the ball rolling and finds out what's going in the market is getting the pricing and establishing a lot of that with the customer so I'm going to start today with our industrial agent Jay and ask him what we got going and what's the market doing anything you like rents prices occupancy homeless people in your garage what what's going on in your world thanks Marv by the way I'll be going to Reza I'll be going to office and retail after you so they might want to be prepared to say what's going on in their life so of the product disciplines and the product types I think industrials faring the best right now there are segments and sectors in the industrial market that aren't doing so hot and then there's sectors and segments in the industrial market that are doing really well I do have a mixture of both kind of anecdotal situation here they'll got a call on Monday from a large industrial user that also has 15 retail locations and in the midst of this Kovach crisis has decided that they're gonna close down about six retail locations and actually haven't been able to make rent in the last two months so the situation in the industrial market is real we are seeing that happen case by case not probably as rapid as we would see in the retail sector but definitely some signs are showing up however on other sides we do have pockets that are doing really good you know we've signed a bunch of new leases in the last 30 days we are still seeing some movement and activity out there we've actually closed a couple of deals but these were kofi transactions that were already into play but we were able to get them closed and whatnot so definitely an interesting time that's happening in the marketplace right now what are Reds doing um people come in new tenants are they paying their rents I mean you get a new tenant right now you get first in security then they decide not to pay rent there's a ret moratorium what do you do and that'll we'll have to cross that bridge so far so good I mean the rents we were getting our market rates I did two leases at a dollar forty of foot triple net and I did a lease just recently at a dollar twenty triple net and these are new leases for those spaces J huh how big were those spaces anywhere between two to ten thousand feet right bad yeah we got some good deals on the people that we were able to close Construction Set there like I said is still doing really strong right now they're still ongoing work they were part of the essential a group that did not get shut down so they're still active out there so it's interesting right thank you oh yeah aeneas deals he closed recently were they acquisitions I did I closed for acquisitions in the last 30 days and work values affected during the closing in the appraisal like was there Kovach language where he thought it was gonna be a two million dollar value 1.7 not quite we have entrenched that yet we haven't gotten to that point although two of the deals were revisited prior a post final loan approval so they were revisited during that period but we were lucky leave that we were able to get it closed yeah on your comments on the market there so we be bold we're trying to create a round table here I want to get discussion make a comment stay so well do III bifurcate my time between institutional investments and office and healthcare leasing and so let me talk about the leasing side first which that is probably keeping me a lot more busy right now we had a massive up rise in occupancy over the past year in just office in the office sector which drove down which drove up some pricing pretty significantly we went from about call it 17 16 17 see all the way down to about nine and a half to ten and a half percent vacancy in the office sector depend on who which report you're looking at which was all attributed to one of the office towers downtown 1132 Bishop taking out of the office pool and put it into the residential for these properties that had just a sweeping effect downtown and pricing started to go up we really kind of pressed for some of the tenant rep that I do to really try to close those deals ahead of that cycle that has now changed I think the the sentiment and right now we're still a little early in the process so the sentiment is that there is going to be some price adjustment we are gonna see probably some increase in vacancy as well but that is going to be probably over a little bit of time not just immediately people vanishing the office sector has not fared as well as the industrial sector but is still not as in bad shape as some of the retail sectors where it just are completely closed downtown I've heard numbers of about 15-20 percent of the businesses are still in operation the rest are all working from home we're seeing some of the workouts now where landlords aren't giving necessarily so I pulled out my playbook from 2008-2009 when the last down sounds like it will happen and immediately the tenants just started asking for for rent relief and landlords started acquiescing and giving that this time we're not seeing that quite a right off the bat we're actually seeing landlords pushing back and saying you have all these stimulus packages out the PPP and the Care Act go apply for those show us that your show us that you're applying for those and we'll talk about it now we're starting to get into the situation where those who did not get the round of PPP or weren't applicable are now waiting for the second round possibly not getting that either and now we're starting to have to renegotiate leases but unfortunately landlords aren't giving out a free lunch so they're they're starting to rip open the leases negotiate term negotiate some rent structures to try to get for some alleviation right now in place and so we're seeing that healthcare side has still been fairly strong we there's been there's been a bifurcation of the healthcare sector as well the hospitals and so forth are still very busy as everything imagine but a lot of the non-essential healthcare physical therapy psychological all of those types we have to meet in person still are not being met and so some of those healthcare sectors are starting to see some signs of fragility rents were starting to see possibly possibly starting to renegotiate a little bit we were on an uprise where the average rents were at about about dollar forty to a dollar sixty in downtown class a high-rise we're starting to see that possibly coming down we really depend on how long we're going to be in this period of stay at home John Sean I got a question this gentleman from the perspective of someone who wisely signed a seven-year office least three weeks before kovat are you starting to see any stay at home orders like language where where if you know tenants trying to bring language in that says you know if all of a sudden stay at home orders come we don't have to pay rent anything like that we're not at that stage yet or all the deals that we're dealing with right now are either renewals that have been working in place or tennis trying to restructure existing leases so new deals are far q between on the elisa everybody trying to stay in place or do maybe a extended aesthetic if their lease is coming due extending it for a short period maybe six months to a year why yeah I just wanted to add to John's comment regarding when he was talking about landlords talking about the PPP program and providing some additional funds for folks coming in we did have that situation currently we're working on a multi tinted retail center on Oahu when during the appraisal assignment the property owner was working out rent relief with a number of the tenants and then during the conversation was happily informed all of us that hey our tenant distant formed us that they did receive their PPP check and they are gonna be paying April and Mays rent so it was good to hear that story in the seed that the program was doing what it was intended to do and were in landlords are seeing that response from their tents that they're like getting the money and they're paying the rent and that was definitely a relief to us also looking at the deal so if it can in here he had a question for Matt I'll answer that question for Sean repeat Ted's question because no one knows what it is when you get to it okay well regards the lease negotiations and saying you're getting quite a food trying to go shaking the leases I would say or at least my assumption is it's kind of the food chain food chain is if the lender is giving forgiveness on loans then they the landlord should or hopefully should be passing those forgiveness is on to the tenants are you seeing more forgiveness and leases if they are getting forgiveness stuff from their lenders it's not always happening I'd be interested in that a lot of landlords are being aren't sharing that information the landlord that I do represent have not yet received any kind of reprieve on their on their debt service so they're working through hoping that the tenants are going to start being able to pay these would be the PPP program but yeah hopefully they will start passing those through but nothing's for know they're not sharing that information yet got it you regard to tense question it's in the chat so he's asking California is supposedly in force or tenants can or slower apartment rents from landlords is this a real possibility I don't see this yet I'm actually seeing the complete opposite and it's a real-life instance where my brother lives in a 340 unit apartment complex in Placentia California his lease is coming due in June he's paying call it twenty twenty two hundred dollars a month for a two-bedroom and they're trying to increases rent to $2,600 so I'm seeing rents increase just as normal if not more I don't see them getting away with that yet one a lot of tenants are just not paying rent and you can't evict them right now so I think you'll see landlords try to increase the rents and then settle upon you know either than paying the same rent but I don't see it going lower yet Roger what's the retail thing doing we'll get back to the second right listenings before the lion thank you I'm gonna share I'm gonna share my screen I'm not sure if it can work but let's try it save for hospitality the retail industry is the hardest hit so far that that we can see I don't know if you can see my slide or not retail generates a trillion 1.2 trillion dollars nationally those are the leading sectors retailers and malls have had recent troubles before Co vid shopping center vacancies were increasing online sales are increasing retail bankruptcies were at a record in 2018 so there was already trouble many feel that that this pandemic is really gonna push a lot of people over the over the edge so to speak retailers and shopping centers so far we've seen the best performing industries or grocers obviously general merchandise hardware stores I would say hard goods versus the hardest hit industries are soft goods which right up predominantly apparel which leads to the department stores many of whom I think are on the brink right now and then other places that we're seen as entertainment however suffer from people gathering together which is not good anymore movie theaters and gyms and then I thought I'd give an example of a brand familiar to everyone just to kind of encapsulate the the real trouble in retailer here and that's the gap they just put this statement out they've got thirty three hundred stores they stopped paying around on all their stores that's 115 million a month they furloughed their workers suspended stock repurchase deferred dividends reduced expenditures by three hundred million cut executive pay then they tapped their entire five hundred million dollar revolving credit facility and guess what it's not enough that's basically a billion dollar decision a couple weeks ago and it's not enough I don't know that paints a pretty pretty grim picture then if we look at the 50th state really the big nut thing is is the the visitor arrivals are down and I think this slide that's your visitor industry folks I don't think you need to say anything beyond that I don't think any of us ever envisioned that take a ride or a jog or a bike ride through Waikiki right now and it's it's unprecedented what we're seeing right now long-term impact of critical factors are yet to be determined unemployment rate obviously up vacancy rates are going to increase market rents are going to decrease I'm not a market guru for telling you that that's obviously but we just don't know right now the long-term impacts and no one's talking about long-term impacts never before has the industry been so focused on the here and now I mean it's basically April rent and that's what landlords are talking about and retailers are talking about how do I keep my store open if there are and really we're getting into non economic terms in the leases are under more scrutiny than ever the first thing we learned is that business interruption insurance only comes into play if your location is physically damaged so business interruption insurance is not going to cover anything Co tenancy force majeure continuous operation these are all coming into play is this an act of God is it not the major tenants close do I have to pay my rent continuous operation says you're supposed to be open at all times and you close your store are you in default of your lease because of that you know these are the these are the issues that are in play right now that that people are are talking about you know Roger have probably done 3,000 leases and you know I knew one day force majeure would finally come to for provision I don't like this winners and losers because but I just thought over that way but clearly the grocer's and the hard goods and retailers with a strong online presence prior to coronavirus are the ones doing better and then again the losers really what we may see the end of the department store here will Nordstrom be the only one standing when it's all over soft goods again aramis well they just filed right so that's right there it won't be even and then some of the what-ifs we saw a report last week that said the number of malls may drop to 50% so what's going to be the repurpose of that real estate and we'll domain in 50% of malls have very high occupancy that that's a possibility what a restaurants going to do to reimage and one of the silver linings that I see for the local and smaller retailer is having that advantage of being nimble and being more in touch with your local consumer and they may really have an opportunity here coming out of this to offer service and goodwill and maybe maybe we're headed back to more of a Main Street retail environment you had something to say um it's it's the thought okay was back to apartment landlords yeah that comment that in California they were seeing some possibly increases we did in here on a couple of praise Allah Symons we have active American Savings Bank on multi-family properties that some landlords that were surveyed actually we're looking at this as an opportunity to get rid of problematic tenants and doing just just that to to increase rents or that this could have been an opportunity to to get rid of some problematic tenants so that was it was just interesting takes how folks were approaching this crisis the lion are you saying that Matt's brother is a problematic tenant they're not allowed to kick out tenants for three months is it the same in Hawaii yes it's similar which are yeah I don't think it's three months at the moment though okay but we do have you can't evict I think at least until the end of May I was on a call earlier this morning in discussion about what property managers are seeing out there as far as the residential side and I was told that renters are being real savvy asking for rent reductions on negotiating hard off the gate regarding
ental rates and this is all apartment stuff residential which kind of leads into the multifamily debacle that we probably are going to see happen pretty soon said what are you seeing dead I don't really see it debacle in the in the offing people are always going to need a place to live the question is whether or not they can pay the rent and next week could going to be very interesting in that regard as far as transactional volume the buyers the only buyers who are out there are looking for something that looks like a deal compared to last year and the sellers are definitely not at that point so I don't see much volume right now by the way that what I was referring to earlier was this in California a be 8 to 8 828 that would allow when you when you go to court to evict somebody that would allow the court to make you keep them and lower their rent by up to 25% I don't know if there's any chance of that passing but that would obviously be devastating you don't have to prove that you were hurt by the virus or anything the court can just we have a question since we're talking about rents and not paying them and what's going on in landlord's Janica asked what if an owner closes the building in the parking garage and you're a tenant in his building what's your obligation to pay rent to that owner under those circumstances I believe that's how that question comes anyone want to talk about that we don't have anyone really managing it here so it's gonna come from our prove it our view but anyone have anything to say on that alright in retail yeah it still to be determined okay it's there are some ongoing battles let's say with respect to that so it's like force majeure is just one of those acts of God you got a workout later right all right sorry quick question mark Roger I was reading an article and then you're talking about a loss of loss of retail stated today on my order of magnitude of for every one square foot loss of retail could equate to two and a half three and a half square feet of additional institute industrial or distribution I don't know if what you guys see in that that I it's ending out to be where industrial is gonna come probably come out the winner in this whole thing but to that degree that's going to be pretty seismic I I am my my first thought is that in Hawaii retailers utilize warehousing less in a typical mainline market and that's mostly due to pricing and if you want to see that just drive behind a Walmart and you'll see 15 containers parked on the back that's that's warehousing and maybe with a reduction in locations you'll see more on on-site storage Jay what do you think yeah be interesting to see if these uh repurposed buildings that start coming to light I know when you start talking about e-commerce and last mile everybody's looking for that busted Sears project that they can use as distribution in in the core in the urban core so you started to see that on the mainland how it'll impact Hawaii be interesting to see but I'd be devastated if the department store disappeared I grew up at the mall my mom worked at the mall when I was a child growing up so I window shopped my entire life and I enjoy it it's fun so for me to believe that Macy's or Nordstrom's or Neiman is not going to be around I'm completely devastated by that it actually hits home for me don't tell my wife that she thinks I'm crazy that's that's you know in Hawaii Hawaii the department stores going away for rural America and probably the hardest hit malls repurposing those malls it's going to be very difficult but I think if you told Ala Moana right now it was purely my opinion that Macy's was gonna leave tomorrow they say fine and they're gonna build the condo there and I think the other malls in this state certainly on Oahu if if the department store goes away the repurpose is going to be residential because we have that type of demand typically in the past I want a lot with questions on the line and this is based on a discussion we had the other morning so you guys are there right a lot of apartment buildings right different commercial assets and whatnot what are you guys starting to see show up or if there is anything showing up right now just curious well the process has been with every deal right now it's a case by case scenario and we are you know we're taking in the appraisers and our vendors are taking in all this information and reams that's coming across their desk on a daily basis with market conditions changing by the hour and trying to say how does this affect the value of the property or the cash flow that the property can throw off and what's what we're doing is we're getting down to tenant by tenant analysis in a lot of cases for example we just finished up a multi-family building in Kaneohe and by and large all the market participants that were surveyed said yeah you know again remember everyone the premise of the appraisal for a bank loan that's fiery a compliant is that it's as is value as of the day that the appraiser standing on the property so it's what's happening in the market as of that moment well as of that moment a lot of buyers a lot of owners were saying absolutely if I had to buy something in today's climate I would expect some discount however this one subject property we are working on all the tenants were military based and had no interruption and their ability to pay their rent and that was discussed within the appraisal and adjustments to to the cash flow were made accordingly whereas you know if your other property where you have one-third or 1/2 or 3/4 of your rent roll is seeking relief it may change obviously the the outcome of that assignment so for all of the stuff that we're working on currently we are it's just taking it another step further than we normally would have pre kovat where we're looking at okay what's what's the tenant rent well actually doing and if we're looking at multi tenant retail we're saying okay what is the mixture of essential and non-essential businesses who's open who's clothes what's happening and that's all filtering through the appraisal to to try and project you know the best the best picture we can at the moment knowing that tomorrow could be completely different news story subjects like some of the things you said if you roll into that at the so we look at every assignment like lion does it's a it's a boutique now but the federal law requires us to get the property appraised as is as it physically and legally exists as of a current date and so one thing that I'd like to mention is that dates are very very important an appraisal on the twin towers on September 10th the useful life of that appraisal was 24 hours so we're constantly having to look at how we're how we're scoping the assignment what I'd like to say is that at no other time that I can recall and my 36 years of doing this is it more important for the appraiser not to just be looking at you know the most recent executed agreements in terms of sales and leases but to broadly go out and survey the market participants the brokers the leasing agents the property managers developers investors bankers their peers and I would strongly encourage if you're in the brokerage community to return and emails or calls from your friendly commercial appraiser because if you don't they're gaining only the other side of the story which is the challenges the abatements the concessions the G yes everybody's talking about a V recovery because of the low interest rates well go out and try to get a loan right now rates might be low but the challenge is getting it through credit approval at this point in time our I would say prior to March 11th much more difficult at this point in time deals are not impossible but there are challenges and you know sponsorship is being looked at I think the competitive pressures that existed over the past five years for interest-only loans people trying to get non-recourse I think all of those are are somewhat right now negotiation points so banks are looking at the strengths of the sponsorship the equity in the deal the strengths of the tenants much more closely they are looking at it's been said by my appraisers that we're pretty difficult to get assignments through and I think mark and probably speak to that as well but it's more difficult approvers than it is through our appraisal Department at this point in time because they're looking at the global picture and banks do not like uncertainty so anyhow I hope I hope that helps out a little bit there mark and you are thorough and professional we just have to give you all the stuff you want and we make our deals I've never not made a deal you were involved absolutely just you just made me work and I think you'll find a fort for food fort for the most part is the issue yeah were able to find were able to find ways to do deals more often than not but it is more of a challenge and you know one thing I was going to ask mark I was gonna redirect a question here Roger had chatted about retailing being challenging prior to covet 19 and the proclamation of the pandemic Sean we noticed that you know the occupancy on CBD office dipped below 10 percent that the vacancy how do you see long-term I know I noticed that Hugh here was looking at 14% maybe loss of office related jobs and I saw maybe a couple hundred basis point loss in occupancy but my concern is now with all of the movement towards collaborative space and the ability to efficiently transfer viruses from employee to employee how do you look at just as in retailing eat ailing has impacted the bricks and mortars you know half of our towers now working out of our house how do you see this impacting the market at least in Honolulu so I said on a group for office space across the nation and it's very segmented and how fast that's when it happened long and short of it is it may be a wash because of the fact that I didn't even realize this the tenancy that's gonna be lost could be upwards of when we're talking about this yesterday on the call it could be upwards of about 8 to 10 percent loss of office space but with that said the tenants that are the 10 that are healthy and wanting to still be operational are also gonna need more space because they want to they want to abide by some of these these distancing rules so honestly actually become more generous because at one point we were down to about averaging about a hundred and fifty square feet per per person whereas 10 years ago were up in about 220 per square foot per person so it's shrunk and now I think that that ratio is they're gonna start increasing but at the same time we are going to start losing some office users and office space so we haven't quite fleshed it out yet but that what we're seeing right now is some of the major markets is that those who are reacting fast are very good yes but there's some offsetting factors that and this is why I say it's important to speak with your your commercial Real Estate Appraisers if they only hear that there's a loss because of the decline in employment they're not gonna hear the other side of that story which social distancing will create demand for greater space per employee so it's things like that that enter into the appraisal we have no data stream right now it's like trying to catch a falling knife so appraising in the absence of market pricing mechanisms and data it's very important that we act collaboratively in the professional community to achieve the most credible results possible hey Mark the same corollary with regard to the office the charges brought up how about restaurants it seems to me that for every ship when I was leasing those for every ship that went out of business and left a restaurant there was three that wanted to rent it and start a new one so we may be losing a lot of the you know last twenty percent of the restaurants that came in but aren't there a young group coming up that could fill those pupas would that offset it I think there will always be restaurant concepts and chefs and entrepreneurs that think that they can present restaurants in a in a unique way really the question is what will be the format of a restaurant you know it again will these facing will they become will they become larger will the consumer as a result have to pay more for their food for the experience may be you're providing it maybe it's maybe it's a different experience completely maybe it's much more segregated which which might not be a bad thing right but maybe you're paying more for it then I think the the concern with the restaurant industry right now is that we're going to lose the good ones the ones that we like to go to the locals and how do we save how do we save them they've been lucky to stay open and offer takeout and you can see you can you can go to some restaurants now and get food and they'll also give you cocktails to go like God without the ice I could go home and you pour it over ice and you guys so you can sauce your favorite cocktail and your food from 12th Avenue Grill right in in your own house I think that everyone is learning to adapt to these shelter-in-place and but I think people are dying to get out so whatever the the next generation or the the REIT image is the restaurant the restaurant will survive and thrive I believe yeah exactly I had a real-time story about financing if I could I heard this from the market this was about three months ago and three weeks ago excuse me dream on a non profit was buying a piece of property and they were using their endowment to as collateral and the stock market dropped 25% in two days and all of a sudden they didn't qualify and the deal fell apart so that's a when have you ever seen that when would you ever have seen a lender when that would happen so that's a real time story and a deal tragedy that that came directly out of this alive intuition you find that the your banks looking more at the capital stack mark this was this was an inside joke between Lyon I actually know Rogers absolutely he's absolutely correct equities evaporated the market went from 29,000 18,000 and deals have fallen out and we're not quite as busy as we were because of that so but lying are you you were speaking the other day about retail proposed retailing and the challenges of you know we've been talking about existing properties the nightmare for the appraisal departments at this point are deals that had been construction loans that are going to be turning into Evergreen land loans because they're proposed retail yeah it's definitely difficult we're trying to find creative ways to continue to move forward but with any propose we have proposed bill seven in the pipeline for those of you don't know what that is it's proposed affordable housing and we have proposed retail in our pipeline all with challenges and we're trying to move forward unfortunately the difficulty with everybody involved with this phone call is that we don't have any clear end point in sight at the moment and it's hard to forecast when you don't know and and we can't afford to take a leap of faith saying well it might be better in 18 months without a clear construction loans Toni you sent me some notes earlier and you mentioned a phrase that I hadn't seen before you said construction loans that's what keyed me to this segment and I have no idea that really connects requires a loss of priority approval I'm not familiar with a loss of priority approval not with fact the Fanning there's no commencement or works of improvements parties need a lot of additional time what was that about and what do we need to know with regard to closing construction loans as it relates to construction loans I think in years past the title insurers have had claims presented and basically the court over overview apparently gave the position that if the deal didn't make sense from the get-go we're not going to the courts are not gonna offer any remedies for the title insurer or other parties affected by the mechanic's liens so with that in mind basically our underwriters here locally or nationally has basically said even if we don't have exposure to any mechanic's lien claims as of the date of insurance they require an overview of the entire loan and and the and an approval is required to be given before we can ensure construction loans Chris
you want to just jump on any subject and well first of all with regard to the capital stack that's not just an inside joke between Scott and lion that's an inside joke with every single commercial appraiser who's ever done an appraisal for Bank away we could probably have a whole conversation on rowdyism with regard to that one thing that's turning breakfast yes exactly right was that a finger okay one thing that that is interesting for us is is the the idea that dates matter right and they matter in two ways that might be interesting one is yes indeed we are valuing the property as of a specific date another nuance that's interesting only two appraisal geeks is the idea that the term market value which is what which is what we are providing to the bank's market value assumes a sale as of the data value but it also assumes an exposure time prior to the data value so in the early part of this what that means is if you think that the property would have sold at some time in the past twelve months at this price there's an argument that that could be could meet the definition of market value but that's not what the banks are really asking for the banks are asking for what will this property sell for today if we were to foreclose on it today and that's an interesting question when you have no data especially when we're talking to brokers and saying how much would you but how much would you have to discount this property for it to sell today and all the brokers are saying well I would never advise a client to sell it for that today you'd be way what wiser to wait 90 days or to wait you know six months or whatever it is and even though this has been an unbelievably drastic downturn talk to a bunch of the people on this panel about how we're currently appraising a hotel that went from 95% occupancy in mid-march to 0% occupancy on April 1st and it's an unbelievable occupancy chart to look at that I've told my associates that you'll just never see never see this again in your life hopefully but the the idea is that we've got it we've got to provide an estimate of value and so so on one hand I think that story needs to be told that right now it might be a case of just no activity happening but what we're what we're looking at and we specialize in industrial so so what we keep hearing is that industrials holding value pretty well right now there's some cases but one thing we start to look for like you know that we used to look for the last downturn is listing prices and asking prices and right now it's too early to see well how do I mean that in up markets you don't use a listing as a comp because brokers are free to ask whatever they want for a property and if it hasn't sold it's not a comp same thing with an asking rent but in a down market listings become kind of interesting because if you've got comps from four weeks ago or you've got comps from five weeks ago and the property next door is available for sale for a cheaper price then that comp that comp probably isn't very good anymore and the lower asking price of the one next door even though it hasn't closed is probably probably your best comp and so that I think it's important with it when we say there's no there's no data there there really is data that starts to come online and you know we're only five weeks into this but I would imagine as the pain starts to hit and as PPP starts to wear off that you know in the next four six eight you know 12 weeks we're going to start seeing people really get desperate and they're gonna really need the money so asking prices are going to drop Oh blank spot blank spot I actually have one thing that it was kind of I was interested with Larry to get back to you but Roger was saying when you Roger when you're talking about the the small restaurant guys you know being more mobile or flexible or you know being able to bend and this is this is probably on the same analytical level of you know Matt's brothers apartment you know being a comp but you know I eat out takeout food obviously if you look at me almost every meal and I've started to see a transition amongst the restaurants that I go to or the takeout restaurants where I would say more than 50% of the small ones have transitioned to either giving a discount for cash or just plat out not taking credit cards at all and of course you know my thoughts are obviously hey when the going gets tough the tough got to start scrambling and so they're probably trying to underreport their taxes underreport they're g-e-t and i'm wondering if they're using that as a weapon to seek rent abatements from from landlords i just don't know if you've seen any of that i think it's too early to tell on the rent of Batemans but I think it's interesting how you know the you're going to get takeout it's 20 bucks you know there is they make it very easy for the cash transaction I haven't seen any that won't allow credit cards I think it's too early to tell I mean we're literally people are trying to figure out we're still trying to figure out April rent and I think like maybe Scott said you know next week guess what we got a home for another month let's do but I do know that for the smaller retailers it's all about cash management I mean I know a couple where you know they have a controller or a CFO who signed all the checks it's the owner of the owner signs every single check now they oversee everything so cash is king it's more than ever interest to your point this overseeing in the office office sector is landlords asking for financials and this is a perspective that I really didn't catch on to which is interesting they were we always presumed that their land owners are gonna want to see hardship and all these financials are always rear-facing so these tenants are saying well I don't have I can't show hardship yet but it is because of the lack of lack of revenue but what's happening is these landlords are actually not wanting to necessarily see hardship but they want to see how strong the tenant is to be its success if they're gonna give abatement or if they're gonna give concession if the tenants hanging on prior to Colvin on a very weak balance sheet the landlord's most likely aren't going to give them other additional concessions just just I guess lengthen the bleeding process and so it's a it's a little bit of a reverse psychology from what tenants are expecting and wanting to say oh I can't show financial that are showing hardship well you know what landlords want to see that you're strong and then if they if you are strong that they may put other Mike's towards helping you to be successful in the long run enter Darwin survival the fittest fair question for Roger having gone through like this I think is my fifth cycle now typically retailers after excuse me retail property owners after a shock event start putting in percentage rents even though they know they're not going to capture any percentage rent strictly for the purposes of getting financial data from their tenants so they know how they're doing do you think there's gonna be a push in that direction going forward there probably will be a push I can tell you from the national retailers over the last ten years it's been to get rid of percentage rent and they just want to quantify their their lease terms upfront they don't want anything beyond that they're only going to approve those numbers so it's it's become a bigger battle and that's in restaurants to Shawn's coin on the reporting of financials that's a that's a one of the bigger grinds that's happening right now is landlords want to see financials tenants don't want to show them financials that's why I was wondering if they were because the only way you can get it contractually is if you have the ability to get it contractually through like a percentage clause even though you're never going to capture it if your base rate has established at market but you're asking for percentage it's just a clause that helps you capture that information and enter Shawn's point I was gonna chime in it with you shot I I agree with what you said but what's the worst thing for a landlord vacancy right one of the worst things vacancy so would you rather have that guy limp along and retain tenancy or go vacant I mean there's some very very hard decisions coming down the road in retail I had a question for Matt if you could just give us from your position on the mainland so to speak we usually lag behind but what are some of the high points that you see in the next quarter moving forward in different stages right now I'd say where it took 30 to 45 days to close the deal prior it's now taking 60 90 120 days to close and I only expect that to get I would say my crystal ball says the next quarter is gonna be worse and slower I will say a lot of that is being is because of PPP loans a lot of banks are focused on that I mean trying to save small businesses and give them their money so maybe when that's all dried up and applications are done and everyone's approved about their money it does a bit but there's still a concern of where values are though you know will they still be cautious well crazy value is come in will there still be giving 70 75 % LTV who what bank is gonna take the first job so I think next quarter things are just gonna move a lot slower a lot less transactions a lot more if transactions are going through they're gonna be a lot more conservative rates are going to be great we'll just see lower leverage loans you won't see as many of the bigger banks doing deals I think they have the balance sheet to weather the storms I think you're gonna see secondary market banks try to eat up market share at some pre aggressive terms so if you have any clients I advise them to go to secondary market banks I just see things moving slower on the multifamily valuations by seeing a lot of buyers out there who are happy to buy a 10% or more off of last year's market value but not a lot we're out there to buy at last year its market value and the more difficult lending standards that's going to cut into the buyer pool even more another factor on those on the lending standards that's going to significantly affect a refi market as well a lot of people like to refi their properties those rates have gone down yeah I think one of the bigger there's a lot of syndication deals that we're done in the market over the last 24 months so you get a general partnership of for Spartan sponsors who would bring ten to twenty percent of the equity and then they get LPS which could be twenty thirty small limited partners to go purchase 120 unit 20 million dollar building right and I see 99 percent of the time those were levered with ABC loans or some kind of secondary market loan at 75 percent leverage and most of them their value added plays when they want to refinance and pay off the limited partners within their partnership you know in the property outright right are they going to be able to refinance those properties when they were at 75% out to me if values drop that's gonna be a big concern that I'm watching closely I think Matthew is right as you start seeing the underwriting standards focus on more strict adherence to debt coverage ratios and debt yield that have been relaxed over the past five to six years because of the competitive market were once again focused on debt coverage ratios at you know maybe indexing up the interest rate slightly and we're looking at strict adherence to debt yields we're you know four or five years ago you started seeing those those standards getting relaxed quite a bit where you have borrowers being able to get higher loan to values then perhaps the income supported I'm hearing to that banks are kind of stress testing of them you know and you know using a debt coverage ratio with the reduced income yeah let's say four months ago for multifamily property you would need a 1.15 or 1.2 deck coverage ratio they're now needing 1.25 or 1.3 three months ago you would be using whatever the market they can see was which could be three or four percent for multifamily they're now stressing it out like you're saying tender stressing that 8 to 12 percent just to forecast if tenants aren't paying rent or if tenants are eventually convicted because they came rent right management expenses are both going up LTV constraints are being pushed down from there we go 75 they go 65% down so yeah there's just a lot of underwriting criteria or guidelines that are being changed okay so we are almost at 12 o'clock and the recording of the video got started a little bit late so I wanted to go around to the panel speakers and have you introduce yourselves to again so we're gonna start again with marquel mark mark am Bart CCI am owner of am Barton company commercial real estate I have been the moderator of this and for every interesting group of people awesome Jael occur I'm Jael affair commercial asset advisors I'm an industrial broker been in the business 16 years awesome Roger liens don't forget Shawn Roger liens I'm a partner at deal corporation I've been working in the shopping center industry for 32 years awesome Shawn tazaki tataki managing partner for commercial asset advisors specializing in office health care and institutional investments okay Ted Miller Ted Miller prime Pacific properties multifamily broker in California in Hawaii since 1997 Tony Ching Tony King fidelity national title insurance I'm an advisory panel officer have been in the business for over 50 years and primarily focusing on the larger commercial transactions hey Matt Bukhara MacVicar el Toro Capital Advisors commercial real estate loan broker and the mainland Scott Brody Scott Rhodey uh chief appraiser for the Bank of Hawaii lion Dupree I'm lying to pray I'm the commercial appraisal manager for American Savings Bank Chris Potts our response are the manager of Ponce our evaluation and for everyone who's been texting that saying that I should turn the logo towards the camera this is actually a blank one all right everybody I'm Olivia Marie Kyle from fidelity thank you for joining us and stay tuned for next week we're gonna have a all residential panel okay take care of you everyone thank you thanks everybody
