Profimex Market Review Update – November 22, 2020
Struggling Retailers Rack Up $52 Billion in Missed Rent
According to CoStar, the last eight months of the pandemic added up to $52 billion of unpaid rent, due by clothing stores, restaurants, gyms, and others. In many cases, the unpaid rent obligations will force some operators into bankruptcy. “You’re going to have big bubbles that are going to be hitting next year or even in the fourth quarter,” said Andy Graiser, co-president of A&G Real Estate Partners, an advisory firm. “I’m not sure if they are going to be able to make those payments in addition to their existing rent.”
Real Estate Valuations Remain a Challenge in the Current Market
The real estate investment market continues to see a low transaction volume. One of the reasons is that buyers and sellers cannot agree on a price, and with appraisers, having a difficult time to value an asset, this price discovery may continue. As during the previous recession, the transaction activity came again to a halt, which makes it increasingly difficult to compare asset prices to comparable sales. While other approaches to appraise properties are available, they are not necessarily more helpful. The discounted cash flow analysis for example requires an estimate of future income, and with many tenants being unable to pay rent, this estimate may not be accurate. Further, this method requires a rate of return that investors demand and while assuming that investors ask for a risk premium, the limited investor activity makes this again difficult to assess.