$81 Billion In Rent Is Due Today And No One Knows What Will Happen

Tyler Durden's Photo
by Tyler Durden
Wednesday, Apr 01, 2020 - 03:45 PM

It's officially zero hour for both landlords and tenants alike as today marks the first day that mortgages and rents are due since the nation has addressed the coronavirus on a national scale with a lockdown and stay-at-home orders.

Meanwhile, in the balance hangs $81 billion in rent payments. Renters are warning they're not going to pay, putting property owners in precarious positions and forcing them to have conversations with their tenants. Meanwhile, the government is doing their best to try and keep the economy slowly moving along despite essentially advising the nation that it must remain shut down. 

And nobody, especially in the real estate industry, understands how this unprecedented event will play out.

Willy Walker, chief executive officer at commercial real estate lender Walker & Dunlop Inc, told Bloomberg“The hardest thing right now is that nobody actually knows how bad it’s going to get. That’s driving everybody crazy.”

Many local governments have placed bans on evictions for the time being, removing the incentive for even those who can afford it to stop paying rent.

Of all the different types of landlords, apartment owners usually collect about $22 billion in rent per month. Research from Amherst Holdings suggests that up to $12 billion a month in government support could be necessary to help households in the U.S. continue to make their obligation due to the coronavirus lockdowns. 

Photo: NYT

Commercial landlords are also worried. Owners have very little leverage, since a quarantine is a bad time to go out and find new tenants. Rental debt will need to be paid eventually, but there is significant uncertainty surrounding what happens to the economic machine when these bills are paid late, instead of on time. 

Scott Rechler, chief executive officer at RXR Realty said: 

“If tenants stop paying rent, then at some point landlords can’t pay utilities. The municipalities don’t get their property taxes or mortgages aren’t paid and the banks get a spike in defaulting loans.”

The apartment industry alone has more than $1.5 trillion in outstanding debt and credit markets are trying to make preparations and concessions for borrowers who may not be able to service debt payments as a result of rent not coming in.

Real estate investor Tom Barrack has argued that the U.S. Treasury should help stabilize the debt markets by purchasing commercial mortgage backed securities. The government's stimulus checks should be hitting the accounts of U.S. citizens over the next 3 weeks. 

And while the system may be able to to handle one month of missed rents, it could quickly devolve into chaos if things don't soon return back to normal.

Bruce McNeilage, CEO of Kinloch Partners, which operates single-family rental homes concluded: 

“I’m less worried about April. I’m more worried about May 1. Once people miss three or four paychecks, that’s when things get bad.” 

However, some landlords took a more direct approach - get out!!