Monday, September 28, 2020

The Massive Destruction of US Commercial Real Estate Values Because of the Lockdowns

Commercial properties hit by the economic effects of coronavirus related lockdowns could have lost one-quarter of their value or more, reports the Financial Times.

Properties that have gotten into trouble are being written down by 27 percent on average, data from Wells Fargo shows.

The paper reports on the problems in the hotel sector:

Recent examples show hotels being especially hard hit, given the collapse in tourism and business travel. A Crowne Plaza hotel in Houston was valued at $25.9m this month, down 46 per cent from when it was bundled into a CMBS deal in 2014. The hotel, which sits just off the Katy Freeway has not paid its mortgage since March and was transferred to the special servicer in May. 

The Holiday Inn La Mirada, about 20 minutes drive from the centre of Los Angeles, was recently valued at $22.1m, down 27 per cent since it was securitised in 2015, having not paid its mortgage since April. Another Holiday Inn in Columbia, Tennessee, had its appraised value cut by 37 per cent this month to $7.7m.

Don't let anyone tell you how this all plays out. No one knows.

The departures from high tax, heavily regulated cities and states may mean that some properties never recover.

The post-lockdown economic environment remains unclear.

It makes sense for employers who can efficiently monitor employees who work from home to encourage them to do so. The lockdowns have taught firms this. It saves on office space and saves on the burden of maintaining employees in high-cost regions.

In the long run, this might be a positive for hotels with quality conference space, as firms will want to bring all employees together at least once or twice a year for training and in-house networking.



  1. People leaving high tax high regulation states bring their voting records with them, unfortunately. That's one of the reasons so many Red states are turning purple.

    1. I'm moving from CA to TX. I'm tempted to buy a Toyota truck and mount M2 Browning (legal with NFA Class 3 authorization) on the bed and then park it in the street. Just to trigger other California transplants to death, LOL.