Office landlords finding out which tenants are paying up during lockdown

Along with initial data from Q1 earnings, a separate survey revealed how much office REITs took for April rent

TRD NATIONAL /
Apr.April 27, 2020 04:15 PM
From left: Empire State Building, 111 Eighth Avenue and 100 Park Avenue (Credit: Taconic Partners, SL Green) 

From left: Empire State Building, 111 Eighth Avenue and 100 Park Avenue (Credit: Taconic Partners, SL Green)

Public office landlords are starting to report their first-quarter earnings — and investors and analysts are paying close attention to just how much rent they were able to rake in as tenants like law firms and advertising companies complete nearly a full month of working remotely.

Empire State Realty Trust — whose biggest property is the Empire State Building — drew in 73 percent of its office rents in April, compared to more than 92 percent for SL Green. Other office real estate investment trusts, like Columbia Property Trust, Paramount Group and Boston Properties are on deck to announce their earnings this week.

John Kim, an analyst at BMO Capital Markets, said Empire’s collection rate was underwhelming. And the firm said it was still weighing the vast majority of the 170 rent deferral requests it received.

“Empire was surprisingly low, I would say…I would imagine that number goes up, especially once there’s clarity when the shelter-in-place ends,” he said, referring to statewide orders that have kept nonessential businesses closed across the country.

A survey conducted by Nareit, an industry group representing real estate investment trusts, found that office landlords this month received almost all — 89.3 percent — of the rent they typically collect in April. That’s behind apartment and industrial owners, but ahead of healthcare and shopping center owners.

The data in that survey was from April 8 to 15. And some are wondering what rent really will look like down the road, amid government-mandated shutdowns, and the possibility that some landlords will allow struggling tenants to skip rent payments.

“The amount of forgiveness will be dependent on the relationships [landlords’] have” with tenants, Kim said.

Todd Kellenberger, REIT client portfolio manager at Principal Global Investors, said he does not expect a material deterioration in rent over the coming months. But the ability for tenants to pay up also is largely dependent, at least in the short term, on whether they are able to secure relief from the government.

The ability for tenants to pay “could change, however, should the Covid-19 pandemic play out in a much more elongated fashion,” he said.

The office sector has been less impacted by the pandemic, unlike the retail and hotel sectors, service industries that rely heavily on bringing crowds together. But many are keeping an eye on office tenants and their ability to pay rent, as the economic fallout from the pandemic has led to layoffs and financial instability for white-collar workers — including those in the real estate industry — as well.

Among public office REITs, the recovery of the sector has its good and bad days, analysts said. But many office tenants — even if unable to access their spaces — have still been able to transition to working from home, which means they can still operate their companies.

But that lifestyle change also has underscored an emerging question: How much office space do businesses really need?

Kellenberger said the need for office space will not completely disappear. But some firms might make working from home a greater part of their businesses going forward.

“One has to think this might pose a structural headwind for the demand of office space going forward,” he said.

During its first-quarter earnings call last week, Blackstone did not break down its rent collections for April. But the Blackstone president Jonathan Gray said that question — will people want to work remotely permanently? — is out there.

“There will also be questions going the other way about will firms have the same density? Or will they spread out a little bit? I still believe in the fullness of time,” he said. “I mean, working at home, we’ve made it work, but we think it’s better [in an office]. We’re much more efficient when we’re together.”

Write to Mary Diduch at [email protected]


Related Articles

arrow_forward_ios
From left: SL Green CEO Marc Holliday, Land & Buildings Investment Management founder Jonathan Litt and Vornado chairman Steven Roth (Unsplash; Land & Buildings Investment Management; Getty)

Activist investor Jonathan Litt is shorting big NYC office landlords

Activist investor Jonathan Litt is shorting big NYC office landlords
An illustration of Vornado's Steven Roth and Facebook's Mark Zuckerberg

Revenge of the hoodies: Big Tech may be breaking up with Big Office for good

Revenge of the hoodies: Big Tech may be breaking up with Big Office for good
MetLife researchers “expect many firms to try (and fail)” permanent work from home arrangements in the near-term, though the long-term impact may be offset by other considerations. (Credit: iStock)

TRD Insights: “Pandemic compliant” offices may offset remote work impact

TRD Insights: “Pandemic compliant” offices may offset remote work impact
Mortgage lenders are beginning to see missed rent payments from office buildings. (Credit: iStock)

Add office tenants to the list of those not paying rent

Add office tenants to the list of those not paying rent
A CBRE global survey of over 200 companies found the vast majority are taking a cautious approach to reopening their workspaces. (Credit: iStock)

TRD Insights: Most companies will reopen their offices in phases, CBRE global survey shows

TRD Insights: Most companies will reopen their offices in phases, CBRE global survey shows
WeWork CEO Sandeep Mathrani with WeWork's headquarters at 115 West 18th Street and Twitter CEO Jack Dorsey with Twitter headquarters at 247 West 18th Street (Credit: Google Maps; Getty Images)

Office owners brace for competition — from their tenants

Office owners brace for competition — from their tenants
Twitter CEO Jack Dorsey and 245-249 West 17th Street (Photo by Burhaan Kinu/Hindustan Times via Getty Images)

Twitter, big tenant in Midtown South, says employees can permanently work from home

Twitter, big tenant in Midtown South, says employees can permanently work from home
April’s top leases included a new 242,000-square-foot lease for the SEC at 100 Pearl Street, a 130,000-square-foot renewal for BNY Mellon at 200 Park Avenue, and a 78,000-square-foot renewal for D.E. Shaw & Co. L.P. at 120 West 45th Street (Credit: Google Maps; Postdlf via Wikipedia; Tower 45)

TRD Insights: Manhattan office leasing actually picked up in April, but not by much

TRD Insights: Manhattan office leasing actually picked up in April, but not by much
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...