Distressed landlords are flocking to the alternative sector – analyst

But higher rates will add more burdens to already-struggling landlords

Distressed landlords are flocking to the alternative sector – analyst

The alternative lending sector is seeing a growing contingent of landlords seeking help as banks are turning them away amid the COVID-19 pandemic, according to analysts.

With the economic situation unlikely to normalize over the next few quarters, the market should brace itself for an increase in the volume of “distressed sales” of properties throughout much of the year, said Roelof van Dijk, CoStar Group’s director of market analytics.

“If you’re a landlord, and looking to refinance, you can’t get that,” van Dijk said in an interview with Reuters. “So you’re probably going to have to sell. But they're also limiting new owners who might want to buy that space.”

Financing will prove especially difficult in the commercial sphere as higher rates in the alternative space would add more pressure to small- and medium-scale ventures, van Dijk said.

“To be eligible for the [rent relief] program, you have to prove that your tenant has had a dramatic loss of business, and is really suffering,” van Dijk said. “[But] then to go to the banks, and say, ‘Don’t worry, the tenant is going to continue doing business when we get out of this,’ is a hard sell.”

And this new status quo is not likely to shift any time soon; Dream Office REIT CEO Michael Cooper said that commercial landlords might need to hold on for at least three years before the financial system adapts to the impact of the coronavirus and yields more agreeable market conditions.

“People talk about what percent of rent they got in April. That was only two weeks of the economic shutdown,” Cooper said in an interview with BNN Bloomberg. “Really, 2022 is going to be a time frame where you can look at what the value of a building is and deal with it with confidence. … Hopefully it will work out over time, but it won’t be working out smoothly.”