The coronavirus-weakened economy means assets are on sale (Credit: iStock)

Wealthy homeowners are putting their mansions and estates as collateral for loans to repay debts or even scoop up cheap assets now available in the coronavirus-weakened economy.

Real estate makes up a sizable chunk of many wealthy families’ portfolios and many properties aren’t mortgaged. Low interest rates mean they can borrow for cheap against those properties, according to Bloomberg.

“There is an abundance of mortgage finance available, and using real estate to secure a funding line can open plenty of opportunity,” said Islay Robinson, CEO of London-based mortgage broker Enness. “Especially if you are borrowing at record low rates.”

Robinson said five-year loans are available for rates around 1.5 percent to 3 percent. Some borrowers see debt as a better option than selling off other assets in a down market to raise funds.

Some take out loans to pay back loans secured by stock. Others are using it to capitalize on bargains brought on by the economic downturn.

A family based in Asia took out a $50 million loan against a portfolio of London properties to fund other property purchases and private equity investments. Another Enness client took out 15 million pounds on a London property also to buy up cheap properties.

The bets can pay off if borrowers can hold out until the global economy — or at least the value of their portfolios — picks back up. Knight Frank projects that London home prices will fall about two percent this year, but grow by six percent next year. [Bloomberg]

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Citydwellers fleeing coronavirus have descended on rural communities across the Western U.S. (Credit: iStock)

Well-heeled city slickers are looking far and wide to escape the virus. And many are settling on the remote communities of the American West.

The influx of potential coronavirus carriers to small rural communities has some full-time residents worried about local outbreaks that their healthcare systems can’t handle, according to the Wall Street Journal.

That’s the same dilemma facing many vacation communities outside New York City where urbanites fled in droves in recent weeks.

The ski resort town of Big Sky, Montana is among the otherwise small off-season communities experiencing a surge in visitors. The local county, Gallatin County, accounts for more than a third of Montana’s 330 or so cases of COVID-19.

Some community groups, like the Big Sky Chamber, are “not encouraging people to come at this time,” said CEO Candace Carr Strauss. Yellowstone Club, a resort in the town, also asked members to stay away.

Late last month, Montana Gov. Steve Bullock issued a stay-at-home order and recently ordered out-of-state visitors to self-quarantine for two weeks.
The Victory Ranch preserve outside Park City, Utah saw a surge in members coming out to wait out the pandemic in their cabins. It’s taxed the property’s management company, who is delivering groceries and takeout to people in their cabins. [WSJ] – Dennis Lynch

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Keith Meister and Bill Ackman (Credit: Meister by Patrick McMullan/Patrick McMullan via Getty Images, Ackman by Sylvain Gaboury/Patrick McMullan via Getty Images, iStock)

As the coronavirus pandemic has pummeled the stock market, Wall Street’s biggest antagonists have largely set aside their activist campaigns. But the virus hasn’t stopped some investors from pouncing on the discounted prices and fortifying their positions.

“What we’re noticing is that activists are going into positions or re-entering positions they held previously,” said Josh Black, editor-in-chief of data firm Activist Insights.

Activist investors identify companies they think they can shake up and then quietly build shareholder positions. Sometimes they partner with other disgruntled shareholders and push for management changes or other reforms — or sometimes for the company to liquidate itself.

Real estate investment trusts have been a hotbed of activity for activism in recent years, with specialists such as Jonathan Litt of investment management firm Land & Buildings and Michael Ashner of Winthrop Realty Trust waging campaigns.

But now some titans of Wall Street also have their eyes on real estate.

Keith Meister, a disciple of Carl Icahn, has for the past year been pushing the casino company MGM Resorts International to focus on gaming and spin off its real estate assets.

Meister’s $2 billion hedge fund Corvex Management built up a position in the company, which owns such marquee assets as the MGM Grand and the Bellagio in Las Vegas, and Meister was appointed to the company’s board early last year.

MGM’s stock shot up with his appointment and had been trending up since May until the coronavirus outbreak sent the stock market off a cliff in late February.

Meister last week went back four times and bought 1.6 million shares of MGM for about $12 per share, a discount of roughly 65 percent to where MGM’s stock was trading at in mid-January.

Meister is among a handful of investors who stepped up when the market turned down in late March.

“A number of activist investors … are seizing the opportunity from reduced valuations to increase their positions in existing targets and build new positions,” attorneys at Wachtell, Lipton, Rosen & Katz, who represent corporate boards defending against activists, warned in a memo. “Many of these activists are out in the market fundraising to have additional firepower in a depressed market.”

Another marquee name increasing his shareholder power is Bill Ackman.

Ackman’s Pershing Square Holdings has been a large investor in the Dallas-based developer Howard Hughes Corporation since it was spun out of General Growth Properties in 2010.

Ackman is chairman of the board at Howard Hughes, which in June said it was considering spinning off a component or selling itself to another company. But the company in October said it decided not to sell, and as the stock slid, Ackman bought more shares.

Ackman on Dec. 4 disclosed that he had acquired 6,384,239 shares, or 14.8 percent of the company. But Howard Hughes’ stock has since fallen from more than $112 per share to shy of $60. Last week, when the stock was trading in the mid-$40s, Ackman bought more, increasing his stake to nearly 30 percent of the company’s common stock.

His activity didn’t go unnoticed. After it was reported that Pershing Square got a $2.6 billion payout from credit default swaps it had bought as a hedge against the virus pandemic hammering the stock market, Ackman went on the defensive, penning a series of tweets explaining the rationale behind the move. He noted that it offset the loss in value of Pershing Square’s stock assets when the market plunged, leaving the company in a position to invest.

“Just this Friday, we invested $500m to provide the Howard Hughes Corp., one of the largest real estate development companies in the US, with the capital it needs to continue its various development projects which will create 1,000s of construction and other jobs,” he wrote. “Without this capital, HHC would have had to mothball many of its projects.”

Contact Rich Bockmann at rb@therealdeal.com or 908-415-5229

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Daniel Odess and Matthew Sengsourinh with the properties

GlobalPro Ventures is working on plans for two new projects in Allapattah and Coconut Grove.

The firm, led by Daniel Odess and Matthew Sengsourinh, is in the permitting process for the conversion of a six-unit townhouse building into an office building with ground-floor retail space, at 3139 Southwest 27th Avenue in Coconut Grove, the developers said.

GlobalPro Ventures acquired the units in late 2018, and plans to move its office to the building. The ground floor will include a roughly 500-square-foot retail/restaurant space.

The property is north of new condo projects, such as Terra’s Grove at Grand Bay and Terra and Related Group’s Park Grove, as well as Treo Group’s Regatta Harbour mixed-use development.

GlobalPro Ventures is also in the preconstruction phase for a mixed-use apartment building at 2560 Northwest 20th Street in Allapattah, Odess and Sengsourinh said, though they acknowledge that the past six weeks have slowed things down. Odess is also founder and CEO of the insurance company GlobalPro.

The developers said they are considering building live-work units in Allapattah, and plan to have co-working space in the lobby. The existing building is currently leased to retail tenants. GlobalPro Ventures acquired the property in October for $1.9 million, records show.

The site is zoned T6-8, which means that they can build up to eight stories high with about 70 to 80 units.

Allapattah has attracted big name developers, including Jorge Pérez, Moishe Mana and Lissette Calderon. Calderon is building a 192-unit apartment development called Allapattah 17 and a 323-unit apartment project called 16 Allapattah.

Mana has been assembling land on the eastern edge of Allapattah, just west of his Wynwood holdings. And developer Robert Wennett is planning a residential, office, retail and hotel project in Allapattah that will rise between Northwest 21st and 22nd streets, and between Northwest 13th and 12th avenues.

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It was just a few months ago that Zillow was being asked every five minutes to place an offer on someone’s home.

Demand was such that the listings giant — which historically made money off agent advertising — jumped headfirst into instant homebuying in 2018 and shifted its entire business model a year later. To ignore the burgeoning opportunity that iBuying represented would be an “existential threat” to the business, Zillow’s CEO, Rich Barton, said in a March 2019 interview.

A year later, and in the throes of massive economic turmoil sparked by the coronavirus pandemic, Zillow and other major players including Opendoor, Offerpad and Redfin have hit the brakes on iBuying — an industry that generated nearly $9 billion in sales last year.

“With whole cities shutting down nearly all commerce, no one can say what a fair price is right now,” Redfin CEO Glenn Kelman said in a statement last month, announcing his company’s withdrawal from homebuying for the time being.

But while some in the business say it’s a pause, others believe it could be a nail in the coffin for a risky model that’s saddled companies with thousands of properties on their balance sheets in addition to capital costs.

Generally speaking, iBuyers purchase homes at a discount from sellers who want the certainty of a sale, and after minor renovations, they look to flip the homes for a profit. Many of the larger companies, like industry leader Opendoor, have relied on outside funding to do so.

“It’s not clear these guys are going to survive,” said Gilles Duranton, an economist and dean’s chair in real estate professor at the University of Pennsylvania’s Wharton Business School, who was skeptical about the model in good times. “It’s as simple as that.”

To date, iBuying companies own a tiny fraction of the U.S. housing market — less than 1 percent, according to analysts. But with institutional investors eager to own a slice of the pie, the sector’s total dollar volume has doubled each year since 2017, and last year, the top four players closed $8.7 billion in deals across 60,000 home sales.

Opendoor — the venture capital-backed firm that has raised $3 billion in debt and $1.3 billion in equity from investors including SoftBank — was on track to close 30,000 deals in 2019. A year prior, the online real estate company bought 11,000 homes and sold 7,000.

And for publicly traded Zillow, iBuying injected $1 billion in revenue in 18 months’ time.

In 2019, its Zillow Offers platform accounted for about half of the company’s $2.7 billion in revenue, up from 4 percent a year prior. Zillow purchased 6,511 homes last year and sold 4,313.

Ironically, iBuyers were supposed to be a hedge against a bad market by offering people speed and certainty when selling their homes. The buyers could raise fees or slow home purchases in the event of a market correction.

Companies like Zillow and Opendoor typically charge sellers 6 to 15 percent of the home sale price, according to the real estate data firm Collateral Analytics. In the early days of the pandemic, some even considered iBuyers an alternative to in-person showings.

“You can sell without doing an open house,” said Mike DelPrete, a scholar in residence at the University of Colorado who studies iBuying companies. “There’s certainty that iBuyers provide at a time of uncertainty.”

DelPrete added that he has faith in the business model to withstand a downturn.

“Nothing that’s happening now is a repudiation of iBuying,” he said. “It’s about how much cash is in the bank. How long can they turn off the engines before restarting?”

Tangible threats

It was one day after San Francisco ordered its residents to shelter in place that Redfin became the first of several players to pull the plug. Kelman told investors last month that uncertainty in the market made it impossible for Redfin to continue its disciplined approach.

The Seattle-based discount brokerage had been a reluctant newcomer, following Opendoor into the business in 2017, in part to stay competitive and also to give clients another way to transact.

On an earnings call last year, Kelman called his rivals’ rush to rapidly scale their homebuying businesses a “race to the bottom.”

But by 2019’s fourth quarter, iBuying accounted for 42 percent of Redfin’s $233 million in revenue. “Redfin’s scrambling to buy homes as fast as we can because we know it’s on like Donkey Kong,” Kelman said in February.

Redfin’s abrupt pause was notable, but not nearly as big of a deal as Opendoor’s announcement soon after, according to DelPrete. He recently noted in a blog post that Opendoor was buying 40 times as many homes as its competitor and that “Redfin has many other sources of revenue; Opendoor does not.”

Representatives for Opendoor and Redfin would not comment for this story.

Eric Wu, Opendoor’s CEO, wrote on the company’s website in late March that health and safety concerns weighed heavily on the company’s decision. “Though major parts of our experience are virtual and self-service, there are still elements that require real-world interaction,” his statement read. “Given we will likely see delays in closings, we felt it was more appropriate to pause new offers so customers can plan accordingly.”

Opendoor said it will honor contracts it already extended to sellers. But it asked customers to expedite their closings — or delay until shelter-in-place mandates are lifted. “If customers would prefer to not move at this time, we are allowing [them] to cancel,” the company noted.

DelPrete said, however, that by pausing the purchase of homes, Opendoor had shut off its only source of revenue. “There’s no iBuying without buying,” he said. “If you are a car company and you’re not making cars, you have an existential question that needs to be answered.”

As of late March, as job losses related to the pandemic mounted, Opendoor had not announced layoffs or other cutbacks.

But others did. After suspending its iBuying program, brokerage giant Realogy said it would cut the salaries and workweeks of a majority of its employees, while its CEO Ryan Schneider would take a 90 percent pay cut.

Zillow’s Barton, who watched his company’s web traffic drop 20 percent in one week, told investors on March 23 that “things are pretty foggy and uncertain right now.” Zillow declined to comment.

In addition to suspending its iBuying platform, the company froze hiring, suspended marketing expenditures and cut discretionary spending to offset lost revenue.

“We hope this will be enough,” Barton said on the investor call, noting that Zillow would keep the infrastructure and staff in place to “resume iBuying when the pandemic is under control.”

How long that takes is anybody’s guess.

“Unprecedented times”

February home sales rose 7.2 percent year-over-year, according to the National Association of Realtors, but economists are predicting deals will plummet due to the highly contagious and rapidly spreading coronavirus.

By late March, residents of many cities and states around the country were effectively told to shelter in place. And despite the availability of virtual showings, agents predicted deals would slow drastically as Americans lose their jobs. A record 3.28 million people filed for unemployment benefits during the week that ended March 21. 

London-based research firm Capital Economics predicted that U.S. home sales could drop as much as 35 percent during this year’s second quarter compared to 2019’s fourth quarter.

“[We’re in] unprecedented times,” said Lawrence Yun, chief economist at NAR, which projected a 10 percent drop in March alone. “People who advised clients to list in March and April, well, now they’re saying don’t list in the current environment.”

Unlike other iBuyers, though, Keller Williams has remained in the game — not just in spite of the pandemic but partly because of it. The Austin-based brokerage is doing so through partnerships with various local, regional and national cash-offer companies that purchase homes. Keller agents offer the companies’ services to their clients.

“Consumers need us more than ever,” said Gayln Ziegler, COO of Keller Offers. “We have no intention of stopping that.”

But under the circumstances, many analysts say, iBuyers that put empty homes on their balance sheet were prudent to hit the pause button and preserve capital.

For its part, Zillow slowed its homebuying and began selling down inventory as coronavirus fears picked up. As of March 23, the company was holding 1,860 homes, down 31 percent from 2,707 at the end of last year.

“People are staying indoors and dealing with economic uncertainty,” Justin Patterson, an analyst at Raymond James & Associates, wrote in a March 23 research note. “As such, it makes little sense for Zillow to buy homes when sale periods are elongating.”

Tom White, of the wealth management firm D.A. Davidson Companies, upgraded the company’s stock from “neutral” to “buy” — a vote of confidence in Zillow’s step to “de-risk the business.”

Jack Micenko, an analyst at Susquehanna Financial Group, noted that some iBuyers had already pulled back, albeit to a lesser degree, in 2018’s fourth quarter when buyer demand slowed due to rising interest rates.

“Back then, companies actually reported better revenue as they sold down existing inventory without replenishing new investments,” he told TRD by email. But Micenko cautioned against reading too much into the move just yet.

“I don’t see this as a precursor of a strategic shift in the industry at this point,” he maintained.

The bigger they are…

Skeptics, however, say the strategy of instantly buying and selling homes in bulk is inherently risky.

Shaival Shah, co-founder and CEO of the homebuying startup Ribbon, called the business model used by larger firms like Zillow and Opendoor an “institutional fix-and-flip.” Many of those iBuyers walked into the pandemic with massive portfolios, and now “they’re scrambling to get rid of those homes without putting new ones on their balance sheet,” he said.

Ribbon, which has raised $550 million to date, guarantees cash offers for homes, too, but the company has a leaseback program that charges owners a per diem fee and covers Ribbon’s carrying costs. Shah noted that large iBuyers have no such backup, meaning they’re left holding the bag in a down market.

“We’re not taking on all the costs of having an ‘empty home,’” he said.

Jarred Kessler, CEO of New York-based EasyKnock, which also has a sale-leaseback service, put it this way: “If you’re buying a $100,000 house for $95,000, you’re betting the market won’t drop more than that,” he said. “If the market drops 20 percent, your entire portfolio is under water.”

Founded in 2016, EasyKnock plans to roll out a bridge loan program called MoveAbility in the second quarter, according to the company.

Industry observers told TRD that the nuances of each model do matter.

“It’s not that iBuying is flawed,” said Jonathan Miller, founder of appraisal firm Miller Samuel. “The formula is just dependent on a functioning market.”

But with the market at a standstill, he added, “the math just doesn’t seem to work, because the spread is very tight and they’re extremely dependent on the market moving higher.”

On borrowed time?

Even before the pandemic, Zillow was losing money on each house it bought and sold. During the fourth quarter, the company lost $6,407 on each resale after paying interest on a revolving line of credit it uses to purchase homes. (Zillow lost $1,512 per resale before interest payments.)

“What I will say is we have a team that’s very focused on what’s the right amount to spend on renovation to make the home great for our customer but without overdoing it,” the company’s CFO, Allen Parker, said during an earnings call in February.

Zillow has also sought to minimize the losses by saying it expects iBuying to drive business to new revenue streams such as title insurance and mortgage services.

But Wharton’s Duranton balked at the rationale.

“There’s something deeply problematic in the business model if you think of it as a loss leader or not a moneymaker,” he said.

Even before the pandemic, Duranton had other issues with iBuying. For one, sellers may turn to large publicly traded and venture-backed companies only with homes that are hard to sell — or what he called “lemons.” And if iBuyers were to compete with one another for specific properties, he added, the seller would go with whichever company agreed to pay the most.

In the post-pandemic world, another consideration for iBuyers is “what the VC world will look like next time they need to raise funds,” Duranton said. “Limiting the ‘burn’ for now probably makes sense.”

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Rendering of the new store and Publix CEO Todd Jones

Publix Super Markets paid $23 million for its new store in Coral Gables.

The Lakeland-based grocer acquired Riviera Plaza, a two-story, mixed-use retail building at 1542 South Dixie Highway. The seller is Riviera Holdings Plaza LP, a partnership between 13th Floor Investments, Gadinsky Real Estate and Echion USA.

Riviera Plaza was previously home to tenants that included Misha’s Cupcakes, Subway and Riviera Theatre, the majority of which had moved out earlier this year. Records filed with the city of Coral Gables show that the seller secured a building permit for the new Publix in March 2019.

The $10 million store will likely replace the Publix nearby at 1401 Monza Avenue, which Publix has owned since 1979. It’s store No. 94 for the grocery store chain.

The new 42,000-square-foot store on U.S. 1 will include a parking garage on top of the store.

Riviera Holdings Plaza paid $16.5 million for the 55,000-square-foot office and retail building in April 2015. It sits on a 1.15-acre lot, near the University of Miami and the Shops at Sunset Place in South Miami.

Publix is one of the few essential businesses that have been allowed to stay open during the pandemic. The grocery store giant is also a major landlord in Florida, and waived rent for two months to all businesses operating at Publix-owned shopping centers, beginning in April. The company also said it was waiving two months of payments for common area maintenance fees and taxes.

Of the company’s 1,239 supermarkets, Publix owned the land and the building at 351 locations, according to the company’s annual report. Last year, it paid $70 million for the Publix-anchored Doral Plaza Shopping Center.

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Mandarin Oriental in Miami, Four Seasons at The Surf Club

More South Florida hotels are reporting layoffs due to the economic effects of coronavirus.

The 326-room Mandarin Oriental Miami at 500 Brickell Key Drive furloughed 488 employees. The furloughs are expected to be temporary, according to a WARN Notice filed with the state.

Four Seasons at The Surf Club Hotel and Private Residences at 9011 Collins Avenue in Surfside furloughed 360 people, according to a WARN notice. The luxury hotel and condo complex is also closing its restaurants and bars: Le Sirenuse Miami, Champagne Bar, Mare by Le Sirenuse, and Winston’s on the Beach. It expects the furloughs to be temporary, according to the WARN notice. The Surf Club includes 150 condo units and a 72-room Four Seasons hotel. The oceanfront project was designed by New York architect Richard Meier, along with Miami-based architect Kobi Karp.

Earlier this month, Florida Gov. Ron DeSantis issued an executive order requiring people to stay at home, except for essential businesses. The order followed previous decisions by individual counties and municipalities to close down non-essential businesses, including hotels. Two weeks ago, Monroe County prohibited tourists from entering the Florida Keys.

The latest layoffs join others in previous weeks. Among them, Brightline, the high-speed train service that runs from Miami to Fort Lauderdale and West Palm Beach, said it was laying off 250 employees after it suspended operations, according to a spokesperson.

Last week, Sugarcane Raw Bar & Grill at 3252 Northeast 1st Avenue in Midtown Miami closed and laid off 93 workers.

The hospitality industry in South Florida has been particularly hit hard. Earlier this month, the 221-room Four Seasons Hotel Miami at 1435 Brickell Avenue furloughed 312 people.

The industry is also facing over $4 billion in debt payments on Collateral Mortgage-Backed Securities (CMBS) loans. The loans are harder to restructure than conventional loans and are more likely to head to foreclosure, according to industry experts.

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Eden CEO Joe Du Bey (Credit: Made with Pulp)

Office-management startup Eden — on the heels of a $25 million acquisition — is laying off nearly half of its staffers.

Eden, which bought Managed by Q from WeWork last month, has let go of 40 percent of its roughly 100 staffers and furloughed 15 percent of them, according to Commercial Observer. The cuts impacted about 75 percent of staff at Managed by Q and 30 percent of staff at Eden.

For Managed by Q, that’s the second set of layoffs in the last month. Before WeWork sold the platform to Eden, it let go of more than 75 employees. Workers who were let go in the latest round of layoffs received a month of severance and a week for every year they worked at either Eden or Managed by Q.

WeWork purchased Managed by Q for $220 million in April 2019, meaning it sold the startup at a 90 percent discount. The flexible-office company has offloaded this and several of its other acquisitions — including Conductor and its stake in The Wing — in the wake of its botched initial public offering attempt last year.

Eden CEO Joe Du Bey said in a statement to CO that the cuts were made to “ensure our company is successful in the long run.”

“These cost reductions include a reduction in non-personnel cost, executive salary cuts, furloughs, and layoffs with severance,” he said. “I am extremely grateful to each of the affected team members for their hard work and contribution to our mission thus far.” [CO] – Eddie Small

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Oyo CEO Ritesh Agarwal and Softbank CEO Masayoshi Son (Credit: Getty Images)

Oyo Hotels & Homes could be the latest misstep for Masayoshi Son as the unicorn freezes operations and lays off workers across the globe in response to the coronavirus pandemic.

Oyo was valued at $10 billion last year and SoftBank had booked profits on its rising valuation, according to Bloomberg. Making matters worse, Oyo CEO Ritesh Agarwal borrowed $2 billion to buy shares in Oyo as its valuation rose, and Son personally guaranteed the loans.

Agarwal told employees in a video last week that furloughing workers will help the company in the long term and make sure that jobs stay safe. The company has more than $1 billion of cash in the bank and is looking into how to stay viable for at least the next three years.

The India-based startup, which provides a mobile app that allows guests to book hotels and charges the hotel owners a fee, had been expanding aggressively, but said in early March that would cut its workforce by 17 percent to 25,000.

Since then, the coronavirus has rapidly brought global travel to a virtual stop.

“Oyo’s problem is that they’re not just an aggregator; they have minimum guarantees to pay — or they have to tell owners they cannot make those payments,” Forrester Research senior forecast analyst Satish Meena told Bloomberg. “The pandemic is coming in waves, and that makes it even more difficult for them.”

If Oyo does not survive the pandemic, it would be another major blow to Son’s reputation as an investor in startups. Although he enjoyed major successes with Yahoo! and Alibaba, he is arguably now best known for his high-profile misstep with WeWork. Questions have also been raised about whether SoftBank-funded Katerra and Compass can reach profitability. [Bloomberg] — Eddie Small

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Rendering of Siena at Palm Aire (Credit: Stellar Communities)

Stellar Communities scored $10.6 million in financing for its Pompano Beach townhomes.

Dania Beach-based Stellar Communities secured the loan from North Miami-Beach-based New Wave Loans Residential to build the 39 townhouses at 4091 West Palm Aire Drive.

The development, Siena at Palm Aire, will mark Palm Aire’s first new construction in at least 10 years. The townhomes, near the Palm Aire Country Club, will have three or four bedrooms and will range from 1,782 square feet to 2,146 square feet, according to Stellar’s website.

Stellar paid $2 million for the 4.4-acre property in 2018, records show.

Stellar Communities is also constructing the Stellar apartment complex in Dania Beach. It also built the Whispering Oaks home community in Dania Beach.

Pompano Beach has become a hotspot for new waterfront development.

Sabbia Beach, a 19-story, 68-unit condo tower at 730 North Ocean Boulevard is nearing completion. And developer Dev Motwani is planning to build a 27-story condo building at 1350 South Ocean Boulevard in Pompano Beach.

In addition, Miami-based Lionheart Capital is planning to construct a two-building, 239-unit luxury condo project at 1380 South Ocean Boulevard in Pompano Beach, which is slated to become the city’s tallest tower.

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Donald Trump and Trump International Hotel at 1 Central Park West (Credit: Alex Wong/Getty Images, Google Maps)

The Trump Organization’s Trump International Hotel & Tower in Manhattan has laid off 70 employees, a filing made public Monday shows.

The layoffs took effect in late March and were caused by the coronavirus pandemic, according to a notice filed with the New York State Department of Labor. The notice characterizes the cuts as temporary and does not specify how many total employees work at the 1 Central Park West property.

Representatives for Trump Hotels and the Trump Organization did not respond to requests for comment.

The property has at least partially shut down amid the pandemic, according to its website. It has temporarily closed its restaurants, gym, pool and spa in accordance with the recent executive order from the state.

However, the hotel itself appears to remain open. Its online reservation platform still allows guests to book rooms as early as this week, and its website says the Trump Attaché service is still “at your service for personal grocery shopping, along with any special requests you may have during your stay.”

Trump hotels are also still open in Chicago and Washington, D.C., but have closed in Miami, Las Vegas, Honolulu and Charlottesville.

This is not the first Trump property in New York to cut staff in response to the pandemic. The Trump Organization’s taxpayer-funded golf course at Ferry Point in the Bronx has shut down and laid off 49 employees, also because of the coronavirus.

The hospitality sector has been hit especially hard by the pandemic, as travel has ground to a virtual halt. Occupancy rates across the country dropped by two-thirds to just 22.6 percent during the week of March 22 to March 28, and New York City saw occupancy rates drop by more than 80 percent, leaving about six of every seven rooms vacant, according to the hospitality data firm STR.

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Only 20 percent of the Related Group’s commercial tenants paid their rent in April, executive Jon Paul Pérez said during The Real Deal’s webinar on Friday.

“If you get 20 percent you’re sort of happy and jumping up and down,” he said. About 90 percent of Related’s multifamily tenants paid rent, which Pérez said is much higher than the 50 percent the company originally expected.

“If you are a major company, or you are a renter, and and you have the wherewithal to pay your rent, you have the obligation to pay your rent,” Pérez said, adding that Related is working with tenants on a one-on-one basis and working out deals, including coming up with payment plans.

Pérez, executive vice president at the Miami-based Related Group, said his primary concern is rising unemployment and the domino effect that will have on the local economy. He was joined on the webinar by Edgardo Defortuna, president and CEO of Miami-based Fortune International Group; Shahab Karmely, owner and CEO of New York-based KAR Properties; and moderator Amir Korangy, TRD’s founder, chairman and publisher.

“The longer the economy is shut down, there’s no commerce. South Florida is very dependent on the service and tourism industry, so that affects a lot of jobs,” Perez said.

Defortuna, Pérez and Karmely also expressed concerns about how long the shutdown could last.

“What concerns me is my agents. If this lasts for a very long period of time, what worries me the most is how those agents are going to survive,” said Defortuna, who hasn’t laid anyone off.

Karmely called a prolonged shutdown a mistake.

“On a macro level, the longer it takes, the more of the contagion for the economy is going to be,” he said. “If you allow a return to business, if you allow a return to prosperity, we will have the wealth and the resources and the ingenuity that is unique to this country to fight this or any other future pandemic that may come our way.”

Despite the current turmoil, the developers acknowledged that opportunities will arise from the pandemic.

Foreign buyers may want even more to put their money in a safe haven. Some of Fortune’s foreign clients who own condos that they have listed for rent have called and asked Fortune to pull the listings. “They are thinking they want to come back to Miami as soon as possible and as soon as they’re allowed,” Defortuna said.

Meanwhile, buyers aren’t backing out of contracts at the Ritz-Carlton Residences in Sunny Isles Beach, which was recently delivered, Defortuna said. Though closings have been slower, the developers have paid the $210 million construction loan down to about $50 million, he said.

Pérez expects there also will be pent-up demand from Northeasterners looking to invest in the Miami condo market.

The developers added that they’re not seeing any big “fire sales” for new development condos, but that there may be opportunities in the resale market and in hospitality.

Pérez said that Related has only seen mortgage note sales so far, but nothing has been priced right for Related – yet.

Karmely, who said he has a lot of his own money invested in his projects, believes that credit will be harder to come by and that there will be a “flight to quality” for lenders.

“They’re going to be more careful about who they’re working with, but there will be lending,” Karmely said. “There will be some winners, some losers. But that’s capitalism.”

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Masayoshi Son (Credit: Tomohiro Ohsumi/Getty Images, iStock)

SoftBank is preparing its shareholders for what executives think could be one of its worst fiscal years in the conglomerate’s 39-year history.

Masayoshi Son’s company expects its $100 billion Vision Fund— which includes a massive investment in WeWork — to record a $16.6 billion loss for the fiscal year, according to the Wall Street Journal. For Softbank, a big share of thoses woes stem from WeWork’s failed IPO late last year, and the co-working firm’s skyrocketing debt.

But overall, SoftBank blamed Vision Fund’s enormous losses on a “deteriorating market environment,” the Journal reported.

The company launched the tech-focused Vision Fund in 2017, and has poured billions into companies that also include Compass and Uber. The sovereign wealth funds of Saudi Arabia and Abu Dhabi were among the Vision Fund’s biggest investors. Softbank didn’t break down the losses by company, according to the report.

The coronavirus pandemic has no doubt dealt a blow to the Vision Fund-backed companies — Oyo Hotels & Homes will freeze operations and lay off workers in response to the pandemic — but the real trouble began last year.

Uber’s IPO was underwhelming and WeWork’s planned public offering fell apart when it became clear the company wasn’t worth as much as $47 billion valuation.

SoftBank at first swooped in to bail out the co-working company, but recently reversed-course on a planned $3 billion stock buyback. Now, WeWork is suing its biggest investor.

Meanwhile, the fund’s dismal performance has taken a toll on Softbank. In February, it suspended plans for a second Vision Fund and last month, it bought back billions of dollars in shares in an attempt to buoy its falling stock price. Still, it remains under pressure from shareholders.

SoftBank’s final numbers will likely change from its current projections, the company said. [WSJ] — Dennis Lynch

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Flattening the curve by keeping most of the country at home is what medical experts believe will allow the U.S. to recover from the coronavirus pandemic. But according to developer Don Peebles, doing so “with blinders on” will create an economic disaster that could be riskier than getting people back to work.

“There are 17 million new unemployed Americans, and that’s going to keep climbing,” the Peebles Corporation founder said in an interview with The Real Deal’s Hiten Samtani. “Hundreds of thousands of small to midsize businesses closed. Many will never open again. Those kinds of economic impacts are critical, and we need to add them to the discussion. We’re in a capitalist democracy. If we dismantle what has taken hundreds of years to build, we are in the wrong place.”

When Samtani noted that Peebles’ suggestion to get people back out there “flies in the face” of what medical experts, including President Donald Trump’s top infectious-disease adviser, Dr. Anthony Fauci, has been saying, Peebles said: “Doctors are trained to save lives. And that’s their responsibility and their role. Leaders’ role — political and business — our role is to look at things in balance. And the nation as a whole needs its economy.”

Peebles, whose current projects include the public-private $1.8 billion mixed-use Angels Landing complex in Downtown Los Angeles and a $500 million public-private development in Boston’s Back Bay, said he and his partners had to reevaluate their component mixes in the wake of the pandemic, specifically the hotels.

“Clearly, there’s no capital markets for those kinds of projects,” he said. “We’re evaluating what steps we should take to make those projects more reflective of where we think the market’s going to go.”

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One Clearlake Centre, JLL Capital’s Maxx Carney, Chris Drew and Ike Ojala

Velocis and CREC Capital scored a $39 million in refinancing for a Class A office tower in West Palm Beach.

Dallas-based Velocis and Miami-based CREC Capital secured the loan for One Clearlake, an 18-story, 221,079-square-foot building at 250 South Australian Avenue, from Prime Finance, according to a press release.

One Clearlake is close to downtown West Palm Beach and to the Brightline train station.

JLL’s Maxx Carney, Chris Drew, Ike Ojala and Cody Brais represented the borrower in the deal.

Velocis and CREC acquired the office building for $42.3 million in 2017 from AEW Capital Management, records show.

The office building was built in 1986 and was renovated in 2019, according to LoopNet.

West Palm Beach has a limited supply of new office buildings, but developers are seeking to build Class A buildings in the coming years.

The Related Companies, led by Stephen Ross, plans to build One Flagler, a 25-story office tower at 134 and 142 Lakeview Avenue and 809 South Flagler Drive in downtown West Palm Beach.

The building is planned to have more than 200,000 square feet of office space, a lobby, restaurant and reading room on the ground floor, and public open space that would include a reflection pool. David Childs of Skidmore, Owings & Merrill, who designed One World Trade Center in New York City, is designing One Flagler.

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JPMorgan Chase CEO Jamie Dimon (Credit: Win McNamee/Getty Images)

JPMorgan Chase is tightening its mortgage lending standards just as the federal government has been pumping massive amounts of money into the crippled economy to create liquidity.

Borrowers will now need a credit score of at least 700 and a 20 percent down payment if they want to take out a home loan with the bank, according to Reuters. JPMorgan Chase is the fourth largest mortgage lender in the country.

Amy Bonitatibus, chief marketing officer for JPMorgan’s home lending service, called it a “temporary” change that would allow the bank to focus on existing customers. The bank also said it would free up employees to handle the wave of refinancing requests that have come in since mortgage rates dropped to near record lows last month.

Most home mortgage lenders require a 10 percent down payment, although 20 percent down was for years considered the industry standard. Home prices have surged over the last decade and previous surveys show young homebuyers were not able to put down 20 percent.

JPMorgan’s latest move is another blow to the U.S. government’s recent efforts to keep the economy moving and avoid prolonging a recession after the immediate threat of the coronavirus pandemic subsides.

Home sales have already plummeted in many parts of the country that remain under stay-at-home orders. Last month, the National Association of Realtors said that sales could be 10 percent lower than usual this time of year. Borrower requests to delay mortgage payments skyrocketed 1,900 percent last month, according to Reuters.

Loan applications for home purchases have also fallen to the lowest levels since 2015, according to a recent report, which cited the Mortgage Bankers Association’s purchase index. And the four-week drop in the index was the steepest since 2010, in the aftermath of the Great Recession.

Some nonbank lenders have drastically cut back on their originations as well. Many of those lenders rely on credit lines from banks to finance their home loans. [Reuters] — Dennis Lynch

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Michael Stern and a rendering of the project (Credit: JDS Development/SHoP Archictects)

New York developer Michael Stern allegedly welched on paying $10 million to another investor for securing rights to build a mixed-use tower in Miami’s Brickell neighborhood, according to a recently filed lawsuit.

Southside Place LLC is suing Stern and his company, JDS Development, in Miami-Dade Circuit Court to enforce its deal, which involved obtaining air rights over an existing fire station at 1111 Southwest Second Avenue, according to the suit.

In late February, the Miami City Commission approved a public benefits agreement with a JDS Development entity that allows Stern to build a $500 million, 62-story tower on the fire station site and an adjoining property at 191 Southwest 12th Street that he purchased last year.

The project will encompass 1,000 rental apartments, 200 micro-units, a 200-key hotel, 250,000 square feet of office space and a new $8 million fire station. The city also gets roughly $2.2 million in cash for fire station equipment, about $5.4 million in public benefits and $200,000 in streetscape improvements, and will pay for the renovations to the park and the transfer of development density rights, according to the public benefits agreement.

However, Southside Place alleges it conducted all the legwork to obtain the zoning approvals for redeveloping the two sites, and backed off its initial plan to buy 191 Southwest 12th Street in order to flip the project to Stern for a $10 million assignment fee.

Michael Green, Southside Place’s lawyer, declined comment. A JDS Development spokesperson said Southside Place’s claims are baseless. “We expect this frivolous lawsuit to be quickly dismissed,” the spokesperson said. “JDS is committed to delivering this exciting project for the benefit of the community and the city.”

According to the complaint, Southside Place — which is managed by an offshore company called Crystal Clear Holdings — secured a public benefits agreement with the city in 2018 when it was negotiating to purchase 191 Southwest 12th Street. However, Southside Place “encountered difficulties” with the property’s then-owner and began talks with Stern to take over the project, according to the suit.

“Stern promised to acquire the adjoining property if Southside would assign its interest under the Public Benefit Agreement to Stern, and Stern would, of course, compensate Southside for Southside’s efforts,” the complaint alleges. “Southside, based on Stern’s promises, introduced Stern to the broker handling the sale of the adjoining property, so that Stern could begin efforts to acquire that property.”

Southside Place alleges Stern agreed neither he or anyone acting on his behalf would approach and negotiate with the city directly. Instead, after acquiring 191 Southwest 12th Street, Stern caused city officials to cancel the previous agreement with Southside Place in order to sign a deal only with him, according to the suit.

“Stern and [his development entity] were only able to obtain their public benefit agreement with the City of Miami because of Southside’s efforts,” the lawsuit claims. “Despite this, Stern [has] refused to deliver any compensation to Southside.”

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Commission advance companies, which help brokers manage cash flow crunches, are finding it increasingly difficult to navigate through the coronavirus crisis. (Illustration by The Real Deal)

In an industry of independent contractors whose fortunes hang on the ebb and flow of dealmaking, little-known commission advancing companies provide a key source of liquidity for residential brokers in need of cash between closings.

But with the coronavirus crisis having slammed the brakes on most home sales, this alternative financing channel is also facing unprecedented stress. And just like landlords and lenders across the country in recent weeks, commission advance companies are having tough conversations with the brokers who now owe them money.

“We have a client right now with Corcoran, and she called us up to say she needs the money real bad and her closing is delayed,” said Dino Liso, president of Commission Express in New York. “And she’s in default with us [Commission Express offers a 30-day grace period for payments] which means she would lose a lot of money. I said to her, ‘Don’t worry about it. Just worry about your health. Let’s get the deal closed, and we’ll figure it out later.”

The basic concept of commission advances is straightforward. A broker with a deal in contract sells the right to collect the commission to a third party in exchange for the cash up-front. Usually, about 90 percent of in-contract deals will close on time, in a couple of months. Fees range typically from around 5 to 15 percent of the advanced commission. If one deal falls through, a broker can roll the obligation over to another pending deal.

But the pandemic has created uncertainty for in-contract deals in the pipeline. While more brokers may now need a cash advance to help tide them over amid the economic tumult, commission advance firms are also wary of how solid a new deal may be.

“When someone comes to me and they’re really desperate for the money, it’s not that I don’t want to lend them the money — I don’t want to chase money from a desperate person,” Liso said. “So we try to stay away from that type of transaction.”

Commission advancers said the coronavirus outbreak has led their business to drop by half industry-wide. Advances that are still being made are largely going to established agents at national brokerages that have long-standing relationships with commission advancing companies.

“We have seen an increase in our affiliates using commission advance services over the last three weeks, particularly in states hit harder by Covid-19, such as California and New York,” said RE/MAX spokesperson Nick Bailey. RE/MAX counts companies like eCommission and Premier Commission as part of its “approved suppliers” program, a list of vetted business service providers.

Besides the rising uncertainty surrounding in-contract deals, the general slowdown in residential markets is also taking a toll on the early payday business.

“Agents need deals to go pending in order to utilize our service, and if deals aren’t going pending then they don’t have anything to advance on,” said Stuart Clapick, manager of Arizona-based Residential Advance. “I would say that the industry right now is down 50 to 60 percent in total volume.”

A spokesperson for Corcoran Group — whose brokers have also tapped the service — said the use of commission advances is a personal choice. “Giving them this alternative empowers our agents to make strategic decisions that work best for them,” the spokesperson said. Like other brokerages in recent weeks, Corcoran has enacted across-the-board pay cuts, furloughed some staff and suspended ad budgets for April.

Contingency calculus

In mid-March, broker Edward DiMotta turned to a commission advance when he found himself in need of cash. The co-owner of La Rosa Realty’s St. Petersburg, Florida office was contending with owners at a couple of his listings who were refusing to allow showings. That was casting doubt on his upcoming deal pipeline.

“The main thing is I wanted to keep my credit good, not use up my reserves and then have nothing to pay the bills with,” DiMotta said.

Typically, he would have turned to La Rosa’s in-house commission advancing service, which he had used in the past to cover startup costs for his new franchise. But with that spigot suddenly turned off, DiMotta turned to eCommission, which provided the $4,000 cash advance on one of his in-contract deals; he paid a fee of about $600, amounting to 15 percent. The deal closed two weeks later.

“It’s good, it’s quick, and it wasn’t a big hit for us,” DiMotta said, while noting that eCommission’s fee — which included a 25-percent discount offered to new customers — was about twice as much as the in-house service.

While DiMotta’s deal closed in a matter of weeks, the coronavirus is making such fast turnarounds less common, and commission advancers have had to adjust their approach to new deals.

Closing on a residential sale is contingent on a variety of factors, almost all of which have been complicated by the coronavirus and social distancing measures. Mortgage approvals, appraisals, employment verification, and co-op board signoffs are more uncertain than they were a month ago.

And the proliferation of “coronavirus clauses” in residential contracts nationwide means that buyers can still delay or terminate deals due to events beyond their control.

“Generally, what we’ve seen is definitely an increase in demand from [agents] we wouldn’t have seen before or considered before, and also a downshift in the type of transaction that we would want to advance on,” said Jake Kuchek, director of California-based Express Cash Flow, a company that does commission advances across the country. His firm has now placed a greater emphasis on minimizing risk.

“We kind of have our own matrix of what gets approved and what the fees are in a normal real estate market, and we’re obviously changing that quite a bit during this time,” he added. “We wouldn’t do any advances in New York right now.”

Only about 20 percent of in-contract deals are now closing on time or within a 10-day grace period — compared to what had been an on-time closing rate of at least 85 percent, he added.

Ashley Joffe, managing principal of New York-based Premier Commission said its policy is now to “batten down” underwriting without raising fees.

eCommission, widely regarded as the largest player in the industry, has also held off on raising fees. The company claims to have “funded” over $1 billion in commission advances over its 20 years in the business. But CEO Sean Whaling said agents “should look carefully at their pending pipeline, choose the sale with the highest confidence in closing, and be prepared to substitute a different transaction if the current crisis impacts their closing.”

Commission Express’ Liso says his franchise has shifted to mainly “collection mode.” He added, “we’re getting a lot of calls for commissions advances, but we’re reluctant at this point to take on any more business unless it’s a 1031 exchange” with a high likelihood of closing.

“If things go on and on and on, the poor guy I gave ten grand to has to pay us back 16, 17 thousand,” Liso said, referring to the increased amount owed following a default.

Need for speed

Various government measures enacted in response to the coronavirus crisis, including parts of the historic $2 trillion federal stimulus package, give struggling brokers a wider range of options for dealing with immediate cash flow concerns.

Before the crisis, brokers did have other options, such as borrowing from a bank. But such financing has always been harder to qualify for than a commission advance.

“Commission advances are more costly, but not if your time is valuable,” said Jonathan Edelstein, a partner at New York-based Concord Commission Advance. With a bank loan or the stimulus program, he said, “you’re spending countless hours doing homework, collecting documents, applying, and then once that’s all done, you’re still waiting and praying for a ‘yes.’”

Many commission advance firms say their services are delivered in a matter of hours with just a few clicks of a mouse. But that was before the virus crippled the economy, cutting deeply into home sales across the U.S.

Like a loan, but not

Some commission advance companies interviewed for this story referred to their services informally as “lending” or “loans.” But from a legal standpoint, there’s an important difference.

“It would be illegal to do what we do if it was a loan,” Liso said, noting that the returns on commissions advances, when extrapolated to a full year, are typically far above interest rates allowed by usury laws. “It’s a factoring arrangement — we’re purchasing a receivable.” Doctors and lawyers, he added, “factor their receivables. the garment industry and large companies factor their receivables, and this is the same thing.”

Commission advance companies have qualification requirements far less stringent than do banks, and more tailored to the real estate industry — such as a broker’s license and Multiple Listing Service history.

Unlike traditional lenders, commission advance firms have fewer options if a broker is unable to pay up — a fact that justifies higher returns, in the industry’s view. Though the laws vary from state to state, because the service is generally held to be distinct from lending, it is not subject to usury laws that limit the amount of interest a company can charge, though there have been legal challenges.

In 2016, VIP Limousine Services sought to defend a lawsuit filed by New York-based Platinum Rapid Funding Group. The Oklahoma-based limo company argued that a cash advance it received from Platinum was usurious. A New York State Supreme Court judge dismissed the argument, saying while the repayment requirement was onerous, it was not usurious because it did not “constitute a loan or forbearance.”

But not all jurisdictions see things the same way. In 2013, an Ohio court ruled that real estate commission advances are loans, and the practice remains illegal in that state.

“We really try to find receivables that we know are going to close,” Liso said, meaning in-contract deals. “We’re not a payday company. A lot of companies do that, but we don’t.”

Recession redux

The business model in its current form has been around for about two decades. The two biggest and oldest names are eCommission and Commission Express. Operating on a franchise basis, Commission Express’ New York shop was its second in the country after Washington, D.C. Meanwhile, eCommission is now owned by private equity firm Lightyear Capital and has an endorsement from Barbara Corcoran.

The 2008 recession forced many of the commission advance companies out of business, eCommision’s Whaling said. “Housing and mortgages led that crisis,” and smaller companies without adequate capitalization or experience disappeared. Since then, new providers have entered the space, which has been growing, largely under the radar.

Another survivor of the recession was Atlanta-based RealCommissions, founded in 2004. “We tend to be more conservative than the other commission advance service providers, and that is why we were successful in surviving the 2008-2009 financial crisis,” founder and CEO David Siegelman said. “And fortunately we’ve been growing rapidly since that time.”

While the coronavirus represents perhaps the commission advance industry’s toughest test, Residential Advance’s Clapick said he was optimistic.

“Our forecast is that the real estate market will likely recover relatively quickly,” he said. Because the economic turmoil isn’t centralized in real estate the same way it was over a decade ago, Clapick said, he expects “to see a resurgence in demand when this is over.”

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Condo sales in Miami-Dade County began to drop last week.

A total of 61 condos sold for $41.5 million last week, amid the coronavirus pandemic. That is compared to 102 units that sold for $54 million the previous week. Condos last week sold for an average price of about $680,000 or $397 per square foot.

The most expensive closing was at Fendi Chateau Residences in Surfside. Unit 806 sold for $6.9 million, or $1,538 per square foot, after 510 days on the market. Saddy Delgado represented the seller, while Lianne Graubart brought the buyer.

The second top deal was the $5 million sale of upper penthouse 2 at 1500 Ocean Drive. The South Beach condo sold after 468 days on the market. It traded hands for $1,098 per square foot. The listing agent was Jose Luis Pere, and the buyer’s agent was Ines Flax.

Here’s a breakdown of the top 10 sales from April 5 to April 11. Click on the map for more information:

Most expensive
Fendi Chateau Residences #806 | 510 days on market | $6.9M | $1,538 psf | Listing agent: Saddy Delgado | Buyer’s agent: Lianne Graubart

Least expensive
Yacht Club at Portofino #2712 | 168 days on market | $970K | $858 psf | Listing agent: Xavier Blanco | Buyer’s agent: Lisa Van Wagenen

Most days on market
Fendi Chateau Residences #806 | 510 days on market | $6.9M | $1,538 psf | Listing agent: Saddy Delgado | Buyer’s agent: Lianne Graubart

Fewest days on market
Green Diamond #3202 | 4 days on market | $1.3M | $833 psf | Listing agent: Claudia Whitechurch | Buyer’s agent: Jonathan Corso

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The IRS guideline for 1031 exchanges isn’t totally clear, professionals say (Credit: iStock)

The Internal Revenue Service has just offered up the one thing investors looking to close 1031 exchanges desperately need – more sand in the hour glass. But legal and tax experts told The Real Deal that there remains widespread confusion as to just how long investors have to finalize deals.

Typically, those who own property through 1031 exchanges have 45 days, after they sell a property, to identify a replacement asset and 180 days to close the deal, in exchange for a tax break for reinvesting in “like-kind” properties. The coronavirus has complicated matters, leading the industry to beg for some sort of extension to those windows.

The IRS last week issued blanket guidelines to a range of taxpayers, extending the deadline on a variety of tax filings — including personal income filings — to July 15. But experts told TRD that the guidance, which also applies to 1031 investors, does not make clear whether July 15 is a hard deadline for 1031 buyers who need replacement properties.

In one camp are professionals who believe that July 15 is the drop-dead deadline for 1031 investors. Others say that the IRS should have reverted to prior guidance that dates back to 2018, which stipulates that in times of disaster — whether it’s a hurricane or tornado — affected investors get an automatic 120-day extension on those deadlines.

“You have two legitimate interpretations in the notice,” said Matthew Rappaport, vice managing partner and a tax attorney at New York-based Falcon Rappaport & Berkman PLLC, who is advising clients of the more conservative, July 15 deadline. “The confusion is real, among really smart people.”

Todd Pajonas, president of Legal 1031 Exchange Services, LLC, sits on the other side of the fence. He argued that the IRS’s usual 120-day guidance should prevail.

“They deviated from what they normally do in a disaster,” he said.

The IRS did not immediately return a request for comment.

But since the notice only appears to impact deals that have a timeline starting after April 1, a slew of pending deals from weeks prior could be at risk, experts said. This could particularly impact deals that involve construction, because many projects have been put on hold, pushing out closings beyond July 15, said David Shechtman, senior counsel at Faegre Drinker Biddle & Reath LLP in Philadelphia.

“If you believe you only have a July 15 hard stop, that’s not of great assistance to a number of taxpayers who are in the midst of exchanges,” he said.

Pressure mounts

While some deals are still getting done, volume is down, and it is taking longer to close transactions, insiders said.

The normal time period to secure a loan and close a 1031 deal has slowed, said Christopher Marks, a commercial debt broker for Marcus & Millichap Capital Corporation in Manhattan, putting pressure on professionals working on time-sensitive deals.

And that’s not just because it has become harder to verify properties in person. Banks are dealing with hundreds of thousands of loan-modification inquiries and Small Business Administration loans because of the coronavirus, Marks said.

“They don’t have the manpower to deal with the overwhelming demand,” he added.

Some lenders also have cut back on issuing new loans, and commercial mortgage-backed securities and conduit lenders have all but disappeared, Pajonas said. Underwriting also has become more restrictive, particularly as it is hard to get professionals to properties to conduct due diligence, he added.

Still, several experts said they are hopeful that the IRS will come out with more specific regulations soon.

“This notice is a stop-gap notice, is the way I see it,” Rappaport said. “This crisis is not over. This is not the last round of extension guidance the IRS is going to come out with.”

Write to Mary Diduch at md@therealdeal.com

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