Regional malls have been in a downward spiral long before the arrival of COVID-19, but the pandemic will likely accelerate the demise of many retail tenants from several years to a few weeks or months. Before the pandemic, regional mall landlords tried to protect themselves from retail bankruptcies by signing on more restaurants, entertainment venues, fitness studios and beauty salons. Even if people can buy whatever discretionary goods they want online and are not excited by the prospect of visiting a Macy’s or a Gap, they would still show up to share a meal with a friend, see a movie or get a manicure or a haircut, the logic went. Except if there’s a pandemic and the last place they want to be is anywhere with less than six feet of distance between themselves and another human. Plus, none of those businesses qualify as “essential” in cities and states with shelter-in-place orders. With multiple retailers already facing bankruptcy filings, regional mall landlords are among those in the commercial real estate universe least likely to ever recoup their lost rents, and some may go down with their tenants.

Most of the planet may now be stuck at home, but we are still using lots of data to work, shop, socialize, binge new shows and stream our workouts. Unlike malls and hotels, data centers have gotten an “essential business” designation. In fact, some data center facilities are now operating at the peak of their capacity, according to Data Center Knowledge. And with no clear end to shelter-in-place orders in sight as of yet, that extra demand for cloud storage is likely to continue. As a result, data center REITs were alone among the various REIT sectors tracked by Nareit to post an increase in returns (at 8.8 percent) in the first quarter of 2020. “Data centers are the one true positive in the current REIT landscape,” Forbes notes.

Some of the hardest hit companies, at least in the short term, are seniors housing operators, and nursing home owners in particular. Nursing homes were already facing difficulty maintaining their occupancy levels prior to the arrival of COVID-19, but ever since multiple residents of the Lifecare Center of Kirkland facility in the Seattle area have been found to have the virus in February, the problem spread to nursing homes throughout the country. Overall, estimates are that nearly 2,000 nursing home residents have died nationally due to the COVID-19 pandemic.

Part of the challenge for nursing home operators is that their residents are people the most susceptible to the virus—those older than 80 and with pre-existing health conditions. But in some cases, lax focus on infection control measures played a role as well. Kirkland’s owners, for example, have now been fined $600,000 by the federal government for violations in how they handled infection control at the property. As the pandemic continues, nursing home operators face increased costs to limit infections, while also seeing a deceleration in new resident move-ins, according to NIC data. Since nursing home care is most often a need rather than a choice, however, the long-term outlook for seniors housing is much better than it is for malls.

Following closely behind warehouse operators in seeing explosive growth in demand are supermarket chains and, by extension, owners of grocery-anchored shopping centers. Supermarkets and drugstores are among the last places where Americans continue to venture out to, especially as time slots for online grocery deliveries can be booked up weeks in advance for some providers, and common household items can be out of stock online.

In addition, while restaurants continue to offer home delivery and pick-up services, they are suddenly less of a threat to supermarkets than they used to be. Some people can simply no longer afford restaurant meals. Others may be cautious about eating food prepared by someone else. If there were questions before about whether bricks-and-mortar grocery stores can be completely supplanted by e-commerce services, this pandemic has just proved that the answer is “No.”

Co-working providers were the “it” children of this past expansion cycle. With a booming gig economy and everyone touting “flexibility,” a whole slew of co-working providers came on the market in 2010s, WeWork chief among them. Except it was never very clear exactly how well most of those players would withstand a severe economic downturn.

We are now learning just how vulnerable they were. As of this week, WeWork has been contacting its bigger landlords about rent cuts of as much as 30 percent and its chief investor SoftBank has backed out of a deal to buy $3 billion in WeWork shares from its other investors that was part of a pre-COVID planned WeWork bailout (WeWork is now suing SoftBank).

Many of its competitors, from Knotel to women-focused The Wing have let go of hundreds of employees in recent days. Even once U.S. businesses start getting back into the office, there will likely be less demand for office space overall and workers’ fondness for open spaces and sharing their desks with strangers has likely just gone down significantly. Some co-working operators will survive the pandemic. But there will be far fewer players left in the space when all this is over.

It’s been a while since we’ve seen distressed real estate funds in the market, but it looks like they are about to stage a comeback. Before COVID-19, many private equity real estate investors had amassed substantial cash reserves that they were unable to use for acquisitions because property valuations remained at a peak for so long.

Some of those investors now spy an opportunity to pick up attractive assets on the cheap, including hotels, retail centers and CMBS. As U.S. commercial real estate properties deal with the fallout from widespread shutdowns and missing rents, expect to see investors in distressed debt and equity prosper.

It might be a while before the opportunities emerge. Lenders are likely to give borrowers some extensions in the short term. But after the most acute phase of the crisis has passed, expect defaults to rise and with it the opportunities for buying REO assets from banks. 

As recently as in February, the CMBS sector appeared to be sitting pretty, with delinquencies reaching a new post-financial crisis low, few perceived risks and originations proceeding at a healthy clip. Even in March, delinquencies were still on a downward trend, as of yet unaffected by the COVID-19 pandemic and the resulting countrywide shutdowns. That situation is now changing rapidly, with multiple tenants in both the commercial and the residential sector missing their monthly rent payments for April.

Fitch Ratings now predicts that the all-property delinquency rate will shoot up to between 8.25 percent and 8.75 percent by the end of the third quarter of the year from its March average of 1.31 percent. That range will be less than a percentage point away from 9.01 percent at the peak of the financial crisis in the summer of 2011. The problem is expected to be particularly sever for loans backed by retail and hotel properties. True, the Federal Reserve has brought some relief to the sector by announcing it will accept agency-backed and triple A-rated privately-held CMBS under TALF. So that leaves a place for banks to push CMBS off their balance sheets. But for now that still leaves out lower-rated loans.

If there is one thing pandemics prove is that demand for medical services exists in good times and in bad. Some medical practices may indeed have been temporarily shuttered by shelter-in-place orders, but others—those offering services like dialysis and pregnancy monitoring—remain essential.

Regardless, even if some medical tenants will be temporarily unable to pay their rents, real estate investors remain bullish on medical office buildings as a “safe bet” when there are currently few of those in the market.

Hotel operators are the first to feel the pain when people stop traveling and industry groups cancel conferences and conventions. Hotel occupancies in the U.S. have likely hit the bottom last week, at 22.6 percent, according to industry sources. Many operators, including Marriott International, Hilton and Hyatt, have had to furlough their staff.

Depending on how long the pandemic lasts, hotel owners may find themselves facing the same dismal occupancy statistics and shortage of income for months. But if distressed real estate funds’ interest in hotel properties is any indication, the sector as a whole will eventually rebound. Once the virus is under control, conferences could be rescheduled and those Americans who can still afford it will likely be more than happy to visit places outside their immediate neighborhoods once again.

In addition, a number of empty hotels are being converted to hospitals, and may be able to restore at least a portion of their revenue that way while the lockdowns continue.

When a commercial tenant is unable to pay the rent because its business had been forcibly shut down by government orders to prevent the spread of an infectious disease that’s completely out of its control, who takes the financial hit? Is the tenant still responsible for missed rent even though the enterprise had seen no or very little business during the involuntary shutdown? Will the tenant’s insurer pick up check, and classify the loss as a result of force majeure? Will the landlord just have to accept lower revenue for the period?

These are going to be complicated issues facing an untold number of commercial tenants and landlords across the nation and all of them are going to be hiring lawyers to sort out the mess.

On the one hand, multifamily owners are sure to feel a significant amount of pain in the coming months from missed rents as millions of Americans have been laid off or put on furlough as the result of pandemic-related shutdowns. On the other, people will continue to need housing, and reduced revenue is better than none.

In addition, with fewer people being able to afford homeownership—in the first week of April, loan applications to buy a home were down to 2015 levels, according to the Mortgage Bankers Association—tenants that under different circumstances might have become homeowners will remain apartment renters.

That being said, the amount of pain in the multifamily sector will likely be unevenly split. Developers with projects that have just opened or were in the pre-leasing stages right before COVID-19 arrived will likely struggle to achieve full occupancy and pay down their loans. Long-time owners of older, stabilized buildings in major cities, where market rents have been trending sky-high in recent years, might get off with an unwelcome, but manageable, hit to their profits.

With most universities sending students home in a hurry long before the school year was finished, managers of student housing complexes have been grappling with who is responsible for rent for the remaining period. In the short term, the disruption is likely to leave a dent on the sector, which was already struggling with over-development in some markets, slower leasing and rising CMBS defaults.

But college students are bound to sooner or later come back on campus, and if the U.S. enters a prolonged downturn with high unemployment after the pandemic, more people are likely to go back to school. So, while the near term outlook for student housing is negative, as a sector, it should be able to bounce back.

The big question is whether students will be back on campus this fall or whether we're looking at one more semester of virtual learning before they return. 

Prior to the pandemic, the self-storage sector appeared relatively well-positioned. There was strong demand from end-users, though because of over-development, especially in primary markets, rent growth was stalling. As matters stand now, self-storage REITs might benefit from their low leverage levels and limited sensitivity of self-storage demand in times of economic crisis. The pandemic will also limit competition in the sector, as construction projects stall.

The question is whether millions of newly unemployed and furloughed Americans will use the government aid they receive to pay their self-storage dues when they are struggling to pay the rent on their apartments. Seeking Alpha argues that self-storage rents are “collateralized by the renters’ possessions” and tend to be very “sticky” during downturns.

But the world has not seen a downturn like this for at least a century and Inside Self-Storage expects that the industry is bound to see missed rents and renegotiated agreements. “The government’s disaster-relief checks aren’t likely to be used by consumers for self-storage rent. Bigger priorities like food, transportation and utilities are likely to take precedence,” it notes.