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April 15, 2020

Best Practices in Commercial Tenant Management

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Stanley Iezman
Stanley Iezman | Chairman and Chief Executive Officer, American Realty Advisors
Rachel Elias Wein
Rachel Elias Wein | Founder and Chief Executive Officer, WeinPlus
David B. Dollinger
David B. Dollinger | Principal, Dollinger Properties

Richard Green moderates a panel of real estate industry leaders on what’s happening in today’s commercial real estate market and how to best navigate tough times with commercial tenants during COVID-19. Stanley Iezman, Rachel Elias Wein, and David B. Dollinger weigh in on what they’re seeing in industrial, retail, and office properties. What can tenants do who are seeing revenues drop dramatically? What options are available when negotiating debts for an unknown length of time? In addition to considering a variety of questions, the expert panel offers insights for what may be coming next for the industry.

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Please note this transcription is automated and may contain errors.

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Richard Green: Okay, thank you. Well, hello everybody and a very pleasant afternoon to you all. Thank you for joining us for our fourth lust perspective series over zoom

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Richard Green: I'm Richard green I'm director of the USC lust center for real estate and it's my pleasure to welcome you here today. We have a super panel set up to talk about best practices in tenant and other management in these unusual times will introduce the panel in a moment.

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Richard Green: But just a little housekeeping. Again, we have shut down the chat function and muted you all because of a to avoid zoom bombing.

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Richard Green: So if you have questions, please send them to

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Richard Green: The following address Liu SK CT are@usc.edu

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Richard Green: And

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Richard Green: They will come to me and I will acknowledge who asked the question, and then pose them to our panelists. So again, I will repeat that in a little bit, but

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Richard Green: If you want to ask a question, please send us an email at Lusk ctr@usc.edu and we will do our best to get all of your questions.

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Richard Green: Out there. So the other day we had 35 questions so i i'm not going to promise we're going to be able to get through that so

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Richard Green: With that. Um, the other thing is upcoming events and the less perspectives. Next week we will have to, we will have ivy Zelman from zoom and associates the really terrific analyst of the housing market public home builders, etc. And we will be doing a panel on

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Richard Green: The mortgage market problems in the mortgage plumbing, as I call it, featuring Ted Tozer who is president Ginnie Mae

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Richard Green: At Golding who is the Commissioner of the Federal Housing Administration and Lori Goodman, who

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Richard Green: spent a number of years of Credit Suisse. And then at Amherst securities and it's one of the finest analysts in the mortgage market. I know.

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Richard Green: So with that, let me introduce our terrific panel today to talk about these issues of property management tenant management least management, etc.

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Richard Green: In these times I have said to them, they don't have to share. Bad news if they don't have an A. But if they do, please. How are you being informed by it and how are you dealing with it.

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Richard Green: Our panelists are Stanley iseman who is the CEO of American realty advisors has been a member of our board for some years now. I think Stanley, you go well before it back well before by time.

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Richard Green: Don't use and any teachers.

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Richard Green: In the MBA program that volunteer emirate program for us. Rachel wine, who is a retail consultant whenever leading clients is Publix, which I'm sure he knows one of the most successful grocery chains.

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Richard Green: In the country. She is a co member with me of the CRC gold product council at you alive, that's how I've gotten to know her, and very thoughtful about what are the influences affecting the retail market in general. And right now, in particular, and finally a

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Richard Green: David doll injure for whom our masters of real estate development program is named the dollar voucher em read

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Richard Green: On David also is a member of I believe the inaugural class of the hemorrhage degree and a very successful developer and owner of industrial property and so

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Richard Green: We have coverage of pretty much all property types here.

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Richard Green: And we're eager to hear what you have to say. So I think what I'll do is I'll just start looking at my right and go to my left, which you have no idea what that means, but it's going to be Stanley then Rachel.

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Richard Green: Then David so Stanley, if you could say a few words about what you're seeing out there right now.

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stanley iezman: Okay, well, since it's only been a month since we went into lockdown mode with shelter in place rules. I think that a lot has changed over the last several weeks.

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stanley iezman: Three weeks ago I was concerned about the retail impact of our of our retail tenants with all the letters that we were receiving from our tenants.

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stanley iezman: Concerning foursome is your and in possibility of performance and seeking rent reductions and then we thought that that was going to translate into

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stanley iezman: Our the rest of our portfolio as well. And what we're very pleased to to announce is is that actually we were very surprised in terms of our collections.

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stanley iezman: On the office side we're about 82% in our multifamily we're about 92%. I'm sorry. In our multifamily we're about 91%

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stanley iezman: Our industrial we're we're about 90% and in our retail portfolio. We're about 55%. So what we expected to see clearly came about as a result of our

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stanley iezman: Of our retail. So what do we have been doing right now, over the last several weeks, as we've been trying to develop protocols to deal with each one of our tenants in our various

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stanley iezman: Portfolios and how we're going to respond to each one of them is really start to look at each of the leases and determine

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stanley iezman: Whether there are clauses and into those leases that we can negotiate out as part and parcel of any rent reduction that we're going to be dealing with and that's going to be an open

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stanley iezman: Open item to see whether we're going to be successful at that, number one, and number two, to really acknowledge the fact that there may be a

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stanley iezman: PR risk of doing that because the first at first and foremost, we do have to recognize that on the retail side know what Rachel really deal with this is that we want our retail

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stanley iezman: Tenants in our small mom and pops to survive and we recognize that they're being decimated as a result of what is transpiring

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stanley iezman: The shocker to me though is the number of tenants that have sent in rent relief request from on the retail side and on the office side.

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stanley iezman: That are major tenants with well capitalized and have the ability to pay the rent and I find it shocking that they're asking for. Remember the major law firms around the country, asking for rent relief.

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stanley iezman: When we know that they have the ad successful years over the last several years. So we sort of put that in the bucket of moral hazard. We are looking at this in differently.

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stanley iezman: Than than we would otherwise. And it reminds me of a great expression that I remember somebody in our school when said, Richard, which was

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stanley iezman: You're a capitalist when things are going well and you're a socialist when things are going bad. And it seems like everybody's becoming a socialist right now looking for somebody to hand a give them a handout.

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stanley iezman: In terms of being able to operate. I won't get into PvP right now, which is the payroll protection plan and the ones that are going to be. We're going to be talking about, but it's something that probably should be discussed in this in this call.

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stanley iezman: Can you

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stanley iezman: Read

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Richard Green: This one question before I turn it over to Rachel, which is when you're talking about collections that says of what date and how do they look compared to usual month as of that day.

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stanley iezman: Um, I think we're looking at as as of yesterday. I'm in terms of collection. So it's real time information and it's only off its off by about 8% in terms of what we typically get

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stanley iezman: Okay, except the retail. I'm sorry, three jealous.

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stanley iezman: I understand that I'm

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Richard Green: Curious about the office and apartment was that

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stanley iezman: That's tenants. That's not dollars. So we're not dollar wedding this at all.

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Richard Green: Got it. Okay, great. Thank you. Stanley, Rachel.

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Rachel Wein: Alright so Stanley touched a bit on on retail go a bit deeper on that. And I just want to set the groundwork. So, Richard. First of all, thank you for having me. It's my first experience with the last center so

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Rachel Wein: I'm really pleased to be here with you all from sunny South Florida. Um, and

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Rachel Wein: I work with both tenants and landlords so institutional greed owners and then operators and Publix and Kroger would be two major grocery retailers that I work with. So I just want to

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Rachel Wein: caveat that these are my opinions and not those of Publix or Kroger, but I would say that generally and retail what what Stanley has has said is, is reflected nationally. If we could break that down a bit on the Mall side we're seeing collections roughly 15 to 20%

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Rachel Wein: Of expected at this point in the month if it's a lifestyle center.

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Rachel Wein: Maybe up to 20 to 25% of April rents collected in the shopping center space grocery anchored institutional quality roughly 50% if it's

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Rachel Wein: It's a little bit better in the grocery dominated sector, in which case it's 50% collected roughly of the adjacent small shop spaces and I do you think it's important to to caveat that

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Rachel Wein: We're talking about the institutional quality space.

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Rachel Wein: So,

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Rachel Wein: For most of these large national retailers.

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Rachel Wein: I still find the shocking at 70 to 80% of their landlords are single owners mom and pop owners of shopping centers.

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Rachel Wein: And, you know, let's call it 60 some odd thousand and shopping centers in the country, of which only

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Rachel Wein: Call the top 10% are owned by rates and maybe you know double or triple that you end up with all of the institutional grade and retail shopping centers in the country. So, this information is skewed towards a better quality assets and we're still seeing

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Rachel Wein: You know, rents recoveries pretty terrible. If we could put some lipstick on it. I guess there are certain bright spots and then other concerning areas.

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Rachel Wein: And I'm going to go ahead and name names is this is public staples is open and operating and not paying rent Ross sent a letter out to all of their landlords that they were not going to pay rent for all of 2020 they then

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Rachel Wein: Advanced April rent to their owners. And I think this may be some of the tenants that Stan is alluding to that and good times, it's good and bad times.

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Rachel Wein: You know those good times have evaporated as opposed for those retailers. So I think we've been

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Rachel Wein: Telling a narrative over the last 12 to 18 months that landlords and retailers are on the same side against Amazon and that's been, you know, the narrative that we've been talking about and

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Rachel Wein: You know, now I think it's really clear which retailers are willing to partner with their landlords for the best outcome acknowledging that everyone is having pain and which ones are only thinking of themselves in short term.

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Rachel Wein: You know, generally, when we're thinking about read relief and what we're expecting were bucketing tenants into are they open an operating. Are they central retail. Are they open but you know at some significantly reduced rate, which would be some

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Rachel Wein: Restaurants where they may be getting double the takeout revenue. So it takes out his five to 10% of a typical restaurant.

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Rachel Wein: They may be getting double that. But of course that's still 70 to 80% less than normal sale. So we'll kind of relief. Are we giving to them.

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Rachel Wein: And then all the other mom and pop so and i would i would love single franchisees and with a mom and pops and are being as generous as we possibly can. Significant deferrals and the only abatements that I've seen.

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Rachel Wein: Across the board are with Publix supermarket Alyssa is 282 shopping centers over 2500 single tenants and the affiliated rent for two months I'll leave that that's a bright side.

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Richard Green: So let me let me one follow up question. Rachel is when you look at that lack of collections and this will also riff off of Stanley's point what CHAIR OF IT. DO YOU THINK ARE is the moral hazard issue and what share. Do you think as people just don't have any money to pay the rent.

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Rachel Wein: You know, I can't put a number on that it is unknowable. It is unknowable. Certainly a large portion of them can pay, but for mom and pop tenants. I just, I don't know that they can pay and if they could pay April.

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Rachel Wein: I'm very concerned about their ability to pay. May, so I'm not as bad as it sounds, for April. I'm much more concerned about may

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Rachel Wein: And I don't think anyone that could tell you differently as nobody tell you

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stanley iezman: You know, I just want to tag on to what Rachel was just talking about. I mean, there has been

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stanley iezman: A continuing trend of retail stores shutting down over the last three years. So all this has done is exacerbate

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stanley iezman: And accelerate the pace at which these the slow down has occurred. There were a lot of companies out there that were completely over leveraged and had download sheets that we're just not supported.

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stanley iezman: supportable of their business model. And all this is done is just pushing those over the edge and those that are being backed by and this is really where a challenge comes in.

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stanley iezman: Those retailers that are backed by private equity firms. Think about that. I mean, why should

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stanley iezman: Why should they pay up. They've got the portfolio capital behind it to be able to fund the operations and to pay rent. I'm just a dimension that I just want to solve the think about is, we're thinking talking about this.

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Rachel Wein: Yeah, I think that's important. I mean, there, there is certainly going to be a share of these larger national retailers that

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Rachel Wein: While they do not open again period and that will be largely an

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Rachel Wein: Acceleration of what we expected. So I think there's really, there's two camps here and we're going to talk about where we see the future and

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Rachel Wein: There are the folks that will not open up again. Surely there there are. There is also a large chunk and I don't think the retailers have quite had their moment yet where they

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Rachel Wein: Really come to realize that this is necessary, but if you have 150 sorry 1500 stores 750 stores and you have

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Rachel Wein: Limited capital, you should really strongly consider not opening back up all 1500 stores are all 750 stores. So we have not seen that conversation had within the retailers executive teams, there's still a focus on yourself. Anyhow, it'll happen.

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Richard Green: So David, before I turn it over to you. Just because we have a number of people come into the room. Let me just repeat the ground rules.

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Richard Green: To avoid being zoom bombed. We have turned your mics off and the chat function off. So if you have a question for any of our panelists, please send an email to lust CTR all one word L US K ctr@usc.edu So David, please tell us how you're viewing industrial right now.

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Dave Dollinger: My portfolio is mainly R amp D in Silicon Valley and also some buildings in San Diego, and I think it's pretty good I think.

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Dave Dollinger: I'm not going to put a number on it, but it's it's above 90% paid. There was a few venture capital back firms that played games and said they couldn't pay rent and then we gave gave him notices and they all paid

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Dave Dollinger: But it's. We also have a bunch of retail as well in Los Angeles and in Northern California. And there were probably in the 55 to 60% the grocery stores pharmacies, the banks urgent cares. They've all paid

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Dave Dollinger: Every restaurant in our portfolio, except for and I'll call fast food Starbucks and chip whole day did not pay this month and

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Dave Dollinger: What is amazing to me and Stanley said this before, is the amount of so called credit companies that couldn't pay the rent within two weeks, and it's just it's astonishing to me.

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Dave Dollinger: And I got the same letter from Ross and Ross has always been a very difficult tenant and if they don't want to pay me and my center. We're going to evict them.

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Dave Dollinger: And will replace them with someone else. And so

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Dave Dollinger: We have sent eviction notices to if you're a credit company and you've got stores across the country and you didn't pay this month.

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Dave Dollinger: Like Bed, Bath and Beyond. Then you got an eviction notice if you're a mom and pop we gave you two months of no rent and then you can pay it back over the next year.

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Dave Dollinger: And if you're a chain in between we worked out various deals

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Dave Dollinger: But I don't really have any sympathy for the credit companies that don't want to pay the rent.

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stanley iezman: Richard. Richard

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Richard Green: Yeah yeah I'm

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Richard Green: A you know why the Congress. We is when I've seen rent collections on apartments. I mean, this is nationally while they're down. If you look at how much they're down and almost perfectly tracks new unemployment claims.

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Richard Green: So you can map almost one to one, people who are not paying their Apartment. Rent with people who just don't have any money right now. So that's what I that's not a moral hazard thing that's a

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Richard Green: People don't have any money to pay thing and it sounds like in

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Richard Green: The non apartments space, things are quite different. And so, and that's sort of what happened if we go back to the financial crisis, we saw very different. We saw very similar sorts of behavior on the consumer side visa V, the business side.

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Richard Green: With respect to credit

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stanley iezman: Let me, let me throw something in about that because first of all, I mean, I thought what we thought was going to happen was in our, in our portfolio.

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stanley iezman: Is that there would be a differentiation between the A, B, and C quality profits and we thought that the see properties would underperformed is simply because that was workforce housing and surprisingly that has not actually happen.

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Richard Green: But that's

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stanley iezman: The month of that is the month it's it's down. I mean, it's significant. It's about it's significantly down be from the, from the equality.

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stanley iezman: But it was nowhere near where we would have expected because those are the first people to be laid off.

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stanley iezman: We think that that is just aberrational because of the fact that it's an April.

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stanley iezman: Where our big risk is is what's going to happen in May as Rachel was talking about. That's our, our big concerns me is the big month for for all of us.

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stanley iezman: But the. What I will say is, is their opportunity, everybody's being opportunistic with regard to paying rent. Even the class eight tenants who are who are who have great jobs they're being opportunistic saying give me you have sympathy.

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stanley iezman: You need to give me opportunities to pay overtime and we're just saying, No, we're just not going to do it because we just don't think it's appropriate to do

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stanley iezman: In the in that space in the industrial side I will say, though, there's, there's an interesting observation is that in our

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stanley iezman: multi tenant industrial portfolio, there has been a fall off. So it's about a, as I said, it's about an eight to 10% fall off and rent.

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stanley iezman: But it's typically coming from the multi tenant smaller tenants that are servicing the the retail sector that are not able to perform because they can't get out there. So supply chain really becomes an issue for for everybody involved in this conversation.

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Richard Green: So let me follow up on a comment. Dave made when he talked about who he was giving rent relief to and the length of time he was giving

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Richard Green: So, so it's forbearance of rent. It's not a elimination of rent for two months. And you're saying you will give those tenants 12 months afterwards to

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Richard Green: pay the rent back. And the question I have is, is that going to be burdened summer you think that makes sense. And what else are people seeing thinking about with respect to how does the catch up happen when we come out from this

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Richard Green: And I'll look I'll leave that for any of our three panel out of it is the most important thing is to have tenants in your buildings intense they're paying rent so

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Dave Dollinger: evicting all of your tenants doesn't do you any good. So we want them to survive. So I think you need to take it on a

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Dave Dollinger: Each individual tenant and see their own situation. It's not a one catch all for everybody. So we're going to have tenants that we're probably aren't going to collect rent. We're going to forgive it

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Dave Dollinger: But generally, we're going to tenant saying, Okay, you want these two months free then extend your lease for five years or get rid of this exclusive clause or do something else. And so there's a little bit of given taken all this

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Dave Dollinger: But you can't just come and say give me what shocks me the amount of credit tenants that write you a letter and don't ask for rent deferment or relief. They just tell you we're not paying in the next three months.

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Dave Dollinger: You know, tough tough. Yeah, we're just not paying and it says to me in the 2001 downturn, which focused on the high tech here the retail kind of saved me.

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Dave Dollinger: And I got all the VCs, one and all these free rent. This is the exact opposite. Now we have the industrial and r&d doing well and the retail is acting like the VC firms did in 2001 and just not paying. So it's a complete opposite, which is, I think, rather interesting

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Rachel Wein: I think they're also forgetting that you know as a credit tenant in many cases they have below market rent significantly below market rent and that's an investment that the owner has

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Rachel Wein: In that tenant because they believe that

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Rachel Wein: You know when it's a rainy day they're going to pay their rent. So they're not paying rent and it's 4568 bucks, depending on where it is for some of these off price retailers, they should get a default letter.

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stanley iezman: What, one of the things I would like to point out, though this is this is just sort of an operational issue with the issue of

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stanley iezman: Given these rent referrals and trying to amortize it back in and you've asked a very good question that

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stanley iezman: Richard is to whether the tenants are going to be able to start paying that that bonus rent that they're going to have to bulk up on their on their rent schedule.

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stanley iezman: That's a big concern. And so what David was talking about extending the term.

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stanley iezman: Is now becoming more of a default position because you don't want to burden the tenants too much with with paying more rent when they're coming out of this.

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stanley iezman: This problem in a slow manner, but I would suggest, though, that for everybody who's listening. Who's got a an accounting department and depending on how large your, your firm is

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stanley iezman: You, there has to be interaction between the accounting department to make sure everybody really understands what these deferrals are going to do to your rent schedules.

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stanley iezman: And making sure that your, your, your accounting books are maintained appropriately. And if you're a public company.

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stanley iezman: Those straight line rents have a don't do not have the same effect as a private company like us.

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stanley iezman: Where we're going to be marketing to market and adjusting on a regular basis. So the rents have to be balanced off and understood within everybody who's in the chain of reporting to our investors. So it's something that everybody needs to think about

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Richard Green: So, uh, Rachel. What are you in terms of what people are doing at the end of the red debate men period or the forbearance period. What are you seeing out there.

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Rachel Wein: So we're seeing 12 month payback as, as has already been mentioned, but, you know, the reality is we're making these decisions.

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Rachel Wein: Now, I just, it's all going to depend on when we all get back to business. Right. So I think a lot of this is just kicking the can down the road. So it's easy to say we're going to defer your rent.

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Rachel Wein: For two months and then you'll pay it back over 12 or you'll pay it back at the end and you know if it matters if it's three or four or five months of very depressed sales.

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Rachel Wein: We're all going to have to go back and look at this, but I'd rather look at it in July and look back and say, how did we really do in May and June.

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Rachel Wein: And make accommodations for that rather than looking at my crystal ball and imagining what the next two months. We're going to look like. So, you know, for that. I think it's a very easy decision for both the

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Rachel Wein: landlord and the tenant to say let's let's agree on a deferral. We can agree. You know, we think it's going to be a 12 month payback or whatever it is.

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Rachel Wein: And we'll look at it again. You know, I mean this this is where the partnership comes in and something to stand point on public companies. One of the things that I'm concerned about is just interested to see what will happen is, how they're going to reserve for these non payments.

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Rachel Wein: So are they going to

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Rachel Wein: Call it a are. Are they going to write off some of it because we're going to start to see. I mean, first of all, any company that already has a car that's concerning, you know, we're just going to be piling that on and it's going to be very visible very soon.

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Richard Green: So you're just you're making me miss our late great share of the last center Stan Ross, who was a brilliant real estate accountant, because he would tell us exactly how to think about the accounting for this stuff and eat almost certainly be right.

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Richard Green: We do have a question from Paul bus for Rachel, which is, again, I think I know how you're going to answer it, but I'm going to ask it anyway, is when do you see reopening of shopping centers beginning

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Rachel Wein: So I think we can look a little bit to Asia for some idea of what this might look like. And I'll try to break it down into different use cases I'm

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Rachel Wein: You know, I'm a little bit of Asia, a little bit of what we saw leader not 100 years ago and 1918 a little bit of what I hear from my husband on the medical side.

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Rachel Wein: You know, I think we're going to start to be let out of our houses in a stage ever probably

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Rachel Wein: I'm going to say first to June on what's happening in Asia right now is even as people are able to leave their homes are still being there. So recommendation that you should generally stay close to home there had maybe 500 cinemas open up in

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Rachel Wein: China so far, they've been virtually empty. I mean, I think we're going to see

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Rachel Wein: Either forced reduction and capacity at restaurants and theaters and you know churches and casinos LA. We're going to see forth reductions there and that could go on for a long time.

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Rachel Wein: Then we're going to have to see if we end up with something like in Singapore, where they go back to work. There's an outbreak. They go back home. So until we're doing

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Rachel Wein: And this is my husband's estimation. And so we're doing a million tests. Today we're gonna have a hard time figuring out how this is spreading and what localized areas we can start to do contract tracing and other kinds of smaller scale shutdowns

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Rachel Wein: I would expect to see semi permanent reductions in capacity at restaurants for internal seating spacing six feet apart maximum four people per table that could be 30 or 50% of typical capacity that's if people leave their homes to go and eat.

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Rachel Wein: And then, you know, certainly rent as a function of sales. So we're going to have to adjust their

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Richard Green: So when we had clay doobie. A couple of weeks ago talking about China very striking picture of restaurants and Lu Han that had police tape around every other table in order to maintain that six foot

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Yeah.

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Rachel Wein: So,

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Rachel Wein: I think we're going to see temperature checks. There are now pretty easy cameras and people can

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Richard Green: You every day. My wife walks into the hospital right they do our temperature with an infrared device.

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Rachel Wein: And I think you know what what is too soon to tell is there will be some permanent changes that are enacted from this, I think, you know, it's easy to look back at

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Rachel Wein: September 11 and see just just from a physical footprint how our

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Rachel Wein: airports have changed. And I think we will certainly see long term, permanent changes in our buildings, regardless of whether we have to deal with this. Again, you know, we eventually have a vaccine. We don't have this there will be permanent changes. I think some of it is going to be

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Rachel Wein: You know, a change from mixed use to multi use which is it maybe having a little bit less stack uses and a little bit more side by side uses

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Rachel Wein: As a project in Seattle. The name escapes me. Where was senior housing on top of, you know, restaurants and bars and we may not want to have old people near restaurants and bars, all the time. So we may just rethink just from our own peace of mind whether that's

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Rachel Wein: You know legislated or just how we feel.

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Richard Green: Guys, both Stan and I have a question for David. But before I just want to follow up on Rachel's point to have Stan

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Richard Green: repeat something I've heard him say in other forums, which is just how you about managing Office buildings and this environment and how horizontal buildings may come to be added advantage. Again, relative to vertical buildings.

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stanley iezman: We weren't the process and we just created a task force for downtown LA. And we're working on the task force in New York as well for a properties there.

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stanley iezman: To try and determine exactly what a best practice is going to be to open up the buildings, when they start opening, we don't exactly know yet.

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stanley iezman: How to do that, it's a it's a process and it's twofold. One is the tenant who how the tenants are going to adjust internally with their staff.

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stanley iezman: And how they're going to operate internally within their, their space and us as landlords how we're going to being pre bring people into the building.

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stanley iezman: If you saw the article over the weekend in the New York Times about the four seasons in New York about how it converted into a hotel that they converted into a hotel for

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stanley iezman: medical workers if you if you read that and you realize that they were taking one person at a time in an elevator.

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stanley iezman: That is completely dysfunctional and a office building. So we're, we're trying to figure out what the appropriate spacing is going to be. And again, this is all predicated on the notion that there was no virus.

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stanley iezman: If there is no no vaccine. If there's a vaccine and obviously all the, the old conversation changes.

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stanley iezman: But this is going to be applicable across the board with all properties, we've got to figure out how to open up our

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stanley iezman: multifamily properties in terms of getting people back into the gyms and what are we going to do from cleaning standpoint and is that going to increase our underlying costs, etc. So there's a lot of a lot of unknowns, yet we're still trying to work through

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Richard Green: So David, a question about from Craig Bornstein about collections different between single tenant and multi tenant properties and he's commenting that in in their portfolio, they're seeing a pretty large difference

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Dave Dollinger: I think it depends on the size of the

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Dave Dollinger: Tenant multi tenant properties.

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Dave Dollinger: So if you have a multi tenant building that's, you know, a 50,000 foot and you've got to 25 they're paying if it's a bunch of 2000 foot tenants or 5000 foot tenants.

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Dave Dollinger: For the most part, I think we're actually collecting most of the rents and the only ones that haven't paid or been troubles are like a deli or a gym that are kind of servicing the area. But other than that, even the multi tenant, we've

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Dave Dollinger: Collected almost all I'm not gonna say 100% but we're, we're pretty close on all of our industrial multi tenant or single tenant.

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Richard Green: So Stanley opening comment on that.

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stanley iezman: I know same. It's the same thing is the small multi tenant that are that are the service tenants that are being more distressed.

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Richard Green: So let me ask all of you about the paycheck protection program.

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Richard Green: And again, I would take Rachel Stanley, particularly given what you're doing, that this is something that you've been encountering. How do you think it's been going

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Richard Green: What a bit so I guess about 260 billion of the 350 billion is now out who's getting that money. How is it going, what's the best way to get it, etc. So um I'll either one of you jump in.

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Rachel Wein: And I'd be back.

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Rachel Wein: Yeah, it's, it's been a real struggle. I'm pretty disappointed that the larger banks have have really dropped the ball on this. So if your tenants are with smaller regional banks, they're much more successful and getting

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Rachel Wein: Responses and

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Rachel Wein: You know, I just hope it comes in time.

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stanley iezman: I'm sure there's somebody on this call. He's a banker and I will offend them by saying this, but

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stanley iezman: If you're a preferred customer of a bank, you're going to get money infinitely faster. I have a lot of people that I know who have gotten

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stanley iezman: And there's documents already signed, there have been approved.

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stanley iezman: But the preferred customers if you're not a preferred customer. It's going to be much more difficult to get through the system and to complete the paperwork and to be ultimately approved.

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stanley iezman: The but the bigger issue about PPP and I just want to caution all of us is that there's a lot of people who are applying for PPP

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stanley iezman: Who shouldn't be applying for PVP and they all be the better be relevant aware of the certifications that they're making and recognize that the government is going to as even early

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stanley iezman: This morning I restarted receiving notices from law firms, indicating that the federal government is going to expand.

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stanley iezman: Their, their enforcement of this because they suspected that there's a lot of people who are assigning these things and being approved that shouldn't be getting the the dollars. So there is a moral hazard associated with that as well.

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Richard Green: Yeah, can you be a little more specific about that. What sorts of things should you not have. If you're going to go for one of these lumps.

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stanley iezman: Well, I'm going to ask the question is, is why would somebody who's in the real estate business who's made a killing over the last five years to be applying for PPP

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stanley iezman: When they have the financial reserves to be able to to be able to handle the shortfall for a period of time. It's not that they're not paying, they can afford to pay their rent.

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stanley iezman: So why are they, why are they putting out there that they're going to terminate half their people and then keep them on payroll to get that loan.

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stanley iezman: That's just my personal opinion. All right.

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Richard Green: Any, any thoughts from the other panelists on stands warning.

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Rachel Wein: I mean, I think if you have a preferred banker, you're probably not a nail salon or a house here so on or, you know, this is who I'm talking about. So the institutional quality landlords are really holding the hands of small tenants to help them through this process because

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Rachel Wein: They don't know how to do this. So from a best practices standpoint, at this point, most of the larger, you know, read some larger private institutional companies have a you know coven

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Rachel Wein: Thing on their website go here. Here's a little video and they pivoted a number of employees from doing whatever they used to do and they're now tenant concierge

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Rachel Wein: On services and they are walking in some cases line by line walking through with those tenants and how to apply. But even with that support it's it's a struggle.

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Richard Green: Well, you know, send us a very revealing and this will be the subject. I'm sure of academic papers. Of course, this virus is going to spawn zillions of academic papers.

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Richard Green: But if you're a preferred client, it probably means you don't need the program as much as a non preferred client. So the rationing is going to the wrong people right now if what you're saying proves to be true.

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stanley iezman: Well, there are there are retail owners out there that are being completely decimated as Rachel was suggesting there's a lot of mom and pops it own shopping centers.

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stanley iezman: That are not collecting rent and they have debt that they have to pay off and that debt those property taxes and those debt payments still have to be made.

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stanley iezman: And to the extent that you're not making those payments, it's going to, it's going to be a problem. Now do our banks giving forbearance. And the answer is yes forbearance is out there. And we've heard a number of cases and talking to our

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stanley iezman: Number of our lenders, we have heard that they're giving forbearance on a regular basis. But that's only a temporary

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stanley iezman: Temporary alleviation of the problem. They'll give you two, three months of forbearance, but you're still going to have to amortize that interest back in to the Malone payment over time.

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stanley iezman: So we don't know what this is going to look like. And again, what Rachel is talking about is how quickly we get out of this. And now rapidly the small mom and pops are going to get there and be able to pay rent is open.

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Richard Green: So if you do the following exercise. Imagine alone that has six months of forbearance on it with a 4% coupon. And, um, you just have the

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Richard Green: loan balance the extra loan balance accrue at the end of the loan. So basically, you don't change the payment, it comes to at the time that alone is refinanced or the building is sold

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Richard Green: What happens to the present value of that loan is a trump spy in the neighborhood of 2%

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Richard Green: And it's one of the nice things about mortgages is you know what the cash flows are supposed to be you know what discount rate you're supposed to use

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Richard Green: Until you really can get analytically what the cost of that would be. And in light of the fact that the economy is going to shrink by something like 30% for a quarter of a 2% haircut doesn't seem all that bad to me.

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stanley iezman: Know when you're talking about you're talking about refinancing. You better start thinking about the fact that you've got a value divination.

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stanley iezman: That may exist as a result of what is going on today so

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stanley iezman: What is the

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Rachel Wein: Value anymore, Stan.

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Rachel Wein: Values anymore.

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stanley iezman: We are we, I don't know what a cap rate is going to be when when the tenants start paying rent and I don't know what discount rates are going to be. And I don't know where the resets going to be, but I can assure you that there is a recent yeah

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Richard Green: So I well it, it gets you a couple of points that I wanted to. So first of all, I just Rachel's comment about kicking the can down the road. I think that used to be a pejorative

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Richard Green: But kicking the can is what saved commercial real estate in the global financial crisis extended and pretend actually worked pretty well and to Stanley's point the recuperation of values and the aftermath of that was

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Richard Green: quite rapid on the commercial side. Now this is a very different kind of things. So who knows. But at least there's some precedent there.

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Richard Green: But I was going to on the whole issue of refinance. How much is this going to be an issue that loans are coming due and they're going to need to be refinanced when the next year or two.

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Richard Green: And we aren't going to know what LTV is for a while. How much does this worry and I'll again leave that question open to any of our panelists.

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stanley iezman: To me, it's an opportunity

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stanley iezman: It's an opportunity for rescue capital. I've been sitting on the sidelines right now looking for opportunity that's going to be the rescue capital opportunity.

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Rachel Wein: It's a great time to be in grocery retail. I mean for our grocery clients that are, you know, migrating to online to have this opportunity for people to use online. Click and Collect and delivery grocery for the first time.

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Rachel Wein: It's really outstanding because if you try Instacart or Kroger pickup or in your area, most of you would be Ralph

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Rachel Wein: If you try to three months ago and you didn't get just the right avocado. You were pretty upset and now you're just thrilled to get anything so

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Rachel Wein: Um, and now they're printing money because people need groceries and they'll be able to invest in their macro and micro distribution for online so

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Dave Dollinger: You know, I just want to say one thing. A lot of people have been saying, talk to your lenders and get forbearance and all these issues.

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Dave Dollinger: And I would say you don't really want to do that. He not if you really want to be in this business in the long term and do deals in the future. And so I've never done it and I don't plan to do it.

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Dave Dollinger: So unless you own that single tenant building it's your only asset and it's going to put you under

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Dave Dollinger: I don't recommend asking any lender for for barons, because they remember it, they'll remember in 234 years when you come back, they will want to make it alone. So I don't think that's a strategy really for landlords, unless you're really desperate to try that.

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Richard Green: Well, if they have your collections are 55% of normal

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Richard Green: And your debt cover is 1.25 your sort of heavier hand forest right

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Dave Dollinger: If it's if it's your only property.

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Dave Dollinger: But if you have multiple properties and other source of income. I mean, I have a single tenant la fitness and they're not paying and you know I paid the mortgage. This month I didn't say a word.

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Dave Dollinger: Because you go back and you make the change. Or I asked for it. They actually called me and asked if I want to do something.

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Dave Dollinger: And I said, no, because the reality is, they'll remember that in two years and three years when you go to borrow the money again for something else. So it depends on your situation, obviously, but I would definitely say do not, if you could afford it. I wouldn't do it.

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Rachel Wein: I don't think we're at the end, yet of retailers that haven't paid, but still might pay. I think we still have some time there been retailers that have been shamed into paying and we'll see what not

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Rachel Wein: A fitness retailer is probably not going to pay, but there are going to be some apparel retailers. I think there's some, you know, pet and other retailers that will end up paying some

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Dave Dollinger: Well Alta wrote a letter saying they weren't going to pay anybody. Then they wrote a letter back saying, Okay, now we're going to pay the waiver late fee so

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Dave Dollinger: I think some of these are

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Dave Dollinger: tenants are figuring it out.

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stanley iezman: One of the comments I didn't want to make about retail is that clearly the the retailers that have been most impacted or not omni channel directed. I mean, when your omni channel.

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stanley iezman: And you have the ability to be able to work in an e commerce environment. And the question is really going to be, we only focus on grocery anchored shopping centers and what we're talking about internally.

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stanley iezman: Is how do you deal with the mom and pop that is not omni channel and will be impacted dramatically as a result of this, and we're trying to figure out how we create value going forward.

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stanley iezman: With bringing in other tenants that have different distribution methods to be able to provide for those

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stanley iezman: For the rent in those smaller spaces. So I don't know what that's going to look like. But it's something we're thinking about

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Richard Green: So I do want to remind people that if you want to ask a question of the panel please send an email to Lusk CTR all one word Liu SK ctr@usc.edu

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stanley iezman: I have a question for Rachel.

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stanley iezman: Yeah, so if I can ask the foot traffic is down.

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stanley iezman: Dramatically in retail

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stanley iezman: Yet grocery sales are up significantly

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stanley iezman: So I'm trying to figure out if Grocery. Grocery traffic's down by 56%

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stanley iezman: Which is just walk in traffic. So how is that being made up in e commerce, we're

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Rachel Wein: Looking at the place or

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stanley iezman: An idea of the police or a idea.

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Rachel Wein: I don't, um, it's supposedly covers the vast majority of these grocery retailers. I mean basket sizes is the simple answer.

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Rachel Wein: So there's it's truly only measuring a person walks into the door so you end up with Instacart orders were a single

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Rachel Wein: shopper a shopping multiple orders. You also have folks that are leaving their house once a week that are going and doing a huge shop where they used to go 234 times on, but yes.

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Rachel Wein: There's also a large increase in online. I don't know how to share my screen. But in in China.

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Rachel Wein: In China in the first 10 days of February, there is a 215% increase in online grocery sales. I'm a JD com so I think we're probably seeing something similar to that we don't yet have numbers on that though. So I think it's a combination of all online and larger basket sizes.

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Richard Green: So Rachel, I want to follow up on a comment that Stan made which was about the number of retailers who are on their way out anyway um what share, would you put that at or you think it's small. Do you think it's

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Richard Green: I'll let you answer the question however you like. But given them what Stan asked and you know the market better than the rest of us. What, what would you say, Who do you whichever you think don't come back.

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Rachel Wein: So, um, you know, if it's just a mom and pop nail salon hair salon. I mean, so those folks are going to release travel and, you know, I think we could see 20 30% closures permanent it's going to really depend on how their

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Rachel Wein: Their owners treating them in terms of roles and abatements, and you know, walking them through the different services that are available to them and PPP and whatnot. Um,

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Rachel Wein: I think for the larger tenants. It's going to all depend on balance sheet. I mean, this is going to be the same thing if you would have asked me to. Who are the

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Rachel Wein: Retailers that I should bet on, you know, where would I want to, you know, invest my capital for for my retailer. I mean, it's going to be the folks that have paid attention and invested well and saved up for a rainy day and

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Rachel Wein: You know, the blue chip names. We all know I'm where I am a little bit concerned is I think we're going to see a lot of closures and apparel, it won't be a surprise that many of the department stores will close and not reopen

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Rachel Wein: And that is typically good for the off price market. I think there is a scenario where if we have a flood of apparel in the next

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Rachel Wein: three to nine months. At first the off price guys get to load up on inventory and then at some point, you end up with

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Rachel Wein: Just a glut. So it's possible that even in a recessionary environment. If it's too bad we may end up with it being negative for the off price book. So I do have some concerns there.

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Rachel Wein: And then you know the category killers and how many do we need right

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stanley iezman: Yeah yeah

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stanley iezman: I was gonna just make a comment about the the retailers, the big the balance sheet is really critical as Rachel was talking about.

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stanley iezman: Nordstrom just came out with a $600 million bond offering, which was not 8.75% which certain shows you what the risk factor is there.

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stanley iezman: But that doesn't get a lot of money to carry that for a very long period of time.

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stanley iezman: That's I from what I'm hearing. That's about a year's worth of cash to be able to operate the business. So there's a lot of. There's a lot of hazard out there that we all have to look at when we look at these firms and how rapidly we come out of this.

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Rachel Wein: Yeah, there will be a lot of balls that are no longer malls. I mean, I don't know how many years ago, I would have thought, oh, well, we'll still need $500 and now it's me might be two or 300 miles. Right. But, um, you know, there's a lot of opportunity where you used to have.

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Rachel Wein: You know the spheres and you got the series back and you were deciding between a Target and Walmart and you decided on one and you figured out, well, maybe in three or four years. I'll get that Macy's box back when I get the basis. So there's still some opportunity.

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Richard Green: So what I what I was thinking, though, is like the nail salons. He had the specific nail salons may go out of business.

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Richard Green: But there's still going to be a demand for people having their nails done when we come out of it. So it'll just be a different

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Richard Green: Nail Salon person who takes up that space. So it's hard for me to see how those sorts of services, you may have a lot of businesses.

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Richard Green: Go under but the service is still will come back and be there, whereas other kinds of stuff. They like dry goods. One could imagine that that space will never be used for that purpose. Again, yeah.

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Rachel Wein: I mean, we're probably over restaurant and

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Rachel Wein: You know, we were over retail period. But I think there's just been so much reliance on on restaurants to build the gap where we lost other tenants over the last 10 years and that's gonna be that's gonna be really tough, but right

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Richard Green: Right now, boys mystified me anyway because you know the tea is on restaurants are very expensive and they go out of business, on average, every two and a half years.

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Rachel Wein: So we do have a number for you as of

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Rachel Wein: Yesterday at 11am Arizona time

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Rachel Wein: The there were 61% of all US retail stores were closed it was 260,000 stores for

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Rachel Wein: 4797 million square feet.

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Richard Green: So that second number again please. How many million

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Rachel Wein: Know what I'm gonna do. I am going to figure out how to share my screen.

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Yeah.

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Richard Green: There you go.

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You're here.

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stanley iezman: I'm

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Richard Green: Well, thank you.

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Rachel Wein: Hey, yeah. And this is what we have for retail sales growth and forecasts as of yesterday.

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Rachel Wein: I'll switch it back to the unknown.

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Richard Green: Right. Um,

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stanley iezman: That's a great slide.

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Richard Green: That is a great slide. Hello, four and 5 million square feet. Sounds small to me.

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Richard Green: Where's that meters.

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Rachel Wein: Million zillion

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Richard Green: Oh, it's a god it's billion square feet. Got it, got it now. That makes sense to me. All right. Yeah. I thought you said million before. That's why I was coming.

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Richard Green: From. Okay, great.

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Rachel Wein: Heart number number to say out loud.

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Richard Green: Yeah, thank you for that. I'm a question from Patrick jargon. I'm

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Richard Green: Saying homeowner took effect when we have 1000 cases per day, nothing has changed much the beginning of the march no effect seen no meaningful therapies.

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Richard Green: I'm curious to see who in your panel thinks there will be we will still be in the situation for the next 10 to 18 months.

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Richard Green: And what we'll do the student price per square foot for retail an office in the long run, say, two to three years from now. So that's a put you guys on the spot. Kind of question if ever I heard one.

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stanley iezman: Well,

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stanley iezman: Do so that's the big debate that we're, we've been having throughout the country over the last two weeks is what is the value of life versus what is the value of the economy.

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stanley iezman: And I'm going to suggest that the majority of people are going to start defaulting. And by the way, I'm not a Republican.

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stanley iezman: I think the people are going to start defaulting to figure out how to open this up faster in a way that get people out of their homes and being able to start the economy.

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stanley iezman: That's my prediction and they'll, they'll just be there'll be there'll be social standards that are going to be adjusted as we work towards a vaccine.

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Rachel Wein: I would say. Similarly, I think we will start to relax and I think I mentioned this earlier. I think world start getting out of our homes in June.

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Rachel Wein: I would be shocked if I went to an industry deal making event A for the fall of 2021

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Rachel Wein: I think it's going to be hard to have large events and just for people to feel like they're comfortable going and for larger corporations to be willing to send their teams, especially now that folks are pretty comfortable with video

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Rachel Wein: Yeah, as someone in professional services, I will fly somewhere. But I thought about you. When's the next time, I'm going to fly to see people in New York. Well, none of them are in New York.

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Rachel Wein: When are they going to be back in New York, and I've been back in New York before September, so I'm not gonna go anywhere where am I going to go

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Richard Green: David, that raises a very interesting issue in terms of bringing people back to the office.

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stanley iezman: Because one of the questions is going to be this is that, how are you going to deal with the anxiety of people who feel uncomfortable coming back to work.

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stanley iezman: And and driving and taking transportation and being around other people that it's a new area of law that we're going to have to think about because it's probably a disability that would fall under ADA that you'd have to give accommodation for

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stanley iezman: So we're back. We're dealing with a multiplicity of different issues, as we talked about this.

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Richard Green: Well along those lines of new paper came out today by an MIT professor named Greg Harris, who is traced the expansion of covert in New York City at the subway system and he makes a very compelling case, when you look at the density of turnstile use it correlates incredibly strongly

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Richard Green: The density of the incidence of covert in New York City. And of course, New York, without people being comfortable using the subway.

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Richard Green: Is a completely different and perhaps non competitive city. And so, that to me is a pretty profound possibility that New York for a long time does not is not a center of commerce, because people are afraid to use the principal means of transportation for getting around it.

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Richard Green: But I do want to your debut. Any thoughts on where we're going in the next 1018 months.

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Dave Dollinger: I have no idea.

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Dave Dollinger: No idea.

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Richard Green: That is honest answer is one click. I think give at the moment. I'm a question from Odessa Riley. This is today of

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Richard Green: Banks, he says. Always have long memories when it comes to our, our shortcomings but expect support from the market when they struggle and if the majority of retail owners or mom and pops, they'd be paying rent at the expense of their long term sustainability.

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Dave Dollinger: So was that a question for me for banks are for the retailer's

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Richard Green: Well, I think it's for the retailers. Yeah.

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Dave Dollinger: Um,

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Dave Dollinger: Well,

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Dave Dollinger: We pay our mortgage, I need to collect the rent. I mean, we need to negotiate with the retailers to try to keep me in business, too. So it's a it's a given take to given take

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Richard Green: So, and it just a comment from Craig borstein oftentimes telling your lender that you cannot pay triggers a default on your loan. Just, just the act of doing that, um,

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Richard Green: Do we have any more questions from the floor.

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stanley iezman: I just wanted since we're talking about lenders and lisas. I just want to remind everybody that if you weren't going if you have debt.

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stanley iezman: Make sure that your debt covenants allow you to make changes to your leases without approval of the landlord, otherwise you may trigger a recourse carve out

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Richard Green: You mean without approval of the lender.

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stanley iezman: Without approval lender. So you've got to be. You've got to read them your loan docs very carefully in terms of what lease approvals that the lender has to sign off on

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stanley iezman: It's a free fall. That could be very dangerous.

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Richard Green: Yeah, yeah, Rachel.

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Rachel Wein: I don't want along the lines of what Dave was saying in dealing with your lender.

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Rachel Wein: Something that the retailers need to be aware of is sometimes they have their own covenants, so

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Rachel Wein: The number of the percentage or number of leases that they have the cannot be in default. So if enough of them don't pay and enough landlords default them, they will be in trouble so

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Rachel Wein: We'll just have to see how that plays out because there are a lot of landlords that are unwilling to default those larger tenants.

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Richard Green: So let's turn to a last words of wisdom from each of our three panelists, there's anything you want to say that you haven't gotten to say. So we'll start with Dave on this.

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Dave Dollinger: While I agree that I hope we allow the retail they'll merge those two together against some of these tenants and weekend which back against

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Dave Dollinger: The bullying and I going on from these credit tenants. Otherwise, it's kind of just hunker down and try to collect a week and collect and pay mortgages and let's hope things improve

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Richard Green: Ritual

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Rachel Wein: Would say the same way that the lenders have long memories I think owners will have long memories about their tenants and how they acted now and now will really be able to see where we have partners and where he does.

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Richard Green: So and Stanley, I

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stanley iezman: Know I just shared these the same comment though I. Our view is we have to work with our tenants as much as we possibly can. We don't want them to leave.

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stanley iezman: We're going to work through and try and look at each individual situation carefully to make sure that we're making the right decisions.

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stanley iezman: But we want to be proactive and in front of them and as Rachel is talking about help them navigate the process of getting PPP or the $10,000 special loan that is granted by the US, the SBA, which is really a grant

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stanley iezman: For a lot of these retailers, but

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stanley iezman: We want to help them succeed and to be able to survive because we know this is very damaging to them in their

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stanley iezman: personal lives.

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Richard Green: So with that, thank you panel, very much, for an enlightening and entertaining. Our. I just want to remind people of our next sessions next Monday, April 20 at 11am

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Richard Green: We have housing with IV Zelman and next Wednesday, April 22 vulnerabilities of the mortgage system. And with that, again, thank you all for joining us, we'll look forward to seeing you next week and stay healthy out there.

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Richard Green: Thank you, everybody.

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