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Pacific Coast Business Times: Evictions might be on hold but landlords still want rent

March 27, 2020

As the end of the month approaches, the question of rent looms — who can pay it, and what happens when people don’t?

Santa Barbara, California – Published 3/27/2020
By Amber Hair

As the end of the month approaches, the question of rent looms — who can pay it, and what happens when people don’t?

The answer depends on where you live.

On March 24, the Santa Barbara County Board of Supervisors voted unanimously to place a ban on evictions through May 31. On the same day, the city of Santa Barbara also passed a temporary eviction moratorium.

The new ordinance does not allow people and businesses to just stop paying their rent. As part of the ordinance, tenants must provide the property’s owner with written notice that they may not be able to pay the rent on time because of issues like job loss, layoff, reduced work hours, closing a business, a substantial decrease in business or a similarly-verifiable loss of income. The ordinance also makes exception for people who are suffering considerable out-of-pocket medical expenses because of the pandemic.

But the ordinance does not relieve people of needing to pay rent, and it doesn’t stop a landlord from collecting it.

Santa Barbara County is following the lead of San Luis Obispo County, which put a similar moratorium on evictions on March 17. Wade Horton, the SLO County emergency services director, issued the executive order the day before the county went under its own stay-at-home restrictions.

Meanwhile, Ventura County hasn’t taken steps to enact a county-wide hold on evictions, but several individual cities within the county have, including Camarillo, Ojai, Oxnard, Thousand Oaks, Moorpark and Simi Valley. Other cities in the county, like Ventura and Fillmore, are considering similar actions.

Steve Brown, founder and a principal at Radius Commercial Real Estate, said he was disappointed with the steps the city and the county of Santa Barbara took.

Brown is working with several landlords, and he said many of them have already been working with their clients to figure out how to proceed. The ordinances, Brown said, take away the landlords’ ability to negotiate with their clients on a case-by-case basis.

“It’s one thing if you have one condo and they’re not paying rent,” Brown said. “It’s another if you have a building with 20 tenants and none of them are paying rent.”

Brown noted that a landlord’s bills don’t go away, either. While the moratorium offers protections for renters during the crisis, it doesn’t stop insurance or taxes from being due on the properties those renters are occupying.

On the other hand, Brown acknowledges the need for an order like this, at very least on the residential side. As the entire state is still under order to stay home, evictions would make it harder for people to abide by it, and thus endanger the public health.

“There’s no good answer,” Brown said.

The Towbes Group, which rents thousands of units in the region, announced a 10 percent rent reduction for all tenants in response to the COVID-19 pandemic.

The commercial side is trickier.

Brown expects commercial landlords to get another hit when the eviction orders lift. Non-essential businesses will have spent weeks and perhaps even months shuttered, and a lot of businesses might not be in a place to survive an extended closure.

“I think a lot of commercial tenants aren’t coming back,” Brown said.

Newmark Knight Frank, a national commercial real estate advisory firm with a branch focusing on the Ventura/North Los Angeles market, also sees trouble brewing. In a report the company released, it urged investors to evaluate their portfolios to make sure there’s representation of essential businesses, like grocery stores and pharmacies.

The firm also suggested property owners consider helping tenants out through rent and parking abatements, as a way of helping people keep their spaces through the crisis. “There may be willingness, ability and desire to save threatened retailers who provide services to workers, such as quick service restaurants,” the report says.

Later in the document, Newmark Knight Frank examined the hospitality industry, especially in regards to hotels. While the firm acknowledges the possibility of a federal bailout, as well as the possibility of hotels being used to treat coronavirus victims, it called the spring convention season a “lost cause,” and warned that tourism-heavy cities may be hit especially hard.

In the week of March 8-14, the most recent week of data when the report was being produced, U.S. hotels had a 24.4 percent decline in occupancy rate, a 10.7 percent decline in average daily rate and a 32.5 percent decline in revenue per available room.

If there’s a silver lining for commercial real estate in the report, though, it’s in the industrial sector, as e-commerce becomes the only way many people can get goods while maintaining social distancing.

Because of this, NKF predicts increased demand for warehouse and distribution space. How those sites will be used remains unknown, though, he report floated the possibility of some warehouse spaces being utilized to house medical supplies and even patients if necessary.

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