Industry Experts Barrack, Penner Sound Off on the Coronavirus Crisis

California, like many other states, has shut down its economy to slow the spread of the coronavirus, causing heightened volatility in every market and uncertainty as to how long it will last.

Executive orders and unprecedented measures from state and local officials are mounting almost every day, adding layers of consequences to real estate markets and the rest of the economy. With a rapidly changing landscape, industry leaders and policymakers alike emphasize there is no playbook for such an epidemic, because few if any situations in recent history include both overall shutdown and immediate government intervention into real estate and financing.

After announcing relief programs for mortgage and rent payments and different tenant protections, officials like California Gov. Gavin Newsom and Los Angeles Mayor Eric Garcetti are estimating at least two months of a shutdown, though no specific date is set for a reopening. That leaves the real estate industry wondering if that time frame could be extended. They’re worried about how much it will stall the markets, what kind of deals or projects can and should be completed, and what it will take to survive the next few months or to be able to recover shortly thereafter.

The week started with a call for help from industry heavyweight Thomas Barrack, the CEO of L.A.-based Colony Capital. He stressed the need for liquidity, and said commercial mortgages were on the brink of collapse. He also said policymakers and industry leaders should help enable mortgage REITs and debt funds to restructure with borrowers. Barrack predicted a “domino effect” if banks and lawmakers don’t help borrowers from defaulting, and he warned inaction “could dwarf the impacts of the Great Depression.”

Those calls were answered shortly after, when the Federal Reserve announced a suite of lending packages to address liquidity issues. The Federal Reserve also committed to more than $1 trillion of U.S. Treasury purchases to help bolster the economy and ensure capital markets do not lock up. The fund went to the 0-0.25 percent range, where it was through much of the Great Recession.

Ethan Penner is co-founder and CIO of L.A.-based Mosaic Real Estate Investors. He said the Federal Reserve’s “unprecedented commitment to doing whatever it takes” to support the market and ensure there’s adequate credit to build a recovery “will win the day.”

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