Real estate developer Craig Hall of the HALL Group refuses to take the Pollyanna approach when it comes to commercial real estate in the wake of the COVID-19 market disruption.
The real estate legend foresees commercial real estate battling through an 18- to 36-month recovery before experiencing a true rebound.
:quality(75))
"I think it’s actually going to take a number of years. I think the backing up of people not paying rent, and then people being unable to pay their mortgages, is a very frightening thing. There’s an awful lot of delinquency throughout the country," Hall warned while speaking at Bisnow's Town Hall webinar moderated by Scheef & Stone attorney Mark Hill.
Massive changes are already underway. HALL Group's lending division planned $600M in loan issuance this year, and then quickly dropped that number to zero in recent weeks.
"We had deals that were in process, and we stopped everything pretty much in its tracks," Hall said. "We are worrying about our current borrowers and helping them get through it. We have about $1B of loans outstanding and so that’s a major thing to us."
Hall predicts new CRE groundbreakings will slow for an indeterminate period of time as developers adapt to new pricing levels and lease rates.
“We actually have deferred our new construction project in Frisco," Hall said. "We are not stopping it. We expect prices will actually come down, and we want to be ready and able to go where the market is."
Hall, who remembers the real estate downturn of the late 1980s and the 2008 recession, describes today's commercial mortgage lending market as the Wild West.
He fears large-scale delinquencies will encourage tenants and borrowers to skip out on scheduled payments, disrupting the system even further.
"If you can't pay it, that's one thing, but to use this as an opportunity to avoid a contractual agreement, it's something that's really bad for the rule of law and bad for our country," Hall said.
Going forward, the DFW-based developer predicts a backlog of litigation on issues related to rental payments and real estate contracts.
:quality(75))
Hall already sees a silver lining to the COVID-19 madness. But, he admits, it will take some time to get there.
While he predicts anemic hotel construction in the near-term and hospitality suffering through at least 2023, Hall recommends keeping some dry powder on the sidelines to capitalize on falling asset prices.
"We do plan to look for acquiring hotels, which will be very depressed," Hall said. "But, we also see opportunities in retail ... it depends on the specifics because retail has long-term issues, I’m afraid."
Hall is most optimistic about hotels because he sees these assets benefiting from inflation over a five- to six-year period, creating an opportunity to raise rates on a quick basis.
But getting to this point will not be easy for anyone.
"The first part is to play defense and to make sure that you are a survivor and can get through everything," Hall said.
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