Wow, what a difference a couple of weeks make. Since my last blog post, the governor of the State of Oregon, Kate Brown, has issued the following executive orders:

Executive Orders from Oregon’s Governor

  • March 12th – Bans large gatherings of more than 250 people for at least the next four weeks. Schools are to be kept open except for non-essential group gatherings.
  • March 13th – Directs all Oregon K-12 schools to close starting March 16th through March 31st.
  • March 16th – Bans groups larger than 25 and limits restaurants to carry out and delivery orders only.
  • March 17th – Orders public schools to remain closed from March 16th through April 28th
  • March 19th – Announces she will not be instituting a shelter in place order for the state.
  • March 23rd – Issues a detailed “stay home” order prohibiting any social or recreational gatherings outside the home of any size in which people do not remain at least six feet apart. It also prohibits non-essential businesses from operating.

What a dramatic and unprecedented list of executive orders by the governor! And the governor of Oregon is not alone as many other states are following the same course of action. As a result, national unemployment claims this week skyrocketed to 3.28 million from the week prior of 282,000.

Impact of Eviction Ban for Non-Payment of Rent

In an attempt to help renters, the state legislatures for Oregon and Washington have issued statewide eviction bans for non-payment of rent. The ban does not require proof or notification of the inability to pay due to COVID-19 related causes.

The direct impact to owners of apartments, retail and office buildings will be dramatic. Rich Miller is the Managing Director of Affinity Property Management, a property management company headquartered in Portland, Oregon. In a March 23rd online webinar on how COVID-19 will impact commercial real estate, Mr. Miller estimated a “30 to 50% delinquency rate” in April’s apartment rental payments. And if that actually occurs and does so for a few months, apartment owners are going to have a difficult time paying their mortgages.

Forbearance Agreements For Mortgagees

As a result, the COVID-19 outbreak has triggered forbearance help from Freddie Mac, Fannie Mae. How does that work you ask? A mortgage forbearance agreement is made between the lender and the delinquent borrower. The lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his payments. Hopefully other lenders will follow Freddie Mac and Fannie Mae’s example and offer borrowers mortgage forbearance agreements.

Impact on Lending

So let’s look at the implications of delinquency rates in the 30 to 50% range. Not only will borrowers have serious difficulty paying their mortgage payments without a forbearance agreement, lending as we know it today will cease until things return to normal. You think not? How will lenders underwrite and size a property’s loan amount? They will have to include a significant delinquency rate that heretofore has been negligible. Even a 10% delinquency rate will have a significant impact on lowering the loan amount. Here’s an example:

In this example a typical loan with a 5 percent vacancy rate results in a loan amount of $2,687,000. A loan including a 10% delinquency rate lowers the loan amount to $2,167,000 a difference of $520,000. Ouch!! As a result of this one change, lending as we know it will temporarily stop. Lenders will become more conservative and rates will likely rise.  So things are not looking so good for the real estate market for the time being.

Is now the time to buy CRE?

This reminds me of the well-known quote by Warren Buffett. “I will tell you how to become wealthy,” he said. “Be fearful when others are greedy. Be greedy when others are fearful.” It’s no exaggeration to say that people at this moment in time are fearful. Now would be an excellent time to take advantage of this real estate market, don’t you think?

In the period of a few weeks, the real estate market has gone from a seller’s market to a buyer’s market. If I had cash sitting on the sideline, now would be the time to find a fearful seller and see what bargains I could conjure up. A few months back there were seller’s who were spurning reasonable offers for their for-sale listings. I bet their attitudes have changed or will change very soon.

Those are my thoughts. I welcome yours. What do you see coming down the road for real estate?

Sources: Read Oregon Gov. Kate Brown’s new executive order, The Oregonian/Oregon Live,, March 23, 2020; Office of the Governor State of Oregon Executive Order No. 20-12,, March 23, 2020; Mortgage Forbearance Agreement, Investopedia by Julia Kagan,, March 20, 2020.