Eric Freeman (00:00):
Thank you. Happy to be back and get more information out there.
Ken McElroy (00:03):
Yeah, there’s a lot of confusion right now. And so as you guys know, Eric’s a CPA. He has his master’s in accounting, uh, his firm Beach Fleischman does our tax returns. Most of them. We have what over a hundred. I think that you do right? Or keep us busy. Yeah. Yeah. So our firm, uh, we do, we do about a hundred tax returns with all our different real estate deals and our land deals and all that kind of stuff. And we meet with them quarterly. And by the way, if you guys don’t do this, you really should we meet with Eric face to face? Well, maybe not now, but quarterly. And we go over a tax planning and it’s a, you know, it’s a, it’s a very important day. We make a lot of tax moves that, um, um, but honestly, I, you know, I would never know about, you know, an Eric spends his time, you know, educating his clients and, and, and making those moves. But for today, Eric, what I wanted to talk about was this big confusion. You know, over rent or mortgages and like do do people need to pay their rent and their mortgages because you know, as you know, we have 7,000 residents and they, you know, living in an all our apartments and I’ve been talking to all my friends, you know that on commercial and they will, they will offer see on retail they are industrial and, and there’s all this confusion on the mortgage side and on the red side. Right,
Eric Freeman (01:26):
right. Yeah, it’s a great, it’s a great question because there’s so much misinformation potentially going on out there. So first it’s important to understand that a lot of what’s coming out as far as the rent and mortgages, the purpose is to assist people that can’t otherwise make their payments because of a Covid-19 issue. Whether it was that you’ve actually been tested positive for Covid-19 or you’ve been told to self quarantine because of being in contact with someone with Covid-19 or maybe you’ve lost your job or you’ve received reduced hours because of the business that you work for. Maybe it’s a restaurant or another retail type business that can’t operate right now due to, um, the various government restrictions going on. So that’s the purpose of these various mortgage and, um, rent forbearances. So the purpose is not to just like blanketly not pay because ultimately at the end of the day, we have to keep as much of the economy going as possible. Um, so first, you know, I’ll touch on the, the rent, that’s a big one. Um, rent, if you’ve been affected, the governor came out with an executive order, I believe it was last week, um, for residential, um, tenants that if you’re affected by coven 19, then you can request from your landlord, uh, a rent forbearance. And that mean that you’ve never pay the rent. It means that you can put off and defer that rent payment to give you enough time to get on your feet.
Ken McElroy (03:09):
And that’s, that’s just an Arizona, by the way. I mean, I know that some of these, it’s confusing because there’s different things happening in each state, right?
Eric Freeman (03:17):
Yes, exactly. And they’re all kind of happening. Um, it’s changing daily. And so even within our state, something may come out one day and then the next day it completely changes. As, for example, the list of essential businesses. We had a list originally and then, and then it came out and now we’ve, we’re closing the hair salon and then everything else. So it’s hard to keep up with everything that’s going on. But in general, if you’re still working, you’re still getting an income, you’re able to work from home. Um, then these, those types of rent, forbearance and, and the mortgage is not meant to apply to those types of situations.
Ken McElroy (03:56):
What’s interesting is we just had it, you know, every, every Tuesday, which is today, we have an hour and a half meeting with our whole leadership team. And, um, our COO, you know, is basically reporting on a daily basis, you know, April 1st rent collection. You know, cause we honestly, we were like, Oh, we don’t know and this all kinda hit everyone in March. We’re thinking, okay, well, March is paid, but you know, we don’t know is, you know, who’s going to pay in April? And, and the misinformation out there that we’re hearing at the property level is high. You know, some people are basically saying, well, I just heard that I don’t have to pay it off. You know, that’s their position. Right,
Eric Freeman (04:33):
right. Yeah, it’s very difficult. And I think as we progress, I mean, April 1st was scary, but May 1st is probably going to be [inaudible].
Ken McElroy (04:45):
Yeah. That’s actually what we’re mostly concerned with. What’s interesting, I’ll just give you a number. We collected 85% already and it’s April 6th today. And um, you know, rents were due between the first and the third. And, and so we felt very good about that. You know, we have some properties that are very delinquent and some that are, it’s in fact, Ross was telling me today though, our all our senior properties, you know, we have no delinquency. And I said, well, why do you think that is? He goes, well, the casinos are closed. And I don’t know if that’s the case or not, but, you know, it was an interesting spin on it. But, um, you know, it’s, it doesn’t, it’s obviously this is a national issue. This is an issue that affects a lot of people. And so it doesn’t really matter, you know, how much you make or where you worked or anything like that.
Ken McElroy (05:35):
A lot of this is it’s affecting everyone. And, and so the, from a landlord standpoint, you know, we have a, um, a plan that all people do gotta do is sit down and talk to us and then we work with them on a, you know, on a, on a payment plan. A lot of people have been doing that. Um, but very, very few have come in and say, Oh, we don’t have to pay it all. You know. So it has been a massive education process. You know, just on the rent collection side, you know, they’re the, you know, they are in a lease and, you know, they do all the money. Uh, we’re just trying to help do our part, you know, on letting them live there, um, at a much, much reduced rent and, and, um, and not have to displace anybody from their homes. You know what I mean?
Eric Freeman (06:19):
Yeah. I mean, I think, I think that’s a good message because ultimately I think we all essentially have to work together because if, if you’re not able to collect rent, I mean, those rents go to pay expenses that you’re obligated to as well. I mean, you’re, you’re on the hook to a bank. You’ve got utilities that are going to get paid so that, you know, they still have water and electricity and everything like that. And, um, and yeah, you may have some options to, to try and get a little relief from the bank just like they do, but at the end of the day, you’re still on the hook. Um, even if you don’t make that payment this month, you’re going to have to pay it next month.
Ken McElroy (06:56):
Well, we’ll, we’ll get, we’ll get to mortgages in a minute. I, you know, cause to me that’s like, that’s exactly where my head is, right? If I don’t care, I don’t collect the money from the residents that live in our properties. I’m certainly not gonna be able to make the mortgage, but before we go there, uh, you know, it’s interesting. I, I have a lot of friends in commercial real estate. I have friends that own office buildings and actually I’m, I’m an investor in that building and, and um, you know, uh, self storage and you know, some retail retail, retail’s getting clobbered. You know, I, I’ve got friends, you know, there’s a massive, there’s a big, big firm in Arizona and I won’t mention the name and they own 25 shopping centers and they’re collections our 10%, they have 90% delinquency. Do you think about that?
Ken McElroy (07:47):
Okay, well, right, so again, and I talked to a friend of mine yesterday, he’s, he owns a place in Mesa and Arizona and he’s got 14 tenants. And I said, how you doing? He’s like to have paid. And, and I said, who, you know, who, what ones haven’t? And he said, well, I bridal shop, there’s no weddings. You know, they haven’t paid, you know, a dentist they haven’t paid, they’re not, you know, working on antibody, the restaurant’s closed and you know, you just went through this whole list. And I mean, I was like, wow, like of course, you know, they’re, they’re not gonna be able to pay rent. You know, they’re not, they don’t have any customers. And so what I want people to know is that this red payment stuff, it’s, you know, what’s getting a lot of focus is this residential piece. But really the big, big issue is going to be on the retail and commercial. You guys have no idea. You know, those, there’s not the money to come in to pay for April, may and June rent. Um, you know, they don’t have it. And so they’re not going to, we’ll pay these mortgages and they sold the EAs lot of real estate, commercial real estate, I think. And potentially apartments are gonna eventually moved their way back to the lenders if we don’t get some kind of protection.
Eric Freeman (08:59):
Yeah, I, and all of those instances aren’t uncommon. All the, all the commercial clients that I’ve dealt with are in the same position where, um, tenants aren’t paying. And, and a lot of it’s the uncertainty, um, because we just don’t know how long all of these one government restrictions and everything else are going to last and when they’re gonna be able to open. So, um, in order to, to conserve cash, they’re not paying, I mean, you stop big companies like cheesecake factory came out with publicly that they’re not gonna pay rent on anything. And so that’s just kind of the state of the economy. And as people continue to be out of work as a result of these businesses not operating. Yeah. That’s going to trickle into residential right after. Um, probably a little, a little bit of a delay, but I mean we’re, we’re going to be at a point where we’re collections are definitely going to take a hit more so than they are for April.
Ken McElroy (09:54):
Oh yeah, for sure. I mean, I’m, you know, if, if you own a center that has cheese cake factor in it and they’re a big tenant and a big payer, and I’m sure they are, you know, we’re just fine before this. And, and, um, you rely on them, you know, [inaudible] these are longterm leases. The interesting thing on the, um, you know, what’s going to happen is what’s already happening is
Ken McElroy (10:17):
everybody’s going to pull these agreements out. You know, they’re going to be pulling these lease agreements out, they’re going to pull the rental agreements out. And, and though the banks are going to be pulling these loan agreements out, and the lawyers, they’re going to have a heyday on this because, uh, you know, the money is not coming in. I mean, if, if somebody is not getting paid, you know, as an employee, you know, they’re not going to go to cheesecake factory and eat and then they’re, you know what I mean? It just trickles all the way up to the person who owns the actual shopping center and then they can’t pay the bank. And so, you know, this rent thing, you know, it’s, uh, it’s, it’s unfortunate. I mean, you know, these, there’s a lot of people that are hurting right now and I get it. I, I, you know, but if, if these are, these agreements are going to come out and these personal guarantees and all these things and collections are going to be an issue for people and, you know, credit scores and all that stuff is going to be, um, tested here, you know?
Eric Freeman (11:12):
Yeah. And a lot of these agreements, um, loan agreements, I mean, there’s requirements for certain occupancy and, and rent collections and all that. And pretty much, I mean, a large majority almost all are probably gonna start hitting those. And the times when, when it’s bad is when the banks, and start looking at those now.
Ken McElroy (11:34):
Yeah. Oh, there’s, trust me guys inside of these loan documents, there’s a lot of, lot of detailing. And so for us, our occupancy time, but our collections the same thing. So, so anyways, so that’s on the rent. I think it’s important for people to know that, you know, as you know, there’s, there’s, um, uh, the, the rent is still do, you know, you can’t live somewhere for free and expect it to be free from, you know, somebody and, and so, you know, just do your best to work with the landlords or communicate with them the best that you can. Everybody’s hurting in this, and we’re all in this together. But let’s, let’s jump to the mortgage side because, you know, one of the things that we did as we, we, uh, we got on the phone with, you know, all our, our, all our guys that are hail our mortgages and there, um, they’re basically, you know, there’s all this forbearance word being thrown around, you know, and I know you’re going to talk a little bit about it, but, you know, we got on the phone with them and they said, listen, you have to prove, you know, that you’ve been affected.
Ken McElroy (12:36):
And you know, this is like two weeks ago, well, we didn’t even know when April rents were going to be. Right. And so now we kinda know, you know, um, you know, what’s happening, but we don’t know what’s going to happen in may or June. And so this, you know, this forbearance issue is, is yeah, it’s for us. We, there’s no money available because they’re like, well, you know, you have to show that you can’t pay, you can’t pay. Right. And, and, and so basically we’ve just kind of shelved it for now as we kind of navigate everything. What are you seeing on the mortgage side with some of your clients?
Eric Freeman (13:11):
I’m, I’m seeing exactly what you just mentioned. Um, both on the residential, well on the, on the commercial side for sure. I mean, people are getting the same message from their bank saying, yeah, you, you received the March rent, which is meant to cover your April 1st payment. So we’re not going to do anything at this point. We’ll check in later. Uh, and see if you’re affected. On the residential side, there was part of the, the cares act where, um, for residential mortgages that are federally backed, that you’re supposed to be able to request from your bank 90 days. Um, for Barron’s, um, being the word that they’re using. Um, but what people don’t realize is that at the end of 90 days, banks have the option to either have you pay in a lump sum. Those not 90 days worth of payments plus the payment that’s due at that time or some of them may spread it out.
Eric Freeman (14:13):
But what I’m hearing from people that are actually reaching out to their banks as most are asking for a lump sum at the end of the 90 days. Oh wow. So, um, that makes it pretty difficult because if you’re, if you’re out of a job or something else and you, you don’t have any income for these 90 days, we’ll hire, how are you going to have, have four months worth of payments, um, request an additional 90, um, at the end of that period. But again, it’s all the banks still going to expect it to be repaid. And, um, at this point I think it’s a little unsure whether what kind of late and things they would charge. I mean, hopefully, hopefully they’d be a little easy on it. But, um, really it’s up to the banks as far as the late fees. I don’t believe there’s any requirement, um, for those to get waived. Um, and things like that. And credit reporting, I mean, yeah, I mean things are likely still going to be reported to, to the credit agencies,
Ken McElroy (15:12):
right? Right. So if you got a two or $3,000 mortgage a month and you kick it down the road, you’re, you’re looking at, you know, eight or you know, call it eight to $12,000 lump sum that you’re going to Ole at some point in the, you know, who knows when you’re going to get your job back. And you know, obviously if you’re going there to get forbearance now, uh, that’s interesting. I don’t think I knew that. So, so the banks really have a hammer on, on the landlord. They’re on the homeowner. I mean, you know, they’re just basically going to say, Hey, sorry, you will oldest in a lump sum. That could happen. Right,
Eric Freeman (15:47):
right. I mean, that’s, that’s what it is right now. And even more difficult than that is the volume that they’re dealing with right now. Um, my understanding is it’s pretty difficult to get them demon, get someone on the phone to get this going in the first place. Um, you’re talking about hours to get in touch with them and then, and then you’re finding out the have to make the payments anyway, which I mean, in a way makes sense. I mean, you’re, you’re not just forgiven, um, these amounts, but you know, and things are changing daily at this point. So whether, whether there’s some other kind of assistance that may come out, should this continue to last for another few months? Um, it’s possible. I certainly wouldn’t expect it at this point. Um, but you know, it’s possible.
Ken McElroy (16:34):
Yeah. So I’ll tell you what Eric, thank you by the way. Yeah. The, the, on the commercial mortgage side, it’s super confusing and you know, they’re throwing it on the back end of our, of the loan. But, um, you know, it’s, again, it’s still do it. It’s not, uh, it’s not forgiven. Like, you know, kinda like we were talking on the rent side. So, you know, as things change, you know, what we should do, Eric, is we should jump back on here and just keep communicating to everybody as, as these laws change. So maybe, uh, maybe in a couple of weeks we can jump back on and kind of update this cause as you said, every single day, like just yesterday, uh, we had a new executive order that covered commercial, you know, and, um, you know, that that wasn’t included in there in the original one. So every day new stuff comes out in every state and, uh, maybe, um, maybe we can communicate this a little bit more to help people navigate through it.
Eric Freeman (17:28):
Yeah, I think that would be a great idea.
Ken McElroy (17:30):
Right. Great. Well thanks. This was a great topic, Eric. I know we got two more topics guys. We’re going to talk about, you know, if you’re an employee, you know, what are your options and the other one is a, if you own a business, what are your options? So, uh, stay tuned. Eric, thank you so much. As always. I appreciate it. Thank you. Stay safe. Yep.