President Trump extended a moratorium on evictions of tenants through to December 31, 2020 this past week. It’s not as comprehensive as the one extended by Governor Gavin Newsom, but as it applies federally, the impact will be felt everywhere. The California moratorium allows tenants who have been negatively impacted by COVID19 to pay only 25% of their rent in order to keep their units, and the balance is then converted from a “rent due” to a consumer debt that a landlord must sue to recover.
The California law is important because it allows tenants to find a way back to financial balance, assuming they can find work, and get caught up on their other bills as well. This is definitely a win for the tenants, and probably a boon for the bankruptcy lawyers who will be saying that the back rent due should be discharged in bankruptcy. I don’t know if the courts would allow that, since the counterargument is that the tenant received the benefit of housing which is arguably a ‘necessity of life’ and may not be dischargeable. Imagine though if all that back rent is discharged.
How will that impact the landlords who right now are struggling to pay their mortgages while they are receiving drastically reduced, or in some cases eliminated, income. They will be filing for relief in the bankruptcy courts themselves in order to reorganize their debts. Will that impact property values? Most certainly. As the pool of distressed properties grows and come on the market for sale, that means that prices will start to drop, that can trigger lines of equity to be called on borrowers, who are then faced with coming up with large sums of cash, or they will have to liquidate their properties.
Banks will be impacted by this domino effect of lost revenue, which is the lifeblood of our economy. As banks have to foreclose on properties and take them into their inventory, that means they will be experiencing losses, which lead to job cuts, increased holdings of devalued properties which they must then sell in order to keep their monies on hand high enough to satisfy the federal regulators. That means that even more properties will be sold at lower prices and now we have a downward spiral.
What does this mean for Santa Monica? It’s already begun here. You may have noticed that there are many open stores on the Promenade. Sur La Table is having a going out of business sale due to the shutdown and the transition to online shopping. The number of For Lease signs are multiplying along Wilshire Blvd like rabbits. The loss of both foot traffic due to the stay at home orders and the transition to online shopping means that it’s more and more difficult for a retail shop to survive, which translates into lost revenue for the commercial property holders and that whole downward spiral is at play for them as well.
There is a great shakeout coming in both residential multi-unit apartment buildings and in the commercial real estate market. We are going to have a resetting of the economics of our city, state and country. The City of Los Angeles is furloughing 18,000 employees due to budgetary constraints. They will not be the last of the furloughs I assure you. The County and the State will have deep, deep cuts in employment numbers. These are people who are not easily retrained, they are not entrepreneurial by nature and they will now be faced with having to support their families and homes with few resources.
Is the latest move by the President necessary? Yes. Is it a long term solution? No. It’s a kicking the can down the road, in the hopes that with his re-election, and a possible vaccine, the economy can recovery enough to salvage his tenuous hold on history.
The reality is that many people have lost life savings, retirement savings and the losses have not stopped. We have a long road ahead of us, with even greater obstacles to overcome. Is there a recovery in our future, of course, will some people make fortunes because they can adapt, pivot and reorganize their life, yes.
The question for each of us, and our city, is this: It is inevitable that we must adapt, pivot and recover, but how?
David Pisarra is a Los Angeles Divorce and Child Custody Lawyer specializing in Father’s and Men’s Rights with the Santa Monica firm of Pisarra & Grist. He welcomes your questions and comments. He can be reached at firstname.lastname@example.org or 310/664-9969. You can follow him on Twitter @davidpisarra