Sector developments and company hires

Pandemic ‘feedback loop’ highlighted
Secular changes affecting the recovery of in-person office occupancy in New York City is consequential not only for property-level cashflow, but may also have ripple effects on other sectors, Fitch suggests. The city is the largest US office market and the rating agency says it provides a good case study of the potential feedback loop of pandemic pressures on office demand, which has ramifications for mass transit, outmigration and the city’s budget.

In particular, the pandemic is causing unprecedented stress on ridership revenues for broader New York’s metro mass transit systems. Weaker financial profiles could limit capital investment available for system maintenance and improvement, resulting in lower service quality and reliability levels that reinforce remote work trends, according to Fitch.

Meanwhile, the decline in property tax revenues - the largest source of the city’s revenues - due to the drop in property assessed value is expected to be offset by other tax revenue growth, particularly personal income and sales taxes.

Fitch’s base case expectations incorporate secular headwinds of potential entrenched remote working practices and outmigration that negatively affect office fundamentals. “These pressures will result in uninspiring, below-average occupancy gains and net effective rent growth in the next upcycle. Rated NYC office REITs likely will not see positive same-store NOI growth until 2022,” the agency notes.

However, it expects rent collections to remain resilient, as tenants have maintained operations and typically have long-term leases.

For CMBS transactions, Fitch says it is most concerned about office properties with binary risk, concentrated or near-term rollover, or tenancy at risk for greater space reduction. The agency anticipates property performance to become increasingly bifurcated by quality, with Class A space outperforming Class B space.

In other news…

North America
Ocorian has strengthened its Americas capital markets team with the appointment of Ed O’Connell as head of transaction management - Americas, based in New York. O’Connell has over 30 years’ experience in overseeing structured finance transactions, serving as primary deal counsel and general counsel for the issuance of over US$20bn of securities.

Prior to joining Ocorian, he was served as chief legal counsel - capital markets and svp at TMF Group. Before that, he was a partner in Jones Day’s banking and finance department.