The Impact of Equifax Hack on Commercial Real Estate
Who is Equifax and What Happened?
Equifax Inc. is a consumer credit reporting agency that collects and aggregates personal information of individuals and businesses worldwide. They are one of the four credit bureaus that rank’s a person’s worthiness to receive credit, for things like car loans, mortgages, credit cards or sometimes even services such as telephone, cable and, in the US, even health.
Equifax became aware of a security breach on July 29, 2017. Personal data including birth dates, credit card numbers and more were obtained in the breach. On August 1st and 2nd, three Equifax executives sold shares in the company days after the breach, however, they state they did not know about the breach. On September 7, 2017, Equifax reported that up to 143 million Americans (more than 1 in 2 adults), plus as many as 44 million people in the UK, along with 10,000 Canadian Automobile Association (CAA) subscribers in Canada that have dealings in the U.S. were apart of the security breach that occurred over the summer.
What does the giant Equifax credit hack mean for commercial real estate?
The Equifax hack is big news. Millions of credit files and personal data on hundreds of millions of individuals appears to have been stolen by hackers. Some cybersecurity experts pose that this could extend to Equifax’s entire database. Not just the 143M originally revealed. The company’s CEO is expected to testify in October 2017, amidst investigations by the FTC and other organizations. Concerns are that there is even bigger fraud and scandals under the surface.
What will the impact be on commercial real estate?
The biggest concern is over the negative impact on personal credit, and identity theft. Americans, Canadians, and Brits could all be impacted. This could mean diving credit scores and limited ability to use and obtain new personal credit. Retailers and banks also need to be ready to deal with an elevated number of chargebacks and customer service calls.
Commercial real estate landlords need to be looking at the potential impact to tenant credit reports. Individuals who would normally be signing personal guarantees may not have the credit scores and history they once did, out of no fault of their own. As Equifax also maintains and provides business credit reports, some organizations may also be impacted. Landlords may have to lower the bar to account for this unique situation.
We may also see a spike in commercial real estate investment in the wake of the Equifax hack. The impact on personal credit could hurt the condo and single family property market. Qualified buyers may be far more scarce, and that will affect ability to finance residential property investments and demand as well. In contrast, it can be far easier to get business credit and commercial mortgage loans, especially for new entities which haven’t been impacted by the hack.
The Equifax hack is unprecedented and could have far greater and widespread consequence than expected. Anticipate new regulations, a change in overall credit quality, and shifts in the types of investments most in demand, and how they are financed. Savvy commercial property investors and asset managers should be able to skillfully navigate the period ahead, by looking deeper into the data, selecting the right tenants, and correct positioning for attractive exits.