COVID-19’s impact on tenants, landlords and brokers
By Jonathan Kingsley and Stephen Rutchik
The commercial real estate industry was relatively unprepared to manage the COVID-19 crisis. Landlords, tenants, property managers and brokers have honed their skills and protocol with regard to natural disasters and terror attacks, but a worldwide health pandemic was in very few catastrophe plans and playbooks.
Fortunately, we are a resilient and flexible industry. In prior economic challenges and recessionary periods, the commercial real estate industry has proven it can mobilize quickly and in full force to deal with, correct and plan more effectively for unforeseen challenges than ever before.
There are three essential areas in which our team has focused on behalf of our landlord clients:
Real time advice to clients backed with data
As in any competitive business environment, landlords want to know what their competitors are doing and how to deal with requests for rent relief and/or tenant defaults and potential bankruptcies. Our team’s immediate response was to provide our current and future landlord clients with as much credible data as possible to set an expectation for what they might experience with their tenants. Likewise, we have been consistent in our outreach and in our response to tenants to make sure they were aware of the government assistance programs as well as any landlord-provided assistance that might be available to them.
We also assisted in the development of a fair, consistent process for tenants to request rent relief; the process included requirements consistent with a simple credit or loan application. This alleviated some of the financial concerns among tenants (i.e. “…am I qualified to receive some relief and will my landlord work with me to get through this crisis?”) while also providing a coherent, fair and organized approach to deal with each tenant’s concerns while denying tenants who don’t meet the requirements. Landlords would be expected to provide the same information to their lenders if/when asking for relief and tenants should remain accountable as such.
Focus on maintaining, increasing occupancy and rents
Our landlord clients engage us to focus on two primary objectives; increase occupancy with quality tenants and maximize their returns on the investments. Admittedly, in this period of economic downtime, both objectives have become more challenging than under normal market conditions.
However, we advise our clients to maintain focus on these primary objectives. There are deals to be made and there are tenants who are ready to engage. To that end, our team remains focused on working with existing tenants—some of whom are able to trade an additional lease term for a short term rent relief—in order to ensure that the landlord’s rent roll remains healthy. Simultaneously, we are focused on identifying the population of tenants who are sure to require more space in the upcoming recovery stage of the pandemic, such as insurance companies, health-related staffing companies, financial assistance firms, education/vocational school tenants and government agencies.
Now is not the time for landlords and their brokers to sit idle as the pandemic evolves; it’s absolutely time to start planning for the recovery and to stay ahead of the natural pace. The more proactive and creative the real estate advisor/broker, the more likely their landlord clients will survive and potentially thrive as the economy goes through recovery.
Develop the playbook for the future
While we remain focused on getting through COVID-19, there is a good chance that another pandemic or similar catastrophe will strike the U.S. and the world again. The experience and knowledge we are garnering every day throughout the cycle of this pandemic are providing very valuable guidance for the future.
Much like the outcomes of windstorms, brush fires and acts of terror, the best time to prepare for a repeat event is while you emerge from the catastrophe. As an industry, it will be necessary to change certain protocols in terms of access, employee density and day-to-day sanitizing of commercial buildings and spaces. What we learn from today’s pandemic will absolutely position our team and our clients for a more streamlined and less costly experience in the future.
The most successful landlords typically have a plan (and a back-up plan to the plan) in place. We remain at the forefront of assisting our landlord clients with the most innovative and data driven information to ensure that future losses are mitigated, and that recovery is fast and efficient.
This approach remains a work in progress and is always subject to adaptation to changes that may occur from one crisis situation to another. By expanding our roles as client advisors, providing real time data, developing sound, objective approaches to dealing with tenants and maintaining focus on increasing occupancy and rents, we are confident that our landlord clients will recover and prosper more quickly than anticipated.