Coronavirus - Commercial Real Estate

[Bill Horton]

CORONAVIRUS IS AFFECTING COMMERCIAL REAL ESTATE

We have an office/retail building and our retail clients are having a difficult time with the shutdowns related to the coronavirus.  Two businesses have closed their doors until further notice due to lack of customers, and the obvious public health reason. We have discussed a moratorium on rent payments, with a plan to amortize the skipped payments over the remainder of the lease.  

I'm curious, has anyone else done this yet? Or are their other options out there that we are not thinking of?  We haven't signed anything yet, but will likely write up an addendum to the lease with hard deadlines and repayment plans.  

[Joe Splitrock]

I believe there is a crash coming for commercial real estate. 

Companies are adopting work from home policies out of necessity. They will learn that having having large office spaces is not necessary to run a company. I expect even after this ends that companies will move to downsize office spaces and shift to more work from home. This will greatly reduce the need for office space. As far as bar and restaurant, many will be unable to pay rent as they are partially or fully shut down. Retail is an even bigger concern. The shift from brick and mortar to online has already been happening, this is just going to speed the transformation. Many retailers that have shut their doors will never open again. Consumers will not go back to the stores after discovering more convenient ways to purchase goods. Some will survive, like Target and Walmart, but small boutique retailers face challenges on a good day.

Ultimately businesses are going to start asking for rent concessions, lease breaks or they will just stop paying. I think negotiating the lease payments to be back end loaded is a good idea, but keep in mind some people may agree to this and ultimately just walk away from the lease.