We mentioned this in a post last week, but our internal view (humbly) is that we will see a short term negative impact from Covid-19 (especially to the most at-risk industries like travel) but should see a mid-term bounce (hopefully) and long-term positive effects due to less reliance on China and supply-chain concerns this whole thing has raised. That doesn’t solve for the uncertainty and challenges we’re seeing today though…and commercial landlords are nervous.
To be fair, the business community (tenants) are far more nervous and that is really the crux of the issue for Landlords. We’re hearing across the spectrum from owners, developers and leasing professionals that their deals are in a holding pattern until this initial wave of “what if” brought about by the virus settles. JLL lays this out in detailed fashion by sector, suffice to say every stakeholder is (or is going to be) impacted.
The Virus itself? We’re not qualified to predict what will happen from a health standpoint so we won’t. There are amazing resources being produced by the greatest medical teams on earth, we’ll refer you there.
For businesses, the concern is that short-term cashflow may be impacted by dwindling sales and shutdown affects. This makes signing a new lease, expanding or even renewing deals a major concern. Bisnow predicts deal volume in Europe is about 20-25% down, they’re roughly 2 weeks ahead of us from a virus standpoint.To be clear, we don’t anticipate businesses shutting down en masse, but a short term cash pinch can be a real issue and general nervousness puts deals in the freezer. As most CRE professionals will tell you, “time kills deals,” so here are some solutions to help close gaps.
Here are the best ways a Landlord can mitigate risk, reduce spending and encourage solutions in today’s environment:
Renovation projects and non-essential capital projects should be paused for now.
That cash on hand needs to be ready to deploy to close the gap on tenant allowances (amortizing overages in allowances that normally would be paid by the Tenant).Closing the gap on out-of-pocket cash is essential right now, Landlords are going to need to take on more risk to get deals done.
Assess financials with a long-term view of the business, not a snapshot.
This virus and its impact are real and businesses are facing short term risks to cashflow. Don’t kill a deal because you’re concerned about projecting the impact of the virus on their business. Look at businesses with history with a fair lens…if they have history they’ve likely weathered a few cycles. Now, if they’re brand new? Look at alternative solutions to closing the gap on deals, like reducing TI allowances and swapping that for free rent.
Those of you with access to debt, start talking with your financiers.
Risks to businesses trickle right into your projections. With interest rates near zero if you have a long history with your financial institution start the process of considering refinancing or cash-out options to give you advantage in the market. Rates are historically low, essentially near zero. It’s a fantastic time to leverage up if you can make it happen, taking advantage of these rates to help you close leases or selling off assets while cap rates are still strong is a plus. Got cash? Start shopping, the market is ripe for purchasing equities, REITS and properties that may be distressed in the near-term.
Consider those efficiency and software upgrades you’ve been putting off.
Got a couple weeks with the kids home from school? Now is the time to consider or trial that new CRM, accounting management tool or tenant experience app. With everyone taking a breath, do so too and evaluate your properties and portfolio’s technical health. Can you gain profitability, time, effort or other savings from adding technology to your stack? Let’s find out.
We believe these three strategies are smart, they helped us and our partners (albeit in another life) survive 2008-2011 and get stronger. Our new venture, Otso, is built to help Landlords close the gaps on leases (which is more essential than ever). Leverage our program to offer your buildings “deposit-free” while replacing risk with a AA-rated guarantee from us.
That’s right, take less risk while requiring less up-front capital from your prospects and existing tenants with new deals or renewals. At minimum, use our exclusive financial assessments to get businesses assessed and approved faster than ever before. Otso is here and we’re ready to help.
Last note, if you have any free time as a result of this or free capital you don’t plan on deploying please consider helping our most at-risk communities. Food banks, child care and deliveries to those in need can make a real impact for some of our most challenged citizens, you can find out more ways to help below. This virus sucks, but we can beat it by showing resilience, diligence and kindness. Oh, and wash your hands! This too shall pass…
Helping Small Businesses Right Now
SBA Disaster Assistance PDF (Download)