Commercial real estate had been on an amazing run. The industrial and multifamily sectors, especially, had been thriving across the Midwest. CRE pros were predicting that 2020 would be another boom year for commercial real estate.
That all changed in March, of course, with the COVID-19 pandemic sending U.S. cities into shutdown mode. Governors across the country have ordered bars and restaurants to suspend dine-in services. Schools have shut down, perhaps for the remainder of the academic year. The federal government has declared a national emergency, and everyone’s hoping social distancing helps flatten the curve of COVID-19 infections.
This begs a big question: What will happen in the commercial real estate business, and the economy in general?
DJ Effler, executive vice president in the Columbus, Ohio, office of Bellwether Enterprise, said that the real challenge is that no one knows how long it will take before the virus’ spread is halted. That uncertainty plays havoc with the economy, which will, of course, bring some pain to all sectors of the commercial real estate industry.
“These are unprecedented times,” Effler said. “Things are changing every single day.”
The good news? There is some. Effler says that the commercial real estate industry – like the country – will get through these frightening and uncertain times. The commercial real estate sector was thriving before the COVID-19 pandemic hit for a reason: People had confidence in it. That confidence will return once the current crisis ends.
It’s just a matter of adjusting and responding to the challenges that the virus presents before the crisis passes.
Consider the multifamily sector. It has been on a roll for several years, with new apartment developments popping up in downtowns from Minneapolis to St. Louis and Omaha to Des Moines. And when these projects have opened their doors? They’ve filled up quickly, as a growing number of renters flock to urban living.
But the COVID-19 pandemic will certainly cool even this sector, Effler said.
“If people think the multifamily sector is immune to this, that’s just wishful thinking,” Effler said.
Consider the challenges that tenants might face. Many of them have been ordered by their state governments to stay home. Those that work in the service industry can’t work from home and can’t work in the bars and restaurants that have been ordered to suspend dine-in service.
How, then, will these people make their monthly rent payments? As Effler says, many Americans today are operating without much of a financial safety net. How many rent payments can they afford to make before running out of money?
And if they can’t make their rent payments, what happens? Will the federal government step in and provide some form of relief to those who can’t work? And what will happen to apartment landlords and owners who might see those monthly rent payments come in more sporadically?
Effler said that he expects the federal government to come up with some sort of financial protection for struggling tenants. The question is how fast this relief comes.
“Tenants are going to come under a lot of pressure,” Effler said. “A lot of them can’t work because they are under government-ordered sequestration. How do you protect those people who are only following the rules laid out by their government?”
Then there are the shorter-term issues that apartment operators are now dealing with. As Effler says, operators must determine how they can continue leasing units when people-to-people interaction is being discouraged throughout the country. They’re trying to determine how they staff their buildings.
What should CRE professionals do to get through these difficult times? Effler recommends that they focus on communicating with their clients. That’s the strategy Effler and his fellow staffers at Bellwether are taking, he said.
At Bellwether, this means frequent conversations with capital sources, listening to what they are going through in real-time. That’s followed by frequent phone calls to clients, relaying that information back to them.
“My day-to-day right now is all about communication,” Effler said. “We are having conversations with capital sources and clients all day, every day. We want them to know that we empathize with them. We are all in this together. No one is immune to this. We are going to communicate with and work with our partners to find solutions. It’s about over-communication, real-time communication.”