The 19th annual Commercial Real Estate Forecast Conference took place during a grim time: Deaths continued to rise during the COVID-19 pandemic. A day earlier, mobs stormed the U.S. Capitol building. And many voters – and too many politicians — were still arguing that Pres. Donald Trump didn’t actually lose his reelection bid.
Danny Nikitas, principal with the Chicago suburban office of Avison Young, acknowledged all this, saying that he usually starts off his moderating duties with a joke. On Jan. 7, though – the day of the virtual conference – he said that this didn’t seem appropriate.
What Nikitas, the moderator of the conference’s State of the Market panel did, though, was talk about optimism. His fellow panelists did the same, stressing that while 2020 was a difficult, challenging and, at times, devastating year, this year has the chance to be different. Vaccines have been rolled out. There’s hope that in the second half of 2021, life will return mostly to normal. And that will be great news for the commercial real estate industry.
“This is Chicago. It’s vibrant. It’s resilient,” Nikitas said. “Landlords have spent money renovating office buildings. Maybe 100 percent of people don’t want to come back to work 100 percent of the time in the office. But no one wants to never come back to work. People want to get back to work in an office environment. Office real estate had a rough year in 2020. I’m optimistic, and, yes, maybe a little bit nervous, for 2021.”
Jim McDonald, market leader of the Great Lakes region for Ryan Companies US, Inc., said that commercial real estate professionals have plenty to be optimistic about today. Yes, 2020 was a tough year for many commercial sectors because of the pandemic. But vaccines are rolling out now across the country. They should provide the United States a way to escape the pandemic’s grip and get back to work.
This year, especially the second half of it, should see the U.S. economy start its recovery from the business shutdowns and stay-at-home orders enacted during the pandemic, McDonald said.
And for industrial real estate? Last year was already a strong one. This year should be even better.
“For us, 2020 was about managing the blows that were thrown at us by COVID,” McDonald said. “For industrial, last year was an awesome year. We saw success last year in large part because of industrial. Industrial was a haymaker for us, for sure.”
Last March was a scary time for commercial real estate professionals, of course. And McDonald said that for the first eight weeks or so of stay-at-home orders and business shutdowns, Ryan Companies worked hard to “get our feet under us.”
But after those first few weeks? Business accelerated for the company, and it did so quickly.
“We started to gain traction rapidly,” McDonald said. “Office slowed down, certainly. Retail is reinventing itself. Seniors housing is dealing with a myriad of COVID complications. But for industrial? We don’t see the runway shortening at all. We are excited about this year for the industrial market.”
Nick Siegel, partner for the Chicago region of Bridge Development Partners, said that 2020, despite its challenges, was a great year for his company. For the year, the Chicago office of the company leased just under 2 million square feet of space. Siegel said that this is a record for the Chicago office.
“It didn’t start out that way, though,” Siegel said. “In March and April, we were certainly nervous. We had a lot of questions back then. What we did during that 60-day period early on, though, was rely on some creative, differently structured leasing deals to stabilize some of our assets. We offered incentives such as a free couple of months rent to get tenants to sign leases during COVID.”
Once May began, though, Bridge Development saw a quick pickup in activity, Siegel said. And Siegel said that he expects this activity to only grow stronger throughout 2021.
“Everyone talks about Amazon,” he said. “But only 30 percent of our leasing activity last year was from Amazon. I was encouraged by that. We have a diverse market in the Chicago area. We have a lot of strong industries and tenants making up our market. We are resilient. We have a good manufacturing base. That can help us push through this.”
Brian McKiernan, senior vice president with CenterPoint Properties, said that CenterPoint was on track for a stellar year before COVID hit. Once the pandemic started making headlines, business did slow a bit. But even with the pandemic, CenterPoint remained busy. And by the time 2020 came to a close? CenterPoint was notching record business, McKiernan said.
“The fundamentals in the Chicago market are strong,” he said. “We are excited about the trajectory of the market and where we are going from here. The balance of tenants is as strong as it is anywhere. When I talk to partners on the coast, they are talking about Amazon all the time. But in Chicago, it is balanced. We see Amazon – who isn’t? – but we are seeing a nice mix of tenants, too.”
Jim Pape, group president, CRE West, for TCF Bank, said that he remembers when COVID changed everything. The beginning of 2020 was a strong one for commercial lending, he said. Then, two months later, Pape found himself sitting at home with no tie on, something that hasn’t changed since. In fact, Pape said that the Forecast Conference marked the first time he’d worn a tie in 10 months.
TCF Bank swung into action immediately as governors ordered people to stay home and imposed regulations on businesses, Pape said.
“As a bank, our concern is always our capital,” Pape said. “Like a lot of banks, we started calling our customers. We asked if they were going to move forward with the deals in their pipelines. We then worked any deal in our pipeline, making sure it closed. But it was suddenly a different world.”
Throughout the earlier days of the pandemic, TCF Bank lenders talked to their clients on a weekly basis, Pape said. Then the CARES Act was passed and PPP loans became available to businesses. That, of course, kept TCF Bank extremely busy.
“In past downturns, banks froze up,” Pape said. “That happened at first this time, too. Banks weren’t lending. They didn’t know what was going to happen when everything was closing down. But the CARES Act provided banks the ability to not have to use up their capital. We were able to give clients up to 180 days for deferrals on payments. That helped dramatically.”
Pape said that TCF Bank was concerned about multifamily rent collections. But those collections have remained stronger than anticipated, Pape said, a bright spot during the pandemic.
And the PPP loans played another important role in keeping businesses alive, Pape said.
“We were working every day to get those PPPs done,” Pape said. “I remember even on the Easter holiday, people were working, trying to get those loans done. That helped so much. We weren’t seeing collection problems from tenants because of those loans.”
Josh Graham, certified public accountant and partner in Wipfli’s construction and real estate tax practice, said that 2020 was mostly about doing whatever he could to help his clients’ businesses survive.
But 2021? Graham said that he expects better things this year for the commercial real estate industry.
He pointed specifically to Opportunity Zone projects.
“That program was building up tremendously and then COVID hit,” Graham said. “If capital gains rates do go up longer term this year, people will be cashing out of the stock market. Opportunity Zones are a great way to defer those capital gains.”
Graham said that the second round of the Paycheck Protection Program might be unveiled sometime during the first quarter of 2021, too. That’s another financial plus to which business owners can look forward this year.
