One trope that has become a part of daily discussion in the pandemic era, whether it’s about real estate or truly any industry, is the theme of what the new “normal” will look and feel like in the coming months as the economy reopens and average citizens return to work and extracurricular activities. But within the world of commercial real estate, it’s the small business owners and brokers in retail who have had to face this challenge perhaps more than anyone.
The nature of retail had been evolving quickly long before the pandemic took hold of the nation, so where do we go next? It’s certainly a loaded question, but one that is worth exploring as restaurants are able to return to full capacity and long-shuttered businesses like gyms and theaters finally begin to reopen.
“Where do we go? We only go up,” says David Craig of Craig/Steven Development Corporation, a local landlord whose portfolio is comprised of retail, office and industrial in equal parts. “And what I mean by that is I think that businesses are going to do what they need to do and hopefully, people are more comfortable about going out.”
The hit to retail was not just a significant disruption to small businesses, but the pandemic was a moment where every rung on the ladder of real estate was impacted. But to meet the moment, landlords and tenants had to work together to ensure mutual survival. While some viewed the pandemic and its impacts as an instance of survival of the fittest — hastening the demise of retail businesses that were going to fail regardless — Craig doesn’t see it that way.
“I think a lot of it is based on the landlord,” says Craig. “If the landlord is going to choose to help the struggling, then they might survive, but if the landlord decides to not help those struggling, then it doesn’t matter.”
Craig’s business worked with struggling business owners by offering deferral arrangements to allow tenants some time to get through the hardest months. Those who were able to skip payments in 2020 have been given the opportunity to make up for it in 2021 as the state formally reopens. In the end, Craig suggests, it’s better to have active tenants and leases versus empty storefronts, particularly when retail is witnessing such upheaval and change.
But the overarching idea of help and assistance didn’t go just one way. Instead of a top-down approach to getting through the pandemic, it really was both landlord and tenant working together to ensure everyone gets through the hardship presented by shutdown orders, mask mandates, and capacity limits.
“We’ve been riding the wave with everybody,” says Craig of the pandemic-fueled uncertainty and economic hardship last summer. “We basically have been telling people we’re in this together, and we’ve gotten to a point where we’ve said, ‘You know what? We need your help, too.’”
The dynamic between landlord and tenant was changed by the pandemic as the mutual threat was the virus and its devastation. At the beginning of the pandemic, Craig and his partners were inundated with phone calls from tenant clients from all three property classes the company operates. It was a “divide and conquer” approach to tackling all of the inquiries and concerns, but in many cases, the calls were just to check in and see how people were holding up during the extraordinary times.
“In the beginning [of the pandemic], the phone calls were anywhere from 45 minutes to an hour long before we even talked about business issues,” Craig recalls of last spring and early summer. “They just took that long because we were at a point where we just wanted to hear someone’s story; you wanted to know how they were doing — the good, the bad, and the ugly.”
While those who wanted to stay in their spaces were given the opportunity to work out a deferral arrangement with the Craig/Steven Development Corporation, there’s still a bumpy road ahead for traditional retail. As e-commerce continues to grow in popularity and expand its logistics footprint, offering same-day delivery in some instances, retail tenants and anchors are likely to remain service-oriented businesses.
But this was a trend that started well before the pandemic took hold of the economy last year.
“In my experience and in my opinion, even prior to COVID, [retail had been moving towards] service use and food,” Craig says of the changing retail environment. “There is no flower shop, there is no cell phone store, there is no shoe store, there are no tax-generating businesses. Instead, it’s food, it’s the chiropractor, or the dentist.”
It’s all the more reason to work with existing tenants and do everything one can do to keep them in place.
“The value of keeping a tenant is so much greater than losing a tenant,” Craig says of the situation. “Because let’s be realistic: the word ‘retail’ today, there isn’t any. It’s gone.”
