Across the country, states are reopening their economies, some slowly, others at a faster pace. At the same time, the federal government is debating a new relief package to help hospitals, businesses and the unemployed.
That makes this a key time for both the country and the economy, according to a panel of commercial real estate experts who spoke last week during the latest Breaking Through the Disruption series of webinars from REjournals.
These panelists agreed that the steps the country takes today will determine just how long it will take the country, and the commercial real estate industry, to emerge from the negative impact of sky-high unemployment rates and shuttered shops.
“The stimulus package that they are debating now is so important. Do that right and open up the country safely? Then we can get out of this thing,” said Aaron Metaj, senior vice president with Northwind Financial. “If we don’t? Then it will get very, very, very ugly out there. We can do this. We need to open up and open up quickly and intelligently, with one more stimulus package. The current stimulus package is what is getting everyone the rental payments we’ve been receiving. We need to do this smart and we need to do this right.”
Metaj was just one of the CRE professionals sharing their thoughts on reopening the country — both the risks and the rewards — during the May 15 webinar Milwaukee CRE and COVID-19: Strategies for a shifting world. He was joined by Ralph DePasquale, managing director with Berkadia; Amy Sovine, regional asset manager and training specialist with Physicians Realty Trust; and Michael Van Someren, associate with law firm Davis & Kuelthau.
They all agreed that the country was facing important decisions today as states began phased reopenings throughout the United States.
DePasquale said that increased testing is the key to restoring the confidence in consumers. The economy today will desperately need consumers who aren’t afraid to visit restaurants, shops, movie theaters, hotels and malls.
“There needs to be more testing until the vaccine comes out and is available,” DePasquale said. “If we want to see some normalcy, testing is the key. We need to open the economy and get people who are healthy working again, otherwise we are bankrupting our future generations the longer this goes. We are literally printing money like it is going out of style. There will be some consequences for that at some point in the future. The more quickly we can get back to some level of normalcy, the better.”
And until that hoped-for level of normalcy arrives? The CRE pros on this panel said that they are taking steps to work with their existing clients, close whatever deals they can and, in the case of managing buildings, keeping their tenants safe.
Sovine, whose company has invested in about 3 million square feet of healthcare real estate, said that Physicians Realty Trust has been receiving daily requests for rent relief from tenants and is constantly working on plans to assistant their tenants and partners.
Company officials hold regular meetings with management partners on how they can best prepare their healthcare buildings for how operations will look as the economy slowly reopens. At the same time, the company is dealing with COVID-19 infections in the buildings they have acquired, Sovine said.
“To me, the most surprising thing about all of this was the immediate panic and fear of the unknown by our healthcare tenants,” Sovine said. “From day one, we were getting calls. Tenants were asking if we could help them with rent. They were automatically assuming the worst. It’s been a delicate balancing act over the last nine weeks. I do credit our leadership team with keeping everything organized and calm.”
The challenge? How does a company help its tenants financially and keep its own financials healthy?
“We can’t just open our pockets to everyone every time,” Sovine said. “But we’ve done a nice job of balancing the requests based on the needs.”
This has required Physicians Realty Trust to get creative. The company has looked at such solutions as deferring payments for some tenants or adding six months of payments to the back ends of leases for those tenants struggling to make payments today.
“It’s about balance, creativity and empathy,” Sovine said.
Van Someren from Davis & Kuelthau said that property owners could face “a ton” of liability issues as workplaces, shops and restaurants open. The owners of multifamily properties will face the same challenge.
What’s to prevent a customer, client or renter who is later diagnosed with COVID-19 from suing the owners of these properties, claiming that they didn’t take enough precautions to protect them?
Van Someren said that landlords will almost certainly add conditions to their leases that will help protect themselves from lawsuits stemming from COVID-19.
“Do employers need to provide personal protective equipment for all their employees?” Van Someren asked. “If an employer doesn’t take steps to allow people to continue working from home and continue social distancing, will they be liable for not creating a safe environment?”
As Van Someren says, business interruption insurance, and other forms of business insurance, usually don’t cover losses related to pandemics, something that is coming as a shock to many business owners today. The push now, then, will be to force insurers to cover COVID-19-related losses. Someren said that many state legislatures are already proposing bills that will do just that.
He said that when businesses do reopen, they should follow any guidelines put into place by their states and the federal government. This will help protect them from future liability, Van Someren said.
“If you can follow these guidelines, that allows you to make the claim that you are being as reasonable as possible,” Van Someren said.
Even while stay-at-home orders have kept the country in lockdown mode and the daily death toll from COVID-19 continues to rise, commercial real estate companies have seen some victories.
Metaj pointed to the low delinquency rates multifamily owners have seen. He said that most renters have continued to make their rent payments in April and May, a good sign for the health of the industry.
“The terms I like to use are flight-to-safety and flight-to-quality,” Metaj said. “Multifamily is the only sector right now that we are making loans for. It is the safest sector for us right now. People need to eat and they need a place to live.”
DePasquale said that he, too, was pleasantly surprised at how strong rent collections have been in the multifamily sector. As he said, many were predicting that April rent collections would “fall off the table.” They didn’t, though.
DePasquale said that rental collections are even stronger in the luxury and higher-end of the multifamily market. Renters in these apartments are typically able to work from home without seeing a disruption in their income, he said.
At the same time, landlords are seeing higher retention rates in multifamily buildings, DePasquale said. People don’t want to move during the pandemic if they don’t have to.
“If multifamily wasn’t the darling child of the industry before COVID-19, it is certainly that now,” DePasquale said.
As the country moves to the next phase of the shutdown, reopening, building owners will face plenty of challenges.
Sovine said that patients will still want to see their doctors and medical providers. While many predict that telehealth and virtual doctor visits will rise because of the pandemic, Sovine said that she doesn’t see this as the long-term future for healthcare. Too many nuances are lost during virtual visits, she said.
“There are some things telehealth can handle and some things it can’t,” Sovine said. “There is always going to be a demand for in-person care.”
But medical visits and healthcare will look different because of COVID-19, Sovine said. Social distancing will continue to exist. This means that patients will probably be screened at the doors before being allowed to enter the offices of their medical providers. Medical professionals will probably pre-screen patients before appointments, too, asking them if they have been exposed to anyone with COVID-19 or if they have had a cough or fever.
Sovine also said that patients should expect to see plexiglass shields at check-in and check-out desks.
Sovine did predict that healthcare real estate will remain busy. The key for owners, she said, is for them to demonstrate that they are doing whatever is necessary to keep tenants and clients safe.
This might mean limiting property tours to one broker and two clients, Sovine said. It might mean having the janitorial staff and management team prop open doors and wear masks. It might mean bringing extra masks for clients.
“Everything will look really different,” Sovine said. “Things will change.”
Van Someren agreed that the business of selling, leasing and owning commercial real estate will look different. But he also said that there will still be opportunities for savvy investors today.
“There will be opportunities out there,” he said. “But they might be different opportunities. It’s important to take the time to make sure your documents and leases are right, that you are protecting yourself in the future. They are predicting that we could have a second wave of this virus. Property owners need to make sure they are protecting themselves.”
Metaj added that the next 60 to 90 days are crucial for the commercial real estate industry. If the country does open up safely during this time, then the economic impact of the virus will be lessened, he said.
That’s why Metaj encouraged his fellow CRE professionals to be vocal about the importance of restarting the economy. It’s up to industry professionals to contact their legislators and remind them of how important it is for people to get back to work safely and quickly, he said.