WHAT CAN OFFICE LANDLORDS ANTICIPATE IN THE COMING MONTHS?
Written by: Andrew Jameson, SIOR CCIM
Andrew Jameson has 25 years of experience in the sales and leasing of office space, as well as investment sales and tenant representation. Andrew’s primary focus has been in the Columbus suburban and downtown office market. His work ethic has led to being awarded virtually every year Co-Star Power broker award, Columbus Board of Realtors – Top 10 producers, and even Colliers national awards (top 5% in the country in production). Keep reading for Andy’s take on the state of the Columbus office market and what landlords can anticipate in coming months.
What we you seeing in the market? In the past month, we have seen some smaller deals being completed, often accompanied with shorter lease terms. Some businesses have decided to temporarily pause making any decisions regarding their current real estate strategy, whereas others who were preparing to sign leases suddenly realize they may need even more space than anticipated in order to comply with what is expected to be appropriate office etiquette and best practice post-coronavirus. The sentiment among the tenants we have talked with seems to be that they are eager to return to the office, reinforcing our confidence in the industry and demand for space moving forward. What assistance is being offered to landlords? By now, you’ve probably read countless summaries and articles outlining the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed on March 27, 2020, and like many, you may be wondering what relief, if any, is being offered to commercial property owners. Because real estate is considered a “passive” industry, landlords do not qualify for a loan or paycheck protection under the CARES Act, and thus have not been afforded the same benefits and protections as homeowners in terms of mortgage relief or forbearance.
Perhaps due to misconceptions regarding commercial owners and the profitability of properties, it seems as though their needs have not been adequately addressed during this time. Within the industry, there has not been much talk yet as to how landlords should navigate this unprecedented economic crisis and respond to their tenants, leaving many to wonder what comes next. While it can be easy to empathize with tenants who may begin to question their ability to make rental payments in the coming months, it's important for all to understand that there are costs and obligations placed on the landlord that still must be accounted for with or without the payment of rent. These costs include property taxes, insurance, maintenance and mortgage payments. What about questions regarding rent relief? During this time, tenants should be encouraged to allow the Paycheck Protection Program (PPP) relief plan to unfold as outlined. Per the loan terms, businesses have been instructed to keep all employees on the payroll for eight weeks and use the money for payroll, rent, mortgage interest, and utilities. While the program is intended to prevent tenants from failing to make their obligated payments, landlords should be sensitive to the fact that the system has fallen short for many, and not all businesses have been sufficiently buoyed. It may be possible to work out a mutually-agreeable deferred payment schedule or early renewal option that satisfactorily addresses the needs of both parties. If attempts to secure rent payment from tenants have been unsuccessful, there may be an opportunity to privately work with your mortgage lender to arrive at a creative solution. As opposed to starting the conversation with an unspecified request for relief, it may prove more successful to approach the lender with a specific request that outlines how the arrangement will help solve your problem. We have seen landlords successfully negotiate short term mortgage relief wherein a portion of the mortgage payment has been deferred for the next 2-3 months and subsequently amortized over 6-12 months. Additionally, you may be able to request modifications such as a reduction in interest rate, conversion of an amortizing loan to require interest-only payments for a period, or some other waiver, reduction or deferral of payments. In summary, none of us know with certainty where the market is headed, but it is important to be flexible in responses during this time in order to keep deals moving through the pipeline. Now is the time to get creative in order to expedite deals and secure commitment!