By: Stephen Cassidy, President, Denholtz Properties
This piece originally appeared in the April 13th edition of NJBIZ
As a sponsor of numerous multi-tenanted commercial real estate projects, Denholtz Properties is in the business of small business. As we entered 2020, reasons for continued optimism in our industry were abundant with steady deal flow and exciting new projects announced almost daily. The dramatic shifts brought on by social distancing and shutdowns have drastically altered the landscape for these businesses and our industry in general.
Unfortunately, the effective shutdown of our entire economy necessitated by the spread of COVID-19 has thrown a wrench into what looked like a promising year. Suddenly, tenants are unable to pay rent, massive lay-offs and furloughs have affected almost every industry, and the stock market has seen unprecedented volatility. Despite the daily doom and gloom found in the news, it is my belief that optimism can be found on the horizon and patience will be crucial as the commercial real estate industry approaches the COVID-19 pandemic.
My measured optimism stems from the fact that, before the emergence of COVID-19, prevailing macroeconomic factors were strong. Unlike the 2008 recession or previous financial collapses, today’s economic instability was caused by a public health crisis that required proactive measures to stem the spread of a deadly virus. The causes of our current dysfunction are clear and obvious to all and are far from permanent measures. COVID-19’s impact on the economy is not indicative of our overall economy’s strength.
Additionally, although our economy is essentially shut down at the moment, central banks and regulators have taken the steps needed to ensure that liquidity does not become an issue during this crisis as it was during previous financial crises. For example, in 2008 banks were obligated to categorize those needing help as a Troubled Debt Restructuring which then forced them to reserve funds, thus reducing their own liquidity. Today, by contrast the FDIC has provided guidance essentially removing this obligation if loans were solvent before the crisis. This move will provide additional liquidity throughout the banking system. These are the tools that will allow the industry to be patient as real estate owners work with banks and their tenants to survive what we believe is a temporary pause to the overall economy.
Patience does not mean passive
This feeling of optimism on the horizon does not mean that commercial real estate companies should be passive as they navigate these unprecedented times. Although patience is key, the manner in which businesses operate during this time will frame their relationships with key stakeholders well after COVID-19 is in the rear-view mirror. Although it is tough to see clearly right now, I believe there is a tremendous opportunity for commercial real estate businesses to cement their relationships with tenants, investors, and their local communities through these three proactive measures:
Tenants will remember how they were treated during these difficult times. Was their landlord understanding of their concerns and willing to accommodate them or did the landlord coldly send around the same templated email to all tenants demanding their rent in full, “or else?”
This is a chance for landlords to work closely with their tenants to navigate the crisis as partners not adversaries and build stronger working relationships moving forward. One benefit of this strategy could very well show up at time of lease renewal negotiations as these same tenants will want to be with someone who came through for them during a tough time.
The impacts to the investment landscape have been significant and it is obvious that every investor is worried right now. The sponsors who provided thoughtful, honest commentary on the market and investments throughout the crisis will stand out in the eyes of their investors versus those who waited to deliver bad news or were not entirely transparent. This also presents commercial real estate firms with the chance to reevaluate how they communicate with investors moving forward, not just during times of crisis but throughout their investment relationship to increase transparency and accessibility.
Finally, communities will remember which businesses stepped up during their toughest times. Were local businesses proactively ready to lend a helping hand to the community or did their once-supportive business partners suddenly become hard to reach during the COVID-19 crisis?
It is easy to be a community partner when times are great but the true community partners are the ones who are there for their communities when they are hurting. No real estate business is immune to the financial impacts of COVID-19 but that does not mean that we are not in a position to assist those less fortunate than us. This is the time to step up and find a way to support our communities.
Despite the significant financial implications of COVID-19, we understand that the toll on human lives is what weighs most on everyone during this time. We wish the best to all in New Jersey’s business community, their families, and friends and hope everyone remains healthy and safe. Although these are truly unprecedented times, the strength of New Jersey’s business community gives me even further reason for optimism as we seek to emerge from this crisis together and stronger than ever before.