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The Looming Legal Challenges of COVID-19

The Looming Legal Challenges of COVID-19
Justice lawyer corona concept

A pandemic for the litigious age

COVID-19 has come to mean many things to many people, from a global public health crisis to a logistical nightmare to a political hot potato. It has also presented a new set of legal challenges.

With lockdowns, re-openings, and a hodgepodge of rules, business owners are worried about lawsuits related to exposure, workplace health and safety, termination, and discrimination. As of this writing, more than 3,900 COVID-19-related complaints have been filed in federal and state courts.

At the heart of these issues is fear of uncertainty coupled with the lack of a national liability shield. This measure would protect entities from lawsuits if they took appropriate measures to safeguard customers and employees.

While national politicians on both sides of the aisle have presented arguments for and against such protection, their lack of agreement has resulted in some states enacting their own liability reform legislation. These measures have provided some assistance for businesses located in a specific state, but they have also created a patchwork of confusion for organizations with interests in multiple states.

A look at liability at the federal level

From the outset of the COVID-19 stimulus efforts, groups from all corners of the economic spectrum—the US Chamber of Commerce, colleges and universities, national manufacturers, independent business owners, and a host of others—embarked on lobbying efforts to get Congress to back liability reform.

The idea is at the center of the GOP’s most recent proposal, introduced in July. Senate Majority Leader Mitch McConnell has indicated that the liability protection included in the Safe To Work Act is non-negotiable. Democratic critics, on the other hand, see the effort as an infringement on workers’ rights, with wording that makes it nearly impossible for a suit to get to court. 

Consequently, the trick for Congress is to find a middle ground. And when, where, and if that will happen, no one knows.

States take their own steps

Without a liability policy coming out of Washington, many businesses and organizations began asking patrons and employees to sign waivers. States then rose to the challenge, and by the end of July 2020, 12 of them had enacted versions of liability reform to fend off frivolous legal attacks.

While each of the separate initiatives share similarities, they are nevertheless different—and this, in turn, can leave certain individuals and businesses vulnerable.

  • To create all-encompassing COVID-related protections, many states have intentionally used broad language. The more general the language, though, the greater the room for error in its interpretation. Phrases like “reasonably attempt to comply with public health guidance” can easily lead to questions on what represents compliance and which applicable health guidelines are to be followed. Remember, we are more than six months into this, and we still can’t all agree on masks.
  • Many of the state measures are not meant to act as a blanket liability shield. Businesses are still required to adhere to standards that forbid grossly negligent and reckless behavior.
  • Legislation in Georgia contains a Rebuttable Presumption. Through warning signs posted at various points, patrons are essentially waiving civil liability claims against the business.

To avoid confusion, it’s in the best interest of businesses to perform their due diligence. Does their local jurisdiction have a liability shield? Does it protect those outside of the healthcare field? What type of infection is covered? Does it contain a rebuttable presumption, and what are the requirements?

The battle for insurance

In addition to liability reform efforts, another legal battle is also taking shape—this one between businesses and insurance companies that have been rejecting business interruption claims.

Typically, business interruption insurance covers three main areas: business income coverage, contingent business interruption coverage, and order of civil authority coverage.

These claims are only covered under specific circumstances, and at the heart of the matter is whether COVID-19 constitutes “physical damage.” Plus, as of 2003, most insurance companies added exclusion clauses specifically aimed at bacterial and viral incidents.

It’s also important to understand the practical reasons for insurance companies avoiding COVID-19 payouts: lockdowns created such widespread business interruption that successful claims would bankrupt the insurance industry.

As discouraging as that sounds, some business owners aren’t backing down and are taking their claims to court. According to the National Restaurant Association, lawsuits filed in both state and federal courts are “too numerous to count.” In Philadelphia and Chicago, more than 100 plaintiffs filed a federal petition to have all COVID-19 business interruption cases heard by a single judge.

At the same time, groups are lobbying Congress and states for business interruption insurance coverage relief packages. The essence of both efforts is two-fold: to include pandemics as part of business interruption and to eliminate coverage confusion.

Searching for a safe harbor

Anything related to COVID-19 is fluid—from the course of the disease to preventative measures to legal ramifications and legislation. In this environment, it’s essential to keep a close eye on developments, thoroughly understand your insurance documents and the ratings of your provider, and work with your professional organizations and their lobbying groups to advocate for political solutions.

Safe Harbor provisions have existed in various areas of law for years, including taxation, environmental regulations, and the Affordable Care Act. The time has come for a similar provision to be added to liability law at the national level. Until then, I’m advising clients to think carefully about re-opening, closely follow local and CDC guidelines, and consider having patrons and employees voluntarily sign waivers as a means of legal protection.

If you need guidance on re-opening or any commercial real estate issues, please call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Potential CRE Property Improvements To Adapt To COVID-19

Potential CRE Property Improvements To Adapt To COVID-19
Social Distancing in Modern Office With Glass Cubicle.

How the pandemic is changing—and could transform—commercial real estate spaces

In addition to everything else we can blame on COVID-19, the pandemic has altered what’s important in commercial real estate. Not long ago, landscaping, security, and lighting were among the key elements to increase property values, and often ranked high on the list of tenant wishes.

But with the pandemic and re-openings, the most significant concern is the health and safety of anyone entering a property. Much of that reflects growing health concerns and awareness of how the virus spreads. But there’s also a very practical interest in limiting liability and the potential for lawsuits.

To that end, preventative measures come in numerous shapes, sizes, and price points—and many of them are contingent on property usage.

Immediate steps for reopening

At the top of any reopening checklist is evaluating the floor plan of the property, followed by making adjustments based on the best practices outlined by leading health authorities, such as the CDC. Generally, this means keeping at least 6’ of space between people, limiting group interactions, and mitigating air-droplet spread.

Steps that some properties are taking include:

  • Using furniture to create distance. Desks, for example, should be at least 6’ apart. If space is tight, some furniture may be removed or roped off. Bookshelves and other office furniture may be moved into positions that help maintain distance, while temporary walls and partitions can be brought out of storage and put to better use. In some cases, plexiglass partitions are attached to furniture to create boundaries.
  • Since communal spaces are discouraged, converting that space into storage for any pieces removed from the main work area is an option. So is using it as a workspace for a portion of socially-distanced employees.
  • Implementing foot-traffic patterns that make sense for the property. For example, signage can remind people to move in one direction when walking about the office, up and down the aisles of a retail space, or when entering or exiting a conference room.
  • Steps to maintain distance can be as simple as signage, arrows, and colored tape on the floor, or as elaborate as “The 6-Feet Office,” which uses bold colors and patterned carpeting to delineate social distances for offices and traffic.
  • Enacting policies that stress flexibility, choice, and wellness. These can include elevator etiquette reminders, the creation of cohorts or teams to limit the number of people actually in the office on any given day, hand-sanitizing stations, and a clean-desk policy so surfaces can be disinfected easily. Enhanced cleaning protocols are considered critical.
  • One possible way to minimize COVID’s spread in interior settings is to open windows and allow fresh air to circulate. For many buildings, however, that’s not an option—either windows don’t open, or the weather is too hot and humid. But some companies are moving specific workspaces, such as conference rooms, outside.

Looking to hospitals for CRE inspiration

By reopening, many commercial properties and their occupants have joined others on the frontlines of the COVID-19 battle. It only makes sense, then, to look to the veterans of the war: hospitals. These facilities have valuable lessons for preventing the spread of diseases to others.

  • For decades, we’ve been warned about the dangers of ultraviolet (UV) light, specifically UVA and UVB, which are responsible for sunburns and skin cancers. But there’s also UVC, which, because of its short wavelength, cannot penetrate Earth’s atmosphere. There is a subset of wavelengths (far-UVC) that has been shown to kill “99.9% of seasonal coronaviruses present in airborne droplets.” Handheld, mounted, and mobile UVC devices have already appeared in hospitals, nursing homes, and food establishments.
  • Because weather and design keep many windows sealed, there is growing interest in how recirculating air from HVAC systems helps spread COVID-19. One potential solution is the addition of UV lights into HVAC ductwork to sterilize indoor air and improve ventilation. Also, proper air filtration (depending on the size and scope of the unit) and maintenance contribute to better indoor air quality.
  • One of the challenges hospitals have faced in the COVID battle is having to increase Airborne Infection Isolation Rooms, also known as negative pressure rooms. Air from the positive pressure space is forced under the door opening into a room with negative pressure, where dangerous microbes are then “captured.” From there, microbes are released into the outdoors, where they disperse and eventually die. The fundamental difficulty for many commercial buildings, however, is in maintaining an even, positive pressure due to HVAC issues and building usage.
  • COVID may call for leveraging Internet of Things (IoT) technology to make energy systems in the property smarter. With changes in the work dynamic, such as fewer in-house staff or staggered hours, owners may see savings by embracing an adaptive energy system. The building’s energy system knows when and how to operate based on the changed occupancy and hours of operation.

Reopening in SoFlo

While debates continue about states reopening too quickly, businesses are opening as cases are skyrocketing, and people want to get back to work. For owners, property managers, and tenants, the challenge is ensuring that enough has been done to protect the health and safety of occupants.

The complicating factor in COVID-based property improvements is that people are using commercial spaces differently—and the demand for some buildings is waning. And many of the most useful property upgrades—such as enhanced HVAC systems—are expensive.

Money may seem cheap due to very low interest rates. But many lenders are factoring risk into rates, and some institutions only lend to applicants with exceptional credit and significant resources.

In addition, the benefits of any property improvement must be balanced against the financial risk to owners. Installing a new HVAC system for a 10-story office building, for example, is a major capital investment. This expense may be unrealistic in light of diminished demand for a space and increased demand for shorter leases, which reduces the odds of recouping the investment. Then, there is the risk of lawsuits from customers and employees who may become infected on the premises.

We will cover many of these issues in future blogs. For now, sound advice for tenants and owners is to stay current on best practices for reopening as safely as possible. And everyone must carefully evaluate their financial and health-risk scenarios—and make decisions that make sense for their people and businesses.

At Morris Southeast Group, we stay on top of commercial real estate trends and will continue to update our clients and readers. As always, we are here for all of your CRE needs, including helping you evaluate potential steps to create or lease a safer property.

To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

5 Reasons Commercial Real Estate Occupiers/Tenants Benefit from Using a Tenant Rep Advisor

5 Reasons Commercial Real Estate Occupiers/Tenants Benefit from Using a Tenant Rep Advisor  morrissegroup.com
Lease Agreement

Negotiating the new normal during the pandemic’s fallout and beyond

Over the past few months, we’ve written a lot about the impact COVID-19 has had on commercial real estate. In a short span, the landscape drastically changed—from commercial real estate (CRE) prospects to rent strategies to strategies for business survival.

Another area that has been affected is the role of tenant advisors. For many tenants, the reasons they chose an advisor in a pre-pandemic world have taken on an urgent and even essential character. And in some ways, tenant reps are uniquely positioned to help businesses manage a new normal characterized by new space requirements, issues, and opportunities.

1. Negotiation

When it comes to tenant broker/advisors, many people believe their sole purpose is to broker lease negotiations. In fact, there are many other benefits. But there is no denying that knowledge of comparable amenities and monthly rents, as well as keeping a wary eye out for hidden fees, lease pitfalls, concessions, and confusing language all come together to assist the tenant in achieving the best terms.

2. Access

It’s common for a tenant to search for available properties on public websites. But these sources are only the tip of the CRE iceberg. A professional and well-seasoned tenant advisor, armed with local market experience and internal tools of the trade, will have greater access to properties, many of which will be better suited to your needs and price range.

3. Networks

Tenant reps, particularly those who are well-established, can recommend a team of experts to assist the tenant in turning a newly leased space into something that meets his or her needs. The importance of this service has grown as businesses must adapt structures to social-distancing requirements. Resources can include architects, designers, space-planning experts, air-quality companies and maintenance contractors.

4. Representation

In most cases, tenant rep fees—just like fees for the listing broker—are covered in the price of the leased space. In other words, landlords already expect that a tenant rep will be part of the process. In transactions without the involvement of a tenant advisor, the landlord’s leasing agent will just be paid more. When a tenant contracts with a qualified advisor, it’s an indication that they are serious about negotiating and will do so in good faith. And the advisor always maintains a constant focus on the tenant’s interests.

5.  COVID-19

Ultimately, all of these benefits are tied to the current state of affairs, as COVID-19 has significantly changed the CRE equation. Just a few months ago, it was a landlord’s market. But quarantines have forced landlords and tenants, very often with the assistance of tenant reps, to renegotiate leases to keep both sides of the table afloat.

Now that the economy is re-opening and utilization requirements have changed, tenants have more leverage as landlords compete to fill vacancies with reliable income streams.

Using a tenant advisor representative in South Florida

Tenants in South Florida are finding themselves in a unique position as they work to start new endeavors or save existing ones while navigating leases, re-opening phases, and the spike in new COVID-19 cases. The tenant advisory service at Morris Southeast Group can alleviate the stress of searching for the ideal space and negotiating lease terms, while helping businesses adapt to new requirements.

To learn more about what Morris Southeast Group can do for you now and in the future, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

COVID-19’s Impact on Businesses in Broward County

COVID-19’s Impact on Businesses in Broward County morrissegroup.com
Open sign in a small business shop after Covid-19 pandemic

A look at the business environment during the initial response to the pandemic

When Gov. Ron DeSantis issued statewide social distancing measures on April 1, it was done to head off predictions that Florida could follow New York’s lead in hospitalizations and deaths from COVID-19.

As we watched the Florida economy grind to a halt—particularly in the state’s southern counties, it seemed that we had somewhat dodged a viral bullet. This positive outcome has recently been overshadowed by quickly rising infections, with the state setting multiple records for new cases in late June and July.

While the initial lockdowns seemed to have worked initially and were less strict than certain states, businesses were severely impacted. With doors locked shut, workers furloughed, and some places filing for bankruptcy, the Greater Fort Lauderdale Alliance and Broward County issued a survey to gauge the pandemic’s economic impact. The research also strives to better understand the needs of businesses and identify opportunities to provide support.

A snapshot of the participants

Between April 20 (three weeks into the quarantine) and May 29 (nearly two weeks after Phase 1 of re-opening), the two groups began outreach to Broward businesses. Data collection resulted in 1,000 responses from businesses in all of Broward’s 61 counties, as well as 18 responses from Palm Beach, Miami-Dade, St. Lucie, Columbia, and Cook counties.

Of the responding businesses:

  • 22% are in the professional services sector
  • 8% are in the accommodation and food sector
  • 8% are in the healthcare sector
  • 8% are in the retail sector

In addition, the distribution of survey responses mirrored the county’s jobs distribution:

  • 17% in professional services
  • 12% in retail
  • 12% in education and health services
  • 9% in accommodation and food services

Key finding: operations and remote work

If there is any good news in the survey results, more than three-quarters of respondents (81%) said that their companies were open for business. Of these, 47% reported they were operating at regular hours and 34% at reduced hours.

Although 19% were not in operation during the studied period, it appears that remote work played a vital role in allowing many businesses to remain open. Sixty-six percent of respondents reported that either all (43%) or some (23%) of their employees were working remotely. Thirty-four percent indicated that they did not adopt this work option.

Key finding: Revenue, layoffs, and furloughs

This data gets to the economic heart of the matter—the bottom line for business and employees. Ninety percent of the respondents reported that the pandemic caused revenue losses, with 52% indicating their revenue had decreased by more than 75%. An additional 38% reported a decrease between 25% and 50%. Only 10% of businesses reported no revenue decrease (8%) or an increase (2%).

A closer look at job sectors provides an even clearer picture of the economic toll COVID-19 has taken on Broward businesses.

  • Not surprisingly, tourism took the greatest hit, reporting an average revenue loss of 87%. It was followed by life sciences (80%) and arts and culture (77%).
  • The financial sector reported the highest (31%) proportion of respondents with no revenue loss.
  • Wholesale trade (6%), manufacturing (5%), and healthcare (5%) were among the handful of job sectors that reported increased revenue.
  • 62% of respondents indicated that they did not lay off or furlough employees.

Key finding: Seeking assistance

The vast majority of companies (82%) applied for assistance through various federal and state programs. Although 241 respondents (18%) indicated they did not submit a single application for relief, the remaining companies (82%) applied for one or more stimulus sources.

  • The most well-known of the relief packages is the CARES Act PPP, the record-breaking stimulus package passed by Congress. According to the survey, 73% of the 545 applications for the program were successful.
  • In contrast, the Economic Injury Disaster Loan Program, administered through the Small Business Administration, had only a 39% successful application rate for 333 applications.
  • At the state level, the Small Business Emergency Bridge Loan Program had the lowest success rate—just 17% of 99 applications.

Where do we go from here?

In many ways, that’s the most difficult question to answer. While the survey presents a better picture of COVID-19’s initial impact on Broward’s economy, the situation remains unclear as caseloads rise. Nevertheless, the data does provide insight into what worked for businesses and what didn’t during the lockdown, and potential areas for improvement and government support.

This is a conversation that needs to happen immediately. As of this writing, Florida has sequential spikes in new cases, ongoing debates about mask-wearing mandates, and businesses closed and fined for failing to adhere to COVID-19 preventative guidelines.

Morris Southeast Group continues to monitor the economic impact of the pandemic. And we will update our clients, colleagues, and readers as events unfold.

If you have any questions about CRE investing or services, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Millennials on the Move to the Suburbs?

The new downtown is often in suburbia

Leave it to the Millennials. Regardless of the misplaced blame that generation receives, there’s no denying that they have single-handedly changed the real estate landscape as much as Boomers have.

Consider the urban downtown landscape, a space that was transformed by a live/work/play lifestyle that embraces walkability and experiences. With Millennial needs and developer visions coming together, city block after city block filled with residential towers, galleries, cafes, and coffeehouses.

There comes a time, though, when every generation grows up, and priorities change. For a generation of Millennials on the cusp of middle age, those changes have meant children, skyrocketing rents, and the realization that cities may not provide all that’s necessary—things like detached homes, private yards, and good schools.

In other words, suburbia.

Not your parents’ suburbia

In many ways, Millennial desires closely mimic those of the Boomers, the generation that grew up in the first suburbs. This new generation, though, isn’t exactly interested in their parents’ or grandparents’ suburban experience, first made popular in places like Levittown, NY. Instead, they’re looking for suburbia with an urban twist.

For developers, this trend is significant. Studies indicate that Millennials will form two million households per year for the next ten years. In Jacksonville, Orlando, and Tampa, for example, Millennials are the number-one new-home purchasers. Similarly, Miami, Miami Beach, and Fort Lauderdale are in the top 10 Florida communities with the largest increase in Millennials since 2010.

The suburban resurgence & CRE

Just after World War II, when William Levitt devised his master plan for Levittown—“the prototypical American suburb”—one of its hallmarks was a town green. Located within easy walking distance to various neighborhoods, the spaces were reminiscent of the city neighborhoods from which new residents had come. They included greenery, a playground, and a strip mall with essential services, such as a laundromat and delicatessen. At some point, though, suburbs sprawled, and convenience felt farther away.

With the Millennial push for suburbia, developers are taking a look at the master plan for both new and established communities. Developers are examining how to create town centers that embrace the same live/work/play lifestyle that made city downtowns the place to be.

Desired tenants may include craft breweries, rooftop restaurants, cafes, retail, service businesses that present employment opportunities, shared workspaces, event venues, galleries, and pop-up opportunities to test market ideas. Another priority is businesses that provide Millennials ways to include their young families. A shared trait is that all of these areas should be easy to get to, and just as easy to get home from.

The COVID-19 connection

As with most things these days, there’s a pandemic factor. While COVID-19 isn’t responsible for the new interest in suburbia, it has certainly played a role in revving it up.

As metropolitan areas around the country were quarantined, wealthy residents fled the cities for their summer homes in the suburbs to escape contagion and claustrophobia. Many younger generations rented homes or moved back into the suburban houses in which they were raised. In the suburbs, it was simply easier to be socially distant and still get outside, even if that outside was a private yard.

Offices are also looking at the suburban landscape in response to COVID-19. CDC re-opening guidelines suggest employees commute alone and that businesses restrict the use of elevators—two concepts that don’t gel with working in an urban high-rise. For some companies, relocating to properties outside of the city center may make it easier to manage risk.

The new American Dream

It’s important to remember that this isn’t a one-size-fits-all American Dream. The span of Millennial ages runs from 24 to 40 years of age. That’s at least two to three different life stage brackets and an income span that’s just as wide.

While some Millennials may be looking in more affluent suburbs, others are opting for more affordable options. In either case, developers have been presented with an opportunity to look beyond metropolitan centers—and this may be one element of a post-COVID world.

To learn more about what Morris Southeast Group can do for you now and in the future, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Can Co-Work Spaces Survive COVID-19?

social distancing in co sharing office with sign for safety distance

Down but not out, could they be what the “new normal” needs?

It wasn’t all that long ago that co-work spaces were the darlings of CRE. As recently as September 2019, there was a 70% increase in flexible workspaces, despite the massive difficulties encountered by industry leader WeWork.

Short-term leases, affordable rents, communal creativity and networking, and shared common spaces were celebrated, notably by small businesses and start-ups looking for a cost-saving operational alternative. Just last year, the concept was becoming even more specialized with niche co-work spaces—shared offices geared to very specific ideas, such as construction, women, LGBTQ, and musicians, to name but a few.

Then, COVID-19 happened. At least for the time being, shared spaces in a time of social distancing don’t make a ton of sense.

While larger companies with office space were able to adapt through employees working remotely, many shared space tenants, operators, and landlords floundered. Adapting to remote work has added strain on smaller businesses. The economic shutdown has forced many of them to close for good, opt not to renew short-term leases, or walk away with months of unpaid rent.

Shared workspaces may be down, but perhaps not out

The combination of a lingering lockdown and expectations for yet another mass redesign of offices—this one with a nod toward social distancing—caused many experts to ponder the viability of shared workspaces. For many, the concept was on life-support.

Other analysts, however, say, “Not so fast.” They note that the sector hasn’t been around long enough to weather an economic downturn. In a sense, it must find its footing to prove its mettle and survive. And in their view, shared workspaces may be what a post-pandemic world needs, offering small businesses without fixed office space a necessary outlet for workers.  

At the start of the lockdown, when businesses across the country were forced to adapt, remote work seemed like a novel, short-term measure required to stem the virus’s spread. For workers long accustomed to daily commutes, the effort in those early days was approached with a sense of humor as they fumbled with technology and did their best to avoid interruptions. But what was hoped to be a temporary glitch has dragged on, even as the country re-opens.

As new cases continue around the country, corporate offices weigh keeping employees at home and maintaining permanent office space. In turn, what was once a novelty is now taking its toll on creativity, productivity, and mental health. Shared workspaces—with appropriate precautions—may wind up being an antidote to isolation as corporate offices remain unused or are downsized.

Shared workspaces also have the potential to provide a support structure for small businesses that operate on the edge of local economies. By coming together under one roof, there is a greater possibility for networking, sharing ideas, and gaining access to resources.

Co-working in the coronavirus era

Shared workspaces will need to adapt to COVID-19. The high-density model will likely have to change in favor of a more socially distant property. This may include the addition of freestanding dividers and privacy areas, as well as regulating the number of people allowed in a conference room. 

It will also be imperative for co-work space managers to adhere to health measures outlined by the CDC and other leading state and local agencies. This effort may include taking temperatures, increasing air exchange, sending sick workers home immediately, increasing the frequency of cleaning common areas, and maintaining transparency with other members should an individual become ill.

CRE can design a new normal

With re-opening and constant reminders of a “new normal,” perhaps it’s time to regain a sense of control by having a say in exactly what that will be. For co-work spaces, it means gaining a better understanding of members’ circumstances, concerns, and fears—and working to address them. It could involve examining flexible hours so members can work at off-peak times, providing discounts for longer lease agreements, and updating cancellation policies to meet new demands.

It also means taking a different look at communications and marketing material. Post-pandemic adaptations, such as a new floor plan and health-conscious policies, should be highlighted. And enhanced cleaning policies should be completed and communicated.

Morris Southeast Group continues to monitor CRE trends and possibilities as the economy weathers COVID-19. To learn more about what we can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Rent Control in Florida? Exploring the Issue

Rent Control in Florida? Exploring the Issue on morrissegroup.com

Rent control is one mechanism proposed to address affordable housing issues. Here are some pros, cons, and compromises

Long before COVID-19, countries around the world were facing a common crisis: affordable housing. Especially hard-hit were global cities in which developers were keenly interested, and rents were outpacing wages for low- and middle-income renters. The solution for many housing advocates and politicians was a new round of rent-control legislation.

For some, the idea of rent control is a dirty phrase, while for others, it’s a call to action. From London to Berlin, Barcelona to New York, politicians were lobbied, policies debated, and new laws and regulations enacted. By early 2019, the movement reached Florida, where several state legislators introduced rent control measures. Although HB 6053 died in May of that year, rent control is a topic that’s not expected to go away.

South Florida is a unique situation

Different regions around the world have their own set of circumstances for a housing crisis, and South Florida is somewhat unique. A joint effort by RCLCO Real Estate Advisors and the Urban Land Institute’s Terwilliger Center for Housing found that US construction favored larger, more expensive homes and multifamily projects over middle-class housing for more than a decade. The result was a lack of anything affordable for families earning between 80–120 percent of the region’s median income.

Exacerbating the problem in Florida—with its status as a sun-drenched vacation mecca—were projects that specifically catered to wealthy foreign and out-of-state buyers. Locals, in many instances, were left out in the cold. And the problem has only gotten worse as rents in the region have skyrocketed.

The double-edged sword of rent control

In any discussion of runaway rents and affordable housing, it’s understandable that some sort of rent control would be a proposed solution. After all, it’s not a new idea.

Some historians believe Julius Caesar enacted the first such law, while in the US, the idea was used to address the impact of a housing shortage between the two world wars. Recent efforts have included five-year rent freezes, enforced rent reduction, reducing the amount that landlords can raise rents within and between tenancies, and “just cause” eviction provisions.  

Then, there is the flip side. Critics are adamant that rent control does not live up to its intentions. The major complaint is that it discourages developers from building while encouraging some landlords to neglect properties or flip them into condos. The inevitable result is a reduction in the supply of leasable properties and higher prices. In other words, the rent-control solution is viewed as a short-term fix for an immediate symptom, rather than a long-term plan to address the underlying issues.

Florida is landlord-friendly

Thanks to state statute 125.0103, which makes it impossible for any county, municipality, or government entity to impose price controls upon a lawful business that is not a government agency, rent control in Florida essentially doesn’t exist. When coupled with rent-control legislation in other states, the Sunshine State looks very attractive to developers.

This is good news for developers, owners, and landlords, but the fact remains that some tenants can’t afford to lease property. Consequently, some municipalities have adapted by offering incentives to developers—and all parties agree that more can be provided. For inspiration, they’ve looked to other locales:

  • Orlando and Pinellas County, FL, offer an expedited permit process for projects that contain all or partial affordable units.

  • Fort Myers, FL, offers a Tax Increment Financing program to provide tax deferrals as an incentive to develop blighted neighborhoods.

  • King County, WA, stipulates that any extra county-owned lands suitable for residential development be earmarked for affordable housing. Landholdings are reviewed annually.

  • Montgomery County, MD, requires that any capital improvement project that included public facilities (library, train station, etc.) also be revaluated for adding affordable housing units.

  • In 2017, Vancouver, Canada, initiated an Empty Homes Tax, sometimes known as a vacancy tax. The tax was designed to address a rental shortage with a sizeable number of vacant homes by encouraging owners to rent out their vacant properties.

  • In 2019, Oregon became the first state in the nation to enact a statewide rent-control initiative—and it was accomplished through compromise. While rent increases were capped, the limit was set at 7 percent—above the 2 or 3 percent that many proponents advocated.

Could a compromise be the answer?

While each side debates the pros and cons of rent control, it’s fair to say there is no one-size-fits-all solution. What works for one city may not for another. There should, though, be an exploration of ideas that could work for all parties here in South Florida—and ensure that affordable housing exists for our residents. To learn more about what Morris Southeast Group can do for you now and in the future, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

The Prospects For CRE In a COVID-19 World

The Prospects For CRE In a COVID-19 World on morrissegroup.com

How will recovery look, and when will it happen?

It’s interesting to look back at the early predictions on how COVID-19 would impact the CRE industry. Many analysts, either hopeful or looking at something unprecedented, only offered confident short-term calculations. Long-term projections typically referred to a domino effect, but the answer to questions about “how deep and how long?” have been “We don’t really know.”

The nation, however, is now on the other side of the short-term impact—at least, the first one. In addition to a loss of life only seen during certain wars and previous pandemics, the virus has marched through the US economy, pillaging most sectors. With record unemployment, trillions of dollars in stimulus money, numerous lost businesses, and a recession, how will CRE rise out of the settling dust?

The state of the economy

As of this writing, the May unemployment rate provided a glimmer of light at the end of the COVID-19 tunnel. With states reopening for business, 2.5 million jobs were added in May, and many officials seized this opportunity to celebrate some good news. The highest gains were seen in the restaurant/bar/food service industries, with hospitality coming in second place, construction in third, and healthcare in fourth.

Economists, on the other hand, are urging everyone to proceed with caution. With estimates ranging from 13.3% to several points higher (depending on how the number is calculated), the unemployment figure doesn’t yet indicate economic recovery. Most new jobs were for part-time positions, an indication of the fragility of the American economy. And with 30 million Americans still out of work, the unemployment rate remains the highest since the late 1940s.

CRE recovery will be an uphill battle

Recovery, regardless if it’s V-shaped or U-shaped, will take some time, particularly for CRE. Nearly half of commercial rents were not paid in April and May. Many tenants—including national chains—have indicated they will not be able to pay rent for months to come. If large retailers are saying this, then the situation for smaller businesses is even worse.

This adds up to a chain reaction: landlords may be forced to file bankruptcy, CRE prices may drop, banks and private investors may hold back on funding for commercial projects, and local governments may see unpaid property taxes.

Many experts forecast the economy to stabilize in the third quarter and start to recover in the fourth, but CBRE projects CRE to fully bounce back 12 to 30 months later, depending on the sector:

  • Office space is a bit of a mixed bag. Although leasing has slowed, vacancies are on the rise, and tenants and landlords are re-negotiating lease terms, a decrease in new office construction has helped slow falling rents.

  • Hotels were one of the first sectors to fall under COVID-19 containment efforts. Along with retail and food and beverage services, hotels are expected to take the longest to bounce back, especially those located in cities with a strong tourism and convention industry.

  • The retail sector, like hotels, was significantly impacted by quarantines and lockdowns. Many brick-and-mortar retailers felt the financial pinch as unemployed Americans focused their spending on essential items. Overall retail recovery hinges on Americans getting back to work, handling COVID-related debt, and having enough disposable income to begin shopping again.

  • Industrial properties are expected to bounce back the quickest, in large part due to the rapid growth of e-commerce and the need for localized logistics locations.

Some good news on the CRE front

Despite the caution on unemployment numbers and the prediction of a slower CRE recovery, investors interested in playing the long game that is commercial real estate investment are in a very interesting position. Incredibly low interest rates and discounted property prices give investors an opportunity to expand real estate holdings. Particularly attractive are properties owned by smaller landlords who are less equipped to deal with a COVID-19-controlled economy.

Similarly, foreign investors, especially those from Latin America, are looking to the long-term strength of the US market as a means of surviving the pandemic’s economic fallout in their own countries. With an eye toward shopping centers and mixed-use properties, Latin American investors—some more accustomed to economic uncertainty at home—see promise and stability in US income-producing assets.

Hope in South Florida

Each day, especially as cities and counties have reopened, we have all heard the phrase “new normal.” And while there are some confident predictions to make, how that situation will look remains fluid. With any economic and CRE recovery discussion, it’s important to remember that other issues can quickly have an impact: consumer anxiety, civil unrest, and a second wave of the pandemic, to name just a few.

Morris Southeast Group is keeping a close eye on all of these factors, and we will continue to revise our outlook and provide information as events unfold. If you have questions, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

The Marriage Between CRE & Infrastructure

The Marriage Between CRE & Infrastructure on morrissegroup.com

A rocky road means a rocky relationship

It’s time to take a break from COVID-19—somewhat of a break, that is. When the lockdowns started in March, area roadways were mostly absent of traffic. This presented an opportunity to speed up several major infrastructure upgrades in the Miami area, including interstates 395 and 195, as well as the Dolphin Expressway. The lack of traffic translated into a lack of inconvenience for commuters during these projects, and the result is hoped to be an early finish.

At the same time, the virus took the spotlight off of Ft. Lauderdale’s own infrastructure issues—last year’s series of water main and sewage line breaks, including one that was the largest in South Florida history. The city became a good example of the overall issues that the U.S. has with old infrastructure.

Why infrastructure is important to CRE

In the simplest terms, infrastructure is all of those systems and structures that allow a country to function. From communication systems to the power grids, roadways to railways, and water delivery to sewage removal, all of these items allow people to live, work, play, and move. They are also instrumental in growing the economy and allowing it to function.

To that end, maintenance, improvements, and expansion of infrastructure are key ingredients to the success and strength of commercial real estate. The more reliable or efficient these systems are, the more competitive a specific area can be—and that adds up to a stronger economy, higher property values and rents, and an increase in occupancy. For example, one study indicates that rents for office space located near public transportation are nearly 80% higher than those farther away.

When infrastructure fails, CRE feels it

Every four years, the American Society of Civil Engineers (ASCE) publishes its Infrastructure Report Card. In its most recent 2017 report, the U.S. received a D+ (poor). Issues on the national level include a $90 billion backlog of transit maintenance, 6.9 billion hours lost in traffic, an abundance of power outages, and failing wastewater treatment plants. At best estimate, the country is 30 years behind many of its global counterparts.

Florida fared better but not much, receiving a C (mediocre). Of greatest concern, according to the report, is the state’s drinking water, roads, public transit, energy, wastewater management, stormwater impacts, and coastal vulnerability. And all of this is strained by a population that increases by one million people each year.

Whether it’s on the national or local level, the bottom line is that failing or poor infrastructure hurts CRE. According to JLL, these issues have a tremendously detrimental impact on business operating costs, construction and production delays, and job growth and business expansion. Therefore, they hurt the demand for commercial properties. 

The infrastructure solution

As with many things in life, it all comes down to money. And necessary infrastructure improvements—typically financed through public-private partnerships—would require the United States to invest more than $2 trillion over the next 25 years on repairs and upgrades. According to the ASCE, funding sources could come from infrastructure trust funds, raising the motor fuel tax for the Highway Trust Fund, and implementing rates and fees to maintain and upgrade various infrastructure systems.

This, however, is 2020. And all roads, crumbling and otherwise, lead to COVID-19. A year ago, the sum of $2 trillion over 25 years was an unheard-of amount of money. But now, the government has spent well over that amount in just a matter of months to offset the economic crisis.

But is there a silver lining to the pandemic?

Can post-COVID-19 realities drive infrastructure improvements?

According to the World Economic Forum, the pandemic’s economic fallout may be just what American infrastructure needs—an opportunity to initiate a “New Deal” for the Age of COVID. Despite the Federal Reserve having exhausted its options to combat the recession, fiscal policies, innovative projects, and federal action regarding infrastructure could help right the economy. Among the suggestions are:

  • To create an infrastructure agency at the federal level to centralize some of the decision-making, develop a long-term and cohesive vision, and to improve accountability.

  • To harness the power of data to prioritize projects and to make the process and results more efficient.

  • To better utilize innovation and the Fourth Industrial Revolution to improve and streamline construction technology.

Morris Southeast Group wants to build something better

Infrastructure is a funny thing. It’s always there, just under the surface, and no one ever really pays attention to it—unless something goes wrong. While our plates have been full for the past few months, we can’t afford to continue to ignore all of the facets—systems, services, and people—that make our communities function. And perhaps one of the lessons from COVID-19 is that we have to build something better.To learn more about what Morris Southeast Group can do for you now and in the future, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

What’s Happening With Off-Campus Student Housing During the Pandemic?

What’s Happening With Off-Campus Student Housing During the Pandemic? on morrissegroup.com

A once-lucrative market is in the throes of COVID-19 confusion

Once upon a time—2019, to be exact—real estate experts were touting the stability and strength of the off-campus housing market. Long overlooked, the student housing sector was enjoying tremendous growth—reaching an investment volume of $11 billion, a number which had “more than tripled since 2014.”

The great appeal of entering this sector comes down to two key items. First, the variety of properties, from single condos and duplexes to multi-family properties, means there is something for every investor level. Second, off-campus housing has a history of stability. University enrollment tends to remain consistent in times of market volatility and during economic downturns.

As long as there are students, there is always a need for housing.

When the economic hiccup is pandemic

Experts could never have predicted college life in 2020 and the drastic change in education during the COVID-19 pandemic, however. As large and small group gatherings were discouraged and/or forbidden, as businesses shut their doors, and as cities quarantined, universities and colleges followed suit. Classes were canceled. Dorms evacuated. Students returned home to live with their families and resume coursework in an online world.

Many students in off-campus housing faced a particularly tough challenge. Without access to university services and with the loss of both off- and on-campus jobs, many of them returned home. Others worked out plans to quarantine with a friend. Either way, apartments—with leases ending at the end of the spring term or in August—became nothing more than storage units away from home.

Financial consequences and an uncertain fall semester

The result has been a significant financial challenge for both students and landlords. Many owners and property managers worked with renters to waive late fees and pointed them toward assistance resources. However, many students still have to pay rent on what is essentially a vacant property. And at the moment, the fall 2020 semester will most likely not provide answers that will satisfy all parties.

By April, many students were already making housing arrangements. Leases set to begin in September 2020 have already been signed and deposits made—but as the summer months progress, there remains a giant question mark about what else COVID-19 will deliver, especially as states and cities begin the delicate task of re-opening.

The re-opening process, as of this writing, is still new. With anti-mask and anti-social distancing protests growing, it has yet to be seen if these movements or the phased re-openings will result in a second wave of infections before the start of the fall term.

Universities, reeling financially from the on-campus housing refunds of the spring semester, will have to weigh re-opening with remote instruction. Efforts to start classes will require a redesign of the college experience. Some of these changes and issues will likely include:

  • Limiting enrollment in courses and lecture-hall seminars.

  • Implementing single-occupancy dorm life.

  • Canceling overseas study programs.

  • Grappling with a loss of international students reluctant to attend college in a nation with more COVID-19 cases and deaths than any other country.

For owners of off-campus housing, this uncertainty can roll either way. If colleges remain closed and resume online courses, the need for off-campus housing will again be at a minimum. Broken leases, cancellations, and sublets are sure to follow. But if classes resume, the combination of single-dorm occupancy and U.S. students now unable to study abroad may help spur demand for off-campus living arrangements.

The prospects for investors interested in the off-campus housing market

While no one really knows which way the COVID-19 wind will blow, each university is making its own decisions on approaching the fall 2020 semester. As long as there are students, there will be some need for off-campus housing—either for this term or in academic years to come. And there are a few key issues for investors to keep in mind:

  • Many students are first-time renters, which means they may not have the references and credit histories often required before leasing. Similarly, college students may not have a basic understanding of proper rental management, and they have a reputation for placing a lot of wear and tear on a property. In other words, this can add up to a more challenging property management experience.

  • It’s not uncommon for parents to co-sign leases, and the impact of this can have benefits and drawbacks. Some parents may be absent while others micromanage, and many offer the financial stability that ensures compliance with the terms of the lease. No matter the case, a landlord can expect to be dealing with multiple parties for a single unit.

  • COVID-19 has highlighted the need for greater maintenance of common areas, such as pools, fitness centers, lobbies, and mailboxes.

  • This is an opportunity for landlords to review leases. Under the present health crisis, it may be wise to consider a no-party clause (or to limit the number of guests) in light of social distancing guidelines and to protect the lessee and other tenants, as well as the overall condition of the property.

Morris Southeast Group is in this with you

Like many of you, Morris Southeast Group is looking forward to the day when COVID-19 will be history. Until that happens, we must adapt to conduct business in this new normal. And our team is here for you. To learn more about what Morris Southeast Group can do for you now and in the future, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

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