COVID-19 has influenced nearly all facets of life, and its impact on the economy has been massive yet highly variable. The demand in certain CRE sectors, like office, retail, and hospitality, has taken severe hits compared to previous years due to the virus and radical changes in behavior. But other property types have boomed or remained relatively unscathed.
The overarching theme for many aspects of the economy and CRE is uncertainty. And this is not a word that financial institutions like very much.
Despite historically low interest rates, lenders—and smaller banks, in particular—have tightened their standards for issuing many loans. Caution over what the future holds combined with lower returns on their money mean there can be a significant risk for lenders without the correlating reward.
Here’s a look at what’s going on with commercial real estate lenders, along with information on how investors can still get a loan.
One day in the near future, the government may announce the effective “end” of the COVID-19 pandemic in the United States—or, more likely, the end of pandemic-related restrictions. But we don’t know exactly what will happen once things return to “normal,” especially if some form of the virus sticks around at a lower incidence.
Will most employees return to the office, and how many days per week?
How much do consumers long for the days of in-person shopping?
Is there an immediate appetite for travel to crowded tourist locations?
The answers to those questions will soon present themselves, and many analysts project a massive increase in pent-up consumer demand. But the extent of the boom and which hard-hit sectors will recover fastest is uncertain.
For example, the hotel industry has suffered one of the most severe downturns because far fewer people travel for work or recreation. It stands to reason that once things are completely open across the country, work conferences will resume, and vacationers will return to South Florida.
But what if they don’t travel at pre-pandemic levels? How will worldwide approaches to the virus impact the influx of international travel in South Florida?
Hospitality is just one example, of course. The essential point is that we just don’t know exactly how things will play out, and neither do lenders.
Financial institutions are cautiously evaluating borrowers and loan criteria. But despite their hesitancy, it’s worth noting that lenders of all sizes are still making money available to CRE investors. They’re just using a more conservative approach.
First, small lenders, in particular, are becoming increasingly reliant on borrowers with whom they have an existing relationship. If you’ve already borrowed from an institution and repaid your loan on time, there’s a much better chance they’ll let you access funds for additional commercial real estate projects.
Lenders are also carefully scrutinizing the type of property that secures a loan and the outlook for the investment’s success. Office space, retail, and hospitality, for example, may represent more risk and have higher barriers to obtaining capital. In contrast, warehouses and fulfillment centers are booming, making defaults less likely on those property classes.
There’s also a chance you’ll have to put up more of your own money on a commercial real estate deal. For example, Valley National Bank is seeking an additional 5-10% equity from CRE borrowers before granting a loan. Many lenders want you to have more skin in the game because they feel you’ll make less risky decisions under those circumstances.
You should also be prepared for a lender to do its homework before granting your loan. Banks are conducting more thorough market research than ever before and doing tenant due diligence to ensure the businesses to which you’ll be renting have good enough financials to keep up with payments. They also want to see longer-term leases than many of the short contracts that became common in 2020.
The bottom line is that while money is indeed available at very low interest rates, lenders aren’t exactly rubber-stamping loans, either. And the key lesson is something that smart CRE investors live by in any economy and lending environment: If you’ve done your research and the analysis projects that a commercial real estate plan has a sound financial return, there is money available.
With the distribution of vaccines, there’s a lot of hope right now. However, lenders will likely stay diligent in the short term because industries will recover at different speeds, and some businesses might not bounce back at all.
Many financial institutions will wait and see how office space, for example, rebounds. Some form of the remote work trend is durable, which seems to be leading to revised demands of office space, including less square footage overall. If this holds true, it could influence how easy it is to get a loan for a massive office building in a downtown urban center.
Again, that is just an example. The crucial lesson is due diligence, due diligence, and more due diligence. Realistically assess opportunities and projects and show lenders that the numbers likely work.
Morris Southeast Group is available to answer any questions you might have on the post-pandemic recovery of the CRE industry. Give us a call at 954.474.1776 today to learn more. Ken Morris is also available directly at 954.240.4400 or firstname.lastname@example.org.
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.
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:
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.
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 email@example.com.
Have you been hearing updates ever so often regarding the MIA Mover since construction began in January of this year? Well the wait is finally over; the Miami International Airport (MIA) recently unveiled the finished Automated People Mover.
As a part of the Miami Intermodal Center Project the elevated mover will transportB travelers and workers 1.25 miles from the airport terminal to the MIA Rental Center.B It is comprised of eight train cars that will be able to transport up to 3,000 passengers an hour helping to reduce the airport’s fuel emissions by 15 percent.
In addition to easing passenger traffic at terminal curb-fronts and the roads going in and out of MIA, the Mover has createdB 1,000 new jobs. It was also completed on time, under the proposed budget by $5 million and it has even earned the nationb s top safety recognition Voluntary Protection Program Star status from the Occupational Safety and Health Administration.
What are your thoughts on the MIA Mover? Let us know what you think in the comments section below.
Image by MDAD via Miami International Airport
After reporting that With Automate 2011 coming up March 21-24, the U.S. is competing in the international robotics market, more specifically for service robots, and America is definitely in the running. After IBMb s machine, Watson, competed on Jeopardy! last month—and definitively won—robots being common in the working world doesnb t seem like a concept thatb s too far off.
In fact, according to BusinessWeek, the market for service robots is expected to double in a mere couple of years. What do you think about a robotb s place in the working world? Can you picture one in your office? Leave a comment on the blog to share your thoughts.
Toshiba robot image via JapanToday.com
As a company that provides corporate real estate services, we like to keep up with the latest in workplace trends and business innovations. A recent Businessweek article naturally drew our attention, as it discusses the role of leadership in an organizationb s ability to innovate.
Many managers now are focusing mostly on the difficulties of todayb s business world. But to remain competitive, they also must think about the future—how the business can grow and evolve for the better. The Businessweek article offers lessons in b putting innovation into practice,b focusing on the importance of leadership. It highlights six steps for executing business innovations, from gathering a development team to following up and sharing successes. If youb re interested in business innovation, we suggest you take a look at it.
Evolving technology and a rough economy have contributed to new office landscapes, with a trend of most employees losing space, according to Many companies are axing the idea of a cubicle in favor of a more open plan, while others are condensing the cubicle footprint from 8-by-10 feet to about 5-by-5 feet. Sleeker and slimmer technology is requiring less space, but thatb s not the only contributing factor. With smartphones and other technology allowing more flexibility in work schedules and making it easier to work remotely, businesses are seeing that some employees really donb t need their own space.
People disagree on the effect of less space on todayb s workers. Though some point out this allows for more flexibility, others worry about employees feeling crowded or less valued.
How is your business changing the office setup in reaction to new technology? Leave a comment with your thoughts on smaller workspaces.
As a company that provides corporate real estate services, we like to keep up with changes in todayb s workplace, which more and more are brought about by innovation—a follow-through of new ideas and, thus, a catalyst for change. Businesses that successfully integrate innovations into their organization usually respond to these changes with good management and adaptation, like founder of Business Strategy Innovation Braden Kelley describes in this article.
Why is adaptability so important? Because innovations affect an entire company, from customers and employees to marketing, operations and beyond. From the article:
b It should be clear that as an organization is imagining how to take their creative idea and transform it into a valuable innovation in the marketplace, they also should be imagining all of the organizational changes that are going to be required and how they will implement them.b
You can read more about how to handle business innovation here. How does your company approach implementing new ideas?
As a corporate real estate company, web re always interested in workplace changes, trends and innovations. Needless to say, b The Robot in the Next Cubicleb headline from Businessweek caught our eyes. Creating a new challenge for unemployed Americans, worker robots are hitting the business market as they can complete tasks like mail delivery and coffee runs without succumbing to distractions like many human workers do.
Multiple worker robots have been developed with a range of skill levels, from coffee fetching to b remedial problem solving.b So will these robots soon replace the need for human workers, especially in terms of secretarial tasks? Maybe, but maybe not. It could create a whole new industry of jobs for robot maintenance, Smart Robots’ chief executive officer points out.
You can learn more about robotic workers and their place in the office here. And then let us know what you think. Are you excited about the possibilities for businesses this technology presents, or are you concerned about robots taking over human jobs?
Image: AFP via news.com.au
Coming up with new ideas for business is not a new concept, but assigning the role of Chief Innovation Officer (CIO) is, and itb s one many companies are adding to their leadership teams. Citigroup, Coca Cola, Humana and other top businesses all have CIOs. This new role is being created in part because companies now have a clearer understanding of how innovation works and how to manage it in a business setting.
The role of a CIO embraces three main areas: b devising a language with innovation, testing assumptions with prototypes and using structure to unlock creativity,b according to this Businessweek article. Learn more by reading the full viewpoint, b The Role of the Chief Innovation Officer.b
Has your company employed a Chief Innovation Officer? What steps is your business taking to embrace innovation? Leave a comment to let us know.
Image: Seth1492 via Flickr
Following the Product Development and Management Associationb s Global Conference this year, Business Innovationist Chris Dolan summed up 10 predictions he has for 2020, helping define a vision of companies of the future. Here are a few of the predictions we found most interesting:
Read more about his future-of-business predictions here. Which of these do you see coming to fruition? Leave a comment to share your thoughts.