There’s no easy way to begin. As you all are very much aware, coronavirus is taking an incredible toll on lives and livelihoods. Anxiety is high, nerves are frayed, and because the situation is rapidly changing, there is no way to predict the short- and long-term outcomes accurately.
It wasn’t so long ago, in fact, that investors were excited because the Federal Reserve had decided to keep interest rates steady for 2020. As of this writing, rates have been slashed to near zero in an effort to support the economy.
If the pandemic has taught us anything, it’s that we’re all in this together. Each person has a role to play, from the truck drivers to the grocery store clerks, from the first responders and medical personnel to neighbors checking on neighbors, particularly the elderly, from a safe distance. The same holds true for the CRE sector, where property owners, landlords, and tenants are going to have to find a new way to do business to survive today and prepare for tomorrow.
The economic impact is already being felt in South Florida, with the recreational and tourism industries taking the initial punch. As other industries have moved employees to working from home, shortened hours of operation, or have closed until further notice, it only makes sense that CRE is going to feel—and is already feeling—the impact. Without foot traffic and shoppers with disposable income, for example, retail tenants will feel the pinch and start to fall financially. A mandated lockdown will likely make economic survival impossible for many.
For that reason alone, everyone in the CRE equation needs to be proactive now rather than wait for the day when the dust settles.
More than likely, your liability insurance does not have a pandemic clause. As a result, an allegation that a person became infected and developed COVID-19 while on your property will most likely fall under bodily injury or gross negligence. In March 2020, for example, a passenger on Princess Cruise Lines claimed the cruise line allowed passengers to board a ship when the company was already aware of other ships having been contaminated. Strongly worded exclusions, contractual terms, and a valid defense can often prevent a lawsuit from moving forward.
Another way to both help offset the possibility of a liability lawsuit and provide service to tenants and visitors is to practice environmental cleaning of common areas—regardless of whether there has been a confirmed or suspected case of coronavirus in the building. Using CDC guidelines, some areas may need to be cleaned several times a day. Enforcing social distancing rules by limiting occupancy is also a good step, if possible.
In addition, it’s imperative to work with the local health department and gather data to determine where in the building an infected individual may have been, as well as define other person-to-person contacts.
As the crisis continues,
local, state, and federal governments may intercede to protect commercial and
residential tenants from the economic fallout, and it may become difficult or
impossible for landlords to evict. Landlords and property owners must be sure
to understand their rights, some of which may be curtailed by new government
rules and social pressures.
Regardless of any executive orders or legislation, it’s a good idea to be lenient and understanding with good tenants if you are in a position to do so. Not only does it provide the opportunity to support businesses and individuals during this trying time, but it also often makes good business sense. Great tenants can be hard to find, and helping people and organizations recover can reap long-term benefits.
All of this is unchartered territory, and the only way to successfully navigate it is to be informed, proactive, and creative. In Jonesboro, AR, a property investment company waived April rent for its tenant, explaining that it would rather see that money go to paying the salaries of the tenants’ employees. Similarly, Rosie’s in Wilton Manors, FL, hosted a pop-up drive-thru for free take-out food, only asking hat customers provide a donation to support the bar and grill’s staff.
While this solution may not work for all property owners, it’s imperative to find options that allow the landlord to meet his or her loan obligations while maintaining a strong relationship with a tenant. For example, the landlord may agree to temporarily relax lease enforcement, especially since some of the lease terms may be impossible to satisfy. At the same time, it may be beneficial to enter into short-term agreements that address rent abatement with defined reinstatement dates and methods to recoup losses once the economy returns.
Like you, Morris Southeast Group is concerned about our families, friends, and clients. Part of what keeps us going is being proactive and looking ahead. While things are intense now, coronavirus will abate, and it will eventually be time to heal and rebuild. By taking steps today, we can lay the groundwork for tomorrow—a future that’s based on goodwill and partnership, because we’re all in this together.
If you have questions about the impact of the crisis on CRE or need any of our services, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at firstname.lastname@example.org.