In this space, Counselors share disaster response experiences, needs, and expertise. See all topics posted in the Disaster Response Discussion Board here.
COVID-19
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Giving back is a core value of The Counselors of Real Estate. Counselors are encouraged to share expertise and stories from their markets on efforts to assist property owners, users, and municipalities during the COVID-19 pandemic. Questions, observations, and predictions are also welcomed. This Discussion Board is a superb and immediate resource and has the capability to be an enormously powerful tool—but only if CREs make it so.
I can give an example of how many of us might be asked to help or volunteer: We had a 500-bed hospital close in Philadelphia last July 1, due to, as far as I can tell, to general over-bedding in the area, long term failures in for-profit hospital management, and poor condition of the buildings. The hospital recently officially returned their license and gave back the buildings to the “good bank” which owns the real estate and had hired my firm to “manage” it. (It is stripped of beds, medical equipment, etc.) We are now hustling to potentially re-open at the City’s “request” as a quarantine or isolation center. I don’t know if this will actually happen, good news is that hospitals are required to do HVAC using 100% outside air (no recirculating, very inefficient environmentally), so that’s what we have in place.
As a law firm based in New York City, we have received numerous inquiries from real estate clients concerning force majeure clauses in their contracts. This is an open invitation to any members who would like to use me as a resource for questions about the impacts of COVID-19 on contractual obligations. Feel free to email me at dguzov@guzovllc.com or give me a call at 646-355-1841. Below are links to our recent blogs that might be of interest.
-Debra Guzov
https://guzovllc.com/quick-tips-on-force-majeure-clauses-for-businesses/
https://guzovllc.com/immediate-implications-of-the-coronavirus-for-nyc-real-estate/
https://guzovllc.com/precautionary-as-well-as-mandatory-measures-taken-by-co-ops-and-condos-in-nyc/
I work in the Private Club industry and I’m trying to get as much information possible related to bank, equity, government, and hospitality economic forecast. My objective is to triangulate the data and provide some guidance to our club clients. I think it would be helpful if we could share as many of these sources as possible. I can reach out to individual CRE members, but this forum will be more timely. Stay safe!
I’m the sole CRE in Vermont. The largest medical care organization in the State, University of Vermont Medical Center, is a long-standing client. They are moving rapidly to erect new triage facilities in their parking lots. I have assisted them by obtaining waivers from various regulatory authorities to allow them to construct without the normal permit process. Fortunately the regulators have stepped up.
Many states and local agencies are or will be looking to find real estate that can be used for emergency purposes, both related to healthcare needs and general infrastructure. In addition to the President’s declaration of national emergency which authorizes FEMA to lead relief efforts, some states, including mine (NJ) have new Executive Orders in place authorizing government agencies to “comandeer” private property for emergency purposes. We may all see these types of things happening soon in our areas, so if you have clients (either private parties or government agencies) that control properties to be used or sought for these purposes who are looking for advice on how to proceed, we can assist in finding property rights counsel in most states and in Canada through http://www.ownerscounsel.com. In addition here is a post I made last week with some preliminary information: https://www.mrod.law/2020/03/18/can-the-covid-19-pandemic-allow-the-government-to-seize-my-private-property/
I just did an analysis of CDC mortality data downloaded from their web site on 4/8/2020. For the United States since February 1, 2020, the actual mortality has been 85% of the expected mortality. Connecticut did not report any figures and it is unclear whether Connecticut mortality is included in the expected mortality. I do not expect that the Nutmeg State would skew these data too much. The only state to have a score of 100% was New York. Fewer car accidents, drownings and murders.
The models used by the experts do not appear to by dynamically scored, which they should be. This could lead to better decision making by elected officials. It seems that we should be able to question those who develop the models about their underlying assumptions. And next, the models should be considered in conjunction with economic cost-benefit analyses. It is hard to make the case that Hobby Lobby should be shut down, as well as restaurants. If dynamic scoring and cost-benefit analyses were employed before making decisions there would be better outcomes.
Here’s a not-very-helpful new ordinance passed by the City of Seattle. Small business tenants who do not pay their rent must be granted rent deferment and a payback schedule. For those of us landlords who were already negotiating deferrals with tenants, the City just gave them a hunting license to not pay rent at all.
“Section 3. Until the civil emergency proclaimed by the Mayor on March 3, 2020 is terminated, an owner
of property who leases premises to a small business or nonprofit on other than a month-to-month basis shall
not: A. Increase the amount of rent charged for the premises during the lease term unless the increase
was authorized in a written lease in effect before the effective date of this ordinance; or
B. Renew the lease or enter into a new lease with the small business or nonprofit if the new lease
requires a rental payment that exceeds the payment due under the expired lease.
Section 4.
A. A small business or nonprofit tenant that fails to pay rent when due during or within six months after
the termination of the civil emergency proclaimed by Mayor Durkan on March 3, 2020, may elect to pay its
overdue rent in installments during that period on a payment schedule.
B. A written installment payment schedule shall be negotiated between the lessor and the small business
or nonprofit for the payment of rent in arrears, provided that 1) the repayment schedule may not require the
small business or nonprofit to pay, in addition to rent due for the month or period, more than 1/3 of late rent
within any month or period following the month or period for which full rent was not paid unless agreed by the
tenant, and 2) rent in arrears shall be paid in full to the lessor no later than one year after the termination of the
civil emergency proclaimed by the Mayor on March 3, 2020.
C. No late fees, interest, or other charges due to late payment of rent shall accrue during or within one
year after the termination of the civil emergency proclaimed by the Mayor on March 3, 2020.”
With regard to deferral payments – Seattle above and other, we are working with clients/ landlords that they include an ‘auto pay” clause as part of and a condition of the deferral agreement, eg ACH, credit card, etc, which provides better assurance that landlord collects rents vs hoping a check is sent. Any thoughts or comments on this approach?
Ed,
I think that sounds like a good idea if you have a large number of tenants. I don’t actually know how the mechanics of that would work and what happens if there is no money in the account. I will think about it in all future leases. Where does it put you in the line of creditors? What does it cost the landlord?
The 3 small tenants I for whom I waived 75% of April rent, but had them pay CAMs, are sole proprietors and their owners have no significant assets. My math on those is that a few months of no rent is cheaper than a leasing commission and rent loss during lease up. It doesn’t help with the mid-sized retail chains who are just saying no. Luckily the other tenants have businesses that are still running.
SteveRecovery Readiness – A How-To Guide For Reopening Your Workplace
As we continue working through the current phase of Covid-19 for our own companies and clients, the next phase of reopening is hopefully near. Cushman & Wakefield has been on the forefront of this initiative and as of April 2020, already helped reopen more than 800 million square feet of properties globally. With that innovative experience to work from, they are sharing their best practices.
As I continue working with my clients / tenants through the maze of relief programs, abatement, deferral, renewals and rent relief issues, these materials are helping guide us for the next phase of reopening. I hope they are of value and look forward to hearing your feedback. Please use the below link for access.
Stay safe – JohnI was chatting with a anchored shopping center developer yesterday with 300 tenants. He said his independent tenants were all paying full rent or had worked out deferral plans that were satisfactory to both sides. But all the national credit tenants were not paying rent and many were being jerks. I’ve had a similar (albeit much smaller) experience. Yesterday the news reported Starbucks wants to cut its rent payments across the board. This seems to me to be much less about liquidity and access to capital and much more about power and price discovery.
I thought the survey below on office tenant perspectives was useful. URG is a Seattle based CBD office investment company and very sharp and well regarded.
https://www.connect.media/urg-surveys-500-tenants-about-re-opening-plans/We have reached some agreement with each of our tenants in a small (60,000sf) community center with very strong shadow anchors. Generally for tenants not able to operate(such as restaurants) we are deferring (not abating) rent for two or three months with the tenant paying expenses, CAM and taxes on a current basis. Tenants who are operating are still paying rent. Our location is strong, so the tenants do not want to risk losing what for almost all of them has been the number one or two store in the region
I have long said that national tenants are actually higher risk than local tenants – because they have deep pockets and lots of lawyers. I think over the past 20 years the number of bankruptcies by national tenants is proof enough investors should account for a vacancy loss with these properties. And the attitude of national tenants in this crisis shows their higher risk. Hopefully, landlords and investors will take notice.
Many small businesses/tenants have received forgivable PPP loans that allow them to spend up to 25% of loan proceeds on rent/utilities within 8 weeks of funding; 75%+ of funds have to be spent on payroll during the 8 weeks. If the goal is to preserve long term tenancy/survival of these small businesses, the best strategy would be to use PPP money to pay current rent obligations and apply rent deferrals to July/August rent rather than current obligations (defer the deferral). PPP will help small tenants weather the storm for the 8-week spend period, but the more significant challenge will be during that transition back to re-opening/depletion of PPP beginning in July.
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