Disaster Response Discussion Board

[Mr. Tilman Gates, CRE]

We are seeing, particularly in the retail market, a laundry list of prospective claims by tenants related to COVID-19 (casualty, condemnation, force majeure, impossibility, impracticability, etc.) coupled with demands for abatement of rent.  I am happy to discuss these claims and defenses off-line, and there are some good materials coming from the usual suspects.

For my part, I remain hopeful that tenants, landlords and lenders will work together to mitigate losses, and hope that this group might share responses (or ideas) they see as particularly effective.  I am seeing the following:

• Analysis of rent interruption and business interruption insurance policies.  Viral outbreaks may be excluded from standard policies, but this should be confirmed before entering into abatement/deferral agreements.
• Review of past and current sales and financial statements to determine the scope of damages.
• Suspension of enforcement of continuous operations and related obligations.
• Consideration of rent deferral options with appropriate repayment plans (e.g., tacking time onto the end of the lease term so that the tenant is not hit with significant obligations when rebuilding after the crisis).
• Discussions with lenders about interest only periods and suspension of financial covenant enforcement while working with tenants to maintain continuity of operations.

I trust that this is the appropriate forum for discussion of cooperative and effective responses in landlord-tenant relations.

Tom Gates
Mirador Real Estate Advisors
Law Offices of Tilman Thomas Gates

[Mr. A. Thomas, CRE]

Tom,

Those of us in tertiary markets may be a little slower in addressing the issues you mentioned.  For my office, it started Monday.  Tenants began calling asking about rent deferral options.  I expect the number of requests to multiply significantly, as more small business owners find it difficult to meet their financial obligations.  Anticipating this increase, we have begun the tasks of reviewing insurance policies for business interruption coverage and discussions with our lenders about interest only or suspension of loan payments during the crisis.  Realizing the potential of financial hardships from forced business closures or limited service operations, some of our lenders began offering such arrangements last week.

One thing is for certain, sitting idly by and doing nothing will cause major financial damage and to business relationships.

[Mr. Scott Muldavin, CRE Emeritus]

Tom:

 

I hope, your family and colleagues are safe and healthy.  As I think about retail, entertainment, and some other asset classes, especially if they serve a significant elderly population,  I think the market begins to look like a Chapter 11 bankruptcy market were prudent workouts/reorganization plans often require significant “first priority” loans to re-structure and re-imagine properties.  I think their will be significant, not inexpensive work, that needs to be done to reflect new sensitivities.  Smart owners will start working on asset reconfiguration plans, getting best contractors under contract, and moving forward.  I think combining with some work-out and bankruptcy lawyers, and some architects/engineers, some good things can happen.  Might as well address sustainability and WELL building stuff at the same time as those “value” become more valued.

Stay well!

Scott

[Mr. Scott Muldavin, CRE Emeritus]

Thanks Tom–stay well.

[Mr. Scott Muldavin, CRE Emeritus]

Thanks Lloyd–stay well.

[Mr. Tilman Gates, CRE]

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