Commercial real estate not immune from outbreak

Theresa Englbrecht

Retail and personal service businesses likely will be two areas of commercial real estate most affected by the coronavirus outbreak.

While many retailers maintain an online presence, most smaller retail businesses still depend on customer visits. This includes not only retail stores and restaurants, but also such personal service businesses as accounting firms, barbershops, financial advisor firms, pet grooming operations and salons. For many owners of these businesses, working from home isn’t a realistic option.

If people are afraid or unable to visit local businesses or if a business faces mandatory closure, reduced revenues could result. In addition, retailers face increasing challenges in retaining employees either because of quarantines or some workers with children whose schools have been closed. At the same time, retailers must reassure their customers by incurring the extra costs of intense cleaning.

Depending on how long this situation lasts, retailers and other business owners who lack extra cash or lines of credit to operate during an extended downturn could be unable to pay rent. While a short-term slowdown might be workable, a situation that extends six weeks or longer could result in some leases going into default. Wherever possible, landlords and property managers should keep open the lines of communication with their tenants. Ask tenants if they’re experiencing cash flow issues that affect their ability to pay rent. Work on possible solutions if you can, knowing a good tenant is a valuable asset that could be difficult to replace given current market conditions.

Some landlords could soon find themselves in a cash crunch possibly leading to mortgage defaults. It might be possible lenders would consider debt relief or deferment on commercial mortgages for individuals experiencing cash flow issues.  Contact your lender to discuss your personal situation. For future commercial loans, refinancing could become less available or more costly because of increased prepayment penalties and more stringent financial covenants.

Nobody wants to see individuals and businesses suffer. Given what could be coming, there are opportunities to minimize trouble for those who can act quickly. If it’s possible to refinance, extend lines of credit or renew lines of credit, now could be the time to do so before lenders tighten standards even further.

For those with the available funds or lines of credit, there likely will be opportunities in residential and commercial real estate.

These are trying times for everyone. The ability to foresee risks and opportunities will prove invaluable.

In the meantime, though, keep in mind the most important thing is to make sure you under take all possible efforts to protect the health of your family, employees and customers.