In the face of COVID-19, the way people interact with physical space changed overnight. The entire commercial real estate industry is grappling with how to respond to the unprecedented challenge that this represents. While the impact of COVID-19 is broadly distributed across commercial real estate asset classes, each asset class faces unique challenges and, in some cases, opportunities. G.S. Jaggi, known as “Jaggi”, is the founder and Chief Investment Officer of Iridius Capital, a real estate firm based in Tucson, Arizona. Under G.S. Jaggi’s leadership, Iridius Capital has brought over $1.5B of real estate projects to life across all major real estate asset classes since its founding in 2011. With over 20 years of investing in commercial real estate and over $1.5B in acquisitions and development, here’s how G.S. Jaggi recommends real estate operators and developers respond.
Prioritize Health and Safety, Minimize Liability
Making health and safety a priority is non- negotiable. Landlords and tenants must act to protect employees and customers. Though laws vary by location, landlords often have a legal responsibility for creating safe and clean conditions for tenants. Understand local and federal guidelines for how to create safe environments and inform tenants about how to do the same for their employees and customers. Share ideas and resources to maximize all stakeholder’s ability to implement changes quickly and efficiently.
The way you treat your tenants today will become part of your brand. You worked hard to land these tenants, now you need to work to keep them. Their resiliency is your resiliency. You may be faced with the challenge of protecting tenants while engaging in difficult negotiations with them. Bring your integrity to every conversation. The way you respond to a crisis says everything about who you are.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed on March 27th, 2020. It contains relief provisions for workers and families, small businesses, and state and local governments. Don’t just focus on what provisions provide relief for you, dig deep, and gain an understanding of how your tenants can leverage the relief available to them too and then spread the word. Small businesses may be able to access loans that can be forgiven if used to cover approved expenses, which may include rent.
Build Liquidity & Reserves
One of the biggest challenges about the COVID-19 crisis is the uncertainty associated with it. We have to wait to see if and when a vaccine will become available. We’re monitoring consumer behavior to see how quickly it will bounce back. Build your liquidity and reserves. Thing long-term. Like all crises, this too shall pass but positioning yourself to wait it out is something you can’t afford to wait to do.
Data Won’t Do It
Historically, real estate operators, developers, and investors have relied on market data to support their decision making. Data is and always will be an important part of real estate decision making. But now you need to look deeper to understand the psychological impact of COVID-19 on tenants, employees, and customers.
Anticipate Behavior Changes
As cities, states, and countries position themselves to re-open, many won’t be going back to business as usual. Fundamental changes are coming. Look at your tenant base to consider what changes you might be able to help them to make to be successful in the face of changing consumer and employee priorities. Leverage temporarily reduced parking demand to expand your restaurant tenant’s outdoor patio space. Direct entry and exit traffic flow at your office building to maximize social distancing. Work with your grocery anchor to improve traffic flow to fulfill increased pick-up business.
Make the Move Online
If you were avoiding moving your leasing business online because you preferred building relationships in person, the time to abandon that archaic thinking is now. Tenants are showing a new willingness to rely on virtual tours to find new space to live and work. Make it easy for tenants to pay online. If it can be done online, it must be.
Before you head out the door to look for distressed acquisition opportunities, check your business infrastructure. Using any downtime your team may be experiencing to create better systems and processes is a good way to position yourself to come out of the downturn in a leadership position. Update your standard lease forms, get an information security policy in place. Examine every part of your business for efficiency opportunities and then get to work implementing them.
Case by Case, Tenant by Tenant, Lender by Lender: Communication is key
No two properties and no two tenants will experience the impact of COVID-19 in exactly the same way and tenants may seek relief whether or not they are experiencing hardship. Your lender is unlikely to provide relief to you unless you can document hardship. While showing empathy and building trust are an important part of building your brand through a crisis, reserve any rent relief for those tenants truly experiencing hardship. To do so will require you to be in constant communication with your tenants, working to gain an understanding of the impact of COVID-19 on their individual businesses.
We’re in a different world than we were in just a few short months ago. As with all major market disruptions, the challenges will be followed by opportunity. There’s never been a better time to work closely with your business partners, revisit your best practices, and position yourself to be a leader when we all come out on the other side of this crisis.