May 2020 | Page 2 of 2 | FIP Commercial

May 07 No Comments

What CRE Will Look Like as America Reopens

Author: Admin

Categories: Commercial News

The United States has had more than 1 million confirmed COVID-19 cases, with a death count approaching 70,000, as of Monday. And new reporting from the New York Times revealed that the Trump administration is “privately projecting a steady rise in the number of cases and deaths from the coronavirus over the next several weeks, reaching about 3,000 daily deaths on June 1 […] nearly double from the current level of about 1,750.”

The Federal Emergency Management Agency, meanwhile, is forecasting “about 200,000 new cases each day by the end of the month, up from about 25,000 cases now,” according to the Times.

So while some cities and states have begun to relax “stay at home” orders in recent days, those numbers shed doubt on whether the U.S. as a whole is on a steady path toward reopening yet.

Still, at some point the worst of the pandemic will subside. When it does, we will not be returning to the same world. That has sparked many discussions in the commercial real estate industry as to what a post-COVID-19 landscape will look like and what that will mean for the various sub-sectors in the industry. How we use buildings will change. That means layouts, density and uses will have to evolve in order to allow for people to safely come back. As just one example, restaurants will not be able to squeeze tables as tightly together as they did previously. Not many people will be willing to eat meals while rubbing elbows with fellow diners as we used to.

There will be universal changes. Temperature checks might become the norm to enter any business. Masks could be required for a while. Hours of operation may be altered to allow for staggering the workday to reduce density. We will also see an increased premium placed on cleaning and hygiene.

“All of the sustainability certification systems–including LEED and WELL–prioritize indoor air quality for the health of the occupants of buildings, but reducing air filter quality was a common strategy in non-certified projects for saving construction costs because most people would not notice or care about the difference. In the post-COVID-19 world, the quality of the air that we breathe in our homes matters, even if we cannot physically see or feel it,” says Benjamin Kasdan, AIA, LEED AP, principal, KTGY Architecture + Planning.

In other ways, though, it’s not so much a reimagination of commercial real estate, but an acceleration of trends that had already begun to emerge.

“While the pandemic and its associated stay-at-home orders have suddenly and unexpectedly interrupted all of our lives, many of the architectural design impacts that will ‘result from’ the pandemic were actually already growing trends for contemporary residential design,” Kasdan says. “In particular, we expect the emphasis on building healthy communities to continue to gain momentum as a result of this shared experience, as will a renewed interest in self-reliant design strategies and resilience.”

Source: NREI

May 05 No Comments

Commercial Leases In The Era Of COVID-19

Author: Admin

Categories: Commercial News,Leasing,Trends

Commercial real estate is poised to be hit especially hard by COVID-19.

While homeowners and renters have their own worries, commercial owners and their tenants are anxiously navigating their way through a morass of decimated income levels and unpayable rent, the path fogged-over by the novelty and unique horror of the current situation.

Now two months into the COVID-19 nightmare, commercial mortgage specialists are still being asked many of the same lease-related questions by their clients. MPA reached out to three of the partners in the New York office of Quinn Emanuel Urquhart & Sullivan, LLP, Andrew J. Rossman, Christopher D. Kercher, and Rollo Baker, to get some answers.

MPA: Has the government adopted any measures to help commercial tenants?

Andrew J. Rossman: Yes. While the federal government hasn’t adopted any comprehensive relief from rent obligations, various government entities have enacted mandates intended to prevent eviction due to coronavirus-related business disruptions.

For example, New York has paused commercial evictions and ordered state-regulated financial institutions to grant 90-day forbearance relief to some borrowers financially impacted by the COVID-19 pandemic. California has authorized local governments to suspend commercial evictions based on nonpayment of rent caused by a substantial decrease in business income related to COVID-19. Los Angeles has issued an ordinance temporarily prohibiting landlords from evicting commercial tenants for failure to pay rent during the ongoing crisis, though this does not apply to large or publicly traded companies. Seattle, Miami-Dade County, and Cook County have closed their Courts to eviction proceedings, effectively suspending evictions in those jurisdictions.

If tenants can access some of the $350 billion in small business loans contained in the federal CARES, they may be used to pay rent and other obligations. Some states are offering their own subsidized loans, too. Pennsylvania launched a small business relief fund to extend zero-interest loans of up to $100,000 to small businesses.

MPA: Does the law excuse a commercial tenant’s obligation to pay rent?

Christopher D. Kercher: Maybe. In the absence of more comprehensive debt relief measures, commercial tenants and their landlords should examine their written lease agreements to assess rent obligations during the pandemic. Tenants should review force majeure provisions that may be in their lease. Where a tenant’s operation of its business is prohibited by law, that tenant may be excused from lease terms relating to hours of operation or allowing access to the property.

Tenants should also assess whether their leases include provisions excusing or reducing rent obligations when there has been a “governmental taking” or “casualty” to the premises, and whether the pandemic and related government shutdown regulations could qualify.

MPA: Are there other potential defenses tenants can leverage?

Kercher: Potentially, particularly the legal doctrines of “frustration of purpose” and “temporary impracticability.” Generally, these doctrines apply when unforeseen, intervening events the contracting parties assumed would not happen deprive a party of the contractual benefit, defeating the purpose for the contract.

MPA: If a business is forced to close because of shutdown orders, could the “takings” provision in a lease provide a commercial tenant with some form of rent relief?

Rollo Baker: That’s an interesting question. Sometimes leases include clauses that provide for rent abatement or lease termination if there is a “government taking” of all or a portion of the premises. People are naturally wondering if government shutdown orders, which bar the use of the leased premises, count as “government takings” under the lease.

The Takings Clause of the Fifth Amendment of the Constitution requires “just compensation” when the government takes private property for public use. Courts have recognized that government restrictions on property rights, short of actually seizing property, may constitute a taking when the restrictions undermine the property’s economic value. However, courts have also held that the government’s exercise of “police power” to protect public health and safety does not constitute a “taking.”

State constitutions and state statutes may be more protective of property rights. Some state courts have held that quarantines destroying vegetation to stop disease are takings, requiring just compensation. Some state courts have also held that temporarily denying people the right to access their property constitutes a “regulatory taking” under their own state constitutions. This is a complicated body of law. It may prove fertile ground for negotiation and, if unsuccessful, litigation.

MPA: Does the denial of the “quiet enjoyment” of a space mean a tenant can stop paying rent?

Kercher: Probably not. Commercial tenants who are barred from use of their leased premises sometimes have a viable claim for breach of the covenant of quiet enjoyment, or possibly constructive eviction. But if the landlord is a private party not responsible for the regulations imposed on its tenants’ business operations, it is unlikely that the landlord can be held liable.

Baker: And many commercial leases condition the tenant’s right to quiet enjoyment on its payment of rent.

MPA: If tenants aren’t able to pay rent, what does that mean for the owners’ mortgage payments?

Rossman: There might be some relief for them. The federal government has encouraged lenders to grant voluntary extensions to borrowers impacted by COVID-19. To facilitate such agreements, the government has adopted orders temporarily limiting reporting, accounting, and regulatory compliance. Some banks and other lenders have announced programs for assisting eligible debtors and are waiving service and late fees, offering credit line increases, and approving collection forbearance for up to 90 days.

Baker: Several states have adopted measures requiring banks to grant forbearance under certain circumstances on debt obligations based on hardship. For example, New York Governor Cuomo’s Executive Order No. 202.9 provides that “it shall be deemed an unsafe and unsound business practice if, in response to the COVID-19 pandemic, any bank … shall not grant a forbearance to any person or business who has a financial hardship as a result of the COVID-19 pandemic.” Other states could follow suit.

Kercher: Landlords should look at their debt documents to assess whether they can invoke common law doctrines, such as “temporary impracticability,” to gain a near-term reprieve from debt collection. Every lease has unique terms, and both landlords and tenants should seek legal advice prior to taking any course of action. The economic shutdown does not mean a shutdown of choices under the law.

Source: Mortgage Professional America

May 02 No Comments

Lease Insurance Could Come Into Play Amid COVID Crisis

Author: Admin

Categories: Commercial News,Leasing,Multifamily

Millions of apartment renters across the U.S. have lost jobs and income in the economic crisis caused by the spread of the novel coronavirus. Many are working with landlords by making partial payments and creating payments plans.

But another aspect of the industry is being tested by the crisis: lease insurance products that have replaced security deposits for some renters.

Founded in 2015, Leaselock provides lease insurance that covers damages and lost rent for roughly one million apartment units. At the properties that use LeaseLock, renters don’t have to provide a security deposit to move in. Instead, they pay a deposit waiver fee of $29 a month for a standard lease insurance policy. In return, LeaseLock agrees to insure the property and pay for potential losses on the apartment, including up to $500 in damages and $5,000 in lost rent—or even $7,500 in high rent markets.

LeaseLock does not carry to risk of these policies itself, but sells the risk to reinsurance companies. Claims on LeaseLock’s lease insurance are triggered when a lease is terminated with damages or an unpaid balance owed. So far these reinsurance companies have not significantly raised their prices for new policies.

“It works well for the resident and it works well for the managers,” says Rick Haughey, vice president of industry technology initiatives for NMHC. ”But how do you price that risk and has that changed?”

More than 26 million people have filed for unemployment in the five weeks since cities and state began to order non-essential businesses to close and residents to shelter in place to the slow the spread of the novel coronavirus.

“There’s risk attached to every renter now,” says Mark Stringer, executive vice president for Avenue5, an apartment company with 70,000 units under management, including thousands covered by LeaseLock. “In the past, you may have had some owners say, ‘Well, we have residents that never lose their jobs so we don’t have to worry.’ Well, now you have to worry.”

For April, the effects have been relatively muted.

The amount of rental income collected by apartment companies in April 2020 dropped 7 percent compared to the monthly average set earlier this year, according to LeaseLock.

That’s similar to National Multifamily Housing Council’s rent payment tracker which found that 89 percent of apartment households made a full or partial rent payment by April 19 in its survey of 11.5 million units of professionally managed apartment units across the country.

“It is not as dismal as we thought it was going to look in April,” says Reichen Kuhl, president, founder and chief of insurance and legal for LeaseLock, “Renters who can pay have paid.”

Numbers for May are expected to be worse, however.

Meanwhile, LeaseLock is helping its clients negotiate with residents who are having trouble.

“Right now, 100 percent of people having trouble are being offered concessions,” Kuhl says. “Almost all of these are good, steadily-paying residents, and apartment companies want to keep good stable residents in place.”

So far, renters in trouble seem to be taking these deals, according to early data from cities where the coronavirus struck first. In Seattle and Los Angeles, which issued “stay at home” orders relatively early, the share of people who paid only part of the April rent is much higher—and the amounts being paid seem to match the “50 percent” being offered by many apartment companies, according to LeaseLock.

“We did see a concerted shift towards partial payments,” says Rochelle Bailis, vice president for LeaseLock. “That shift was pretty dramatic in the hardest hit cities.”

For example, Irvine Company is enabling renters to defer 50 percent of their April and May rent payments over a six-month period, interest-free. All renters have to do is “request rent assist” to create a new payment schedule.

Many other apartment companies have halted evictions and offered similar plans – following the advice of trade groups, including both the National Multifamily Housing Council and the National Apartment Association.

Usually, when a renter is more than a month late in paying rent, the property manager will issue a “pay or quit” notice demanding payment. Cities, states and federal agencies have also created moratoriums on evictions covering a wide patchwork of jurisdictions.

All this comes as lawmakers consider further regulating or even outlawing security deposits, which may push more of the industry towards companies like LeaseLock, or the creation of their own installment plans.

“States are putting more regulations on security deposits,” says Rick Haughey, vice president of industry technology initiatives for NMHC. Legislators argue that having to pay a security deposit can be a barrier for many people to renting an apartment. “Most people just don’t have two month’s rent,” says Haughey.

In Cincinnati, Ohio, landlords must now offer renter alternatives to paying a security deposit, according to that city’s new Renter’s Choice Law, which went into effect in April 2020. Lawmakers in Philadelphia have proposed legislation (House Bill 2427) that could lay the groundwork for total deposit replacement, according to Kuhl. Other new rules include limits on the amount property managers can collect as security deposits, how the money is held in escrow and in some places requirements that the deposit can be paid in installments.

Source: NREI

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Month: <span>May 2020</span>

What CRE Will Look Like as America Reopens

Commercial Leases In The Era Of COVID-19

Lease Insurance Could Come Into Play Amid COVID Crisis

“It works well for the resident and it works well for the managers,” says Rick Haughey, vice president of industry technology initiatives for NMHC. ”But how do you price that risk and has that changed?”

“It is not as dismal as we thought it was going to look in April,” says Reichen Kuhl, president, founder and chief of insurance and legal for LeaseLock, “Renters who can pay have paid.”

“Right now, 100 percent of people having trouble are being offered concessions,” Kuhl says. “Almost all of these are good, steadily-paying residents, and apartment companies want to keep good stable residents in place.”

“We did see a concerted shift towards partial payments,” says Rochelle Bailis, vice president for LeaseLock. “That shift was pretty dramatic in the hardest hit cities.”

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