Prior to COVID, it seemed as if every other article in the business blogosphere was about the end of the onsite office era. It was said that millennials, who prefer workplace flexibility above all else, have changed the way to do business and employers who did not recognize this were doing so at their peril. Working remotely was soon going to be the new norm and commercial office space was on the path to extinction.
Once COVID hit, more and more companies feverishly adopted working remotely out of necessity. Now, as these companies have adapted, to the casual eye, that dire prediction of office space annihilation looks as if it could actually happen. After all, rental overhead is a major expense and who needs all this space when people are working from home? But it’s not a one-size-fits-all solution. Working remotely does make sense for some industries, like sales and IT support, but that is not necessarily true for professional services companies. There is still value in a place to work away from daily family pressures and obligations.
This is no time for commercial real estate owners and investors to be passive. They should start having renewal discussions now. Offering incentives in consideration of lease term extensions to try and proactively prevent their tenants from running out the clock on their existing leases is a good place to start. As for prospective tenants, many are currently gripped with financial uncertainty which has curtailed long-term strategic planning. They will therefore be looking to enter short-term agreements which will in turn have a dramatic impact on commercial construction. Thus, there will be less build outs as recoupment of these costs will not be feasible.
Retail Real Estate:
As in the commercial leasing realm, for the retail landlord, prior to COVID, all we heard was that destination retail is unsustainable and that it was destined to be conquered by online shopping with Amazon leading the charge. So, it’s now time for some keen risk assessments for retail landlords. Which of your tenants are going to make it through and beyond the pandemic? Also, fitness centers may continue to be high risk, as will be many restaurants. Retail landlords need to ask the pertinent question of their tenants, “what’s their long-term prognosis?”
Retail landlords also need to research the intangibles. For instance, no matter what the type of business, those retail tenants who have a great relationship with the local community will survive. As a landlord, if you are not willing to invest the time to know these tenants and their business plans, just as you would a mutual fund or stock, you are doing yourself a disservice. This does not have to be adversarial, but rather “partner-esque” in tone, as you are vested in them whether you like it or not.
Residential Real Estate:
By all measurable accounts, 2020 was a rough year for residential landlords. The eviction moratoriums, both local and national, have landed many property owners on the brink. In addition to the emotional and financial toll it’s taken, the loss of their rights is staggering. Landlords cannot withstand another prolonged rent moratorium. With the Centers for Disease Control and Prevention (CDC) Halt on evictions now being extended through March 2021 and with the House and Senate contemplating the resurrection of the HEROES Act, 2021 is going be just as challenging as 2020.
Landlords are not financial institutions; they must receive rents to fully operate. It’s just that simple. Not only will many residential housing providers go into default, but rents will go up to make up for the lack of income. Even with governmental rental assistance, without the ability to evict non-paying tenants, they won’t be able to make property improvements or keep up with costs such as for landscaping and on-site maintenance.
As with nonpayment of rent remedies being targeted by tenant activists and governmental entities, the at-will tenancy, where landlords could decide at the end of a lease term to terminate an agreement, could be ending. Landlords may eventually become legally committed to every renter, no matter what their payment record is or how they’ve treated the property. The law is not supposed to interfere with the rights of property owners. These drastic measures are at hand and it’s going to lead to a destabilization of the housing sector. When you upset the delicate relationship between landlord and tenant, this is what you get.
We are at a critical time in our nation’s history. COVID-19 is not going away anytime soon and there are calls for extended eviction moratoriums. It is open season on landlords. Between more legislation and executive orders, the weaponization of legal aid and opportunistic consumer lawyers, a considerable increase in tenant bankruptcies, repo’s, and the ever-present specter of fair housing claims, you need a law firm with the legal firepower and skill set to handle this hostile environment. At Paletz Law, we pride ourselves on being Innovative Landlord Advocates and we will never back down from this fight.
On a final note, in lieu of holiday gifts to clients, we have instead given to two nonprofit organizations we feel strongly about – The House of Providence, which helps minors in the foster care system without the prospect of permanent placement, and The Joseph Project, which provides pro bono legal services to human trafficking victims. For more info on both of these groups, please visit our website www.paletzlaw.com
The information contained in this article is only meant to be a basic overview and should not be construed as legal advice. Readers should not act upon this information without the advice of an attorney. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or otherwise be disseminated without the prior written consent of Paletz Law.