Fair Dealings and The Coronavirus - Commercial Real Estate

Once people stated only two things were for sure - taxes and death.

Let me add another thought. All people own, rent or occupy real estate.

For the moment the ones who lease or rent commercial real estate are vital parts of the US economy. Without rental income, real estate ownership has no value to use in borrowing to own. My 45 years of experience had already shown me we were in a retail real estate bubble. Rents have been skyrocketing the last few years, but not sales. The actual number of walk-in customers has decreased. (ie Amazon and online sales) Local property taxes have increased at an unstainable rate.

Summary: Retail shopping centers have increased along with rents and taxes, and the number of customers has decreased and the average earnings have not kept pace with the cost increases. Thus, commercial tenants have paid higher rents and taxes just trying to increase their business.

Then 2020 COVID-19 entered the picture. Lenders are looking to borrowers and borrowers are looking to tenants and tenants are looking to customers. All are looking to the US government to assist them in the process. And most importantly employees are looking at their employers, be it tenants or landlords, to assist them.

THINK  perfect STORM. The entire chain has been upset by the 2020 COVID-19 interruption in our lives.

As a practicing attorney, I can review the legal concepts of Force Majeure or Impossibility of Contract. Based on the seminars I am seeing offered every lawyer in America is also thinking about can the tenant exit the lease, can the borrower exit the loan, and well you get it.

All of the above tells me, it is time to think about fair dealing with one another, put your cards on the table, and try to work out solutions that tenants, landlords and lenders can accept. One group should not be trying to strong-arm the other, it will not work. Bankruptcy will not improve customer responses once this ends.

Fair dealing means works on solutions to bring back customers, reduce some rent with forgiveness and workout, help landlords work with lenders. In a contraction, things change. Lenders should care if the tenants have customers. Landlords should understand lenders are responsible to investors, and customers should understand all the parties are troubled by the changes and try to understand what does not ruin us makes us stronger.