Commercial real estate update

This is an excerpt from my interview with Seth Kessler who is a commercial real estate broker with SCG Retail.

Brian:       So I’d like to dive right in.  One of the things that I’ve been talking about here is the current residential real estate market and what we’ve been seeing.  I’ve had some guests here with me and just talking about that.  Love to hear like, you as a commercial real estate expert, what are you seeing in areas that you focus in on right now?

Seth:        Obviously over the past I guess it’s been almost 2 months or maybe even a little bit longer that we’ve all been in lock down, in quarantine.  From really the first week we just heard most retailers say that they’re just putting all expansion plans on hold until this pandemic, quarantine life, gets back to normal.  Not much has changed in that front.  A lot of conversations have shifted from we’re putting things on hold to now they’re trying to figure out how they are going to reopen. How these tenants – restaurants, the hair salons, the spas things like that where there’s more physical contact- of how they’re going to reopen.  What their reopening strategies going to be.  They’ve even gone more so from putting things on hold to we need to figure out how we’re going to get back to life in the near future.  Whether that’s the next 6 months, a year or two years.  So, it really has transitioned but that has been the conversations.  That’s actually coming from the tenants’ standpoint.  The landlords have been talking all over the board.  I’ve heard some landlords saying ‘Look, the rent’s due. We need our rent for the past 2 months’ which I don’t agree with those landlords.  Then a lot of my clients have been saying ‘Look, we know where this is going. We need to work with our tenants. The rent is due but we need to figure out a way where they’re going to stay in business so they can continue to fill our spaces’.  It’s a partnership.  Most of my landlords, my clients that I do repeat business with, have been saying ‘We need to figure out how to keep our tenants in business’.  And some of them have unfortunately already given the keys back and said ‘Look, they can’t fulfill their responsibilities.  Some tenants that weren’t making money or weren’t making much money are taking this as the time to kind of trim the fat and say ‘Look, we’re dead in the water now and we aren’t going to bounce back from this’.  That’s been some of the more recent conversations that I’ve been having on a daily basis with tenants and landlords. 

Brian:       The landlords were, for the most part, they’re for putting rent off and allowing the tenants some time?  How does that work in terms of what will be the plans for, let’s say, a restaurant?  If they don’t pay the rent for a couple of months do, they have to – is it 2 months or is it 6 months?  How do they pay back those arrears?  How does that all wash out?   

Seth:      Each tenant, each landlord handles each deal differently but what I’ve been seeing and hearing that a lot of tenants are going to do, they’re deferring the rent for later in the lease.  Some of them are saying ‘Look, if it’s 3 months then every month for the length of the lease will be a little bit increased to make up those 3 months’.  Some landlords are saying ‘Were going to defer payment all the way until the end of the lease’.  So, if it’s 3 months deferred now, they will extend their lease by 3 months.  The only catch with that is it would be at then escalated rent so the landlord gets a little bit more at the end of the lease.  The landlord risk’s is if the tenant doesn’t make it for that new part of the lease but it’s a risk that some landlords are willing to take and some tenants are also willing to take that as well.  Something that I’ve heard and I haven’t seen it much around New York but in some of the other markets, landlords are saying ‘Look, we will extend if it’s 3 months deferred, right now we’ll extend your lease by 6 months or another year’ so there’s a little bit more upside for the landlord for not making the money now but they’re going to get a tenant for a little bit longer.  I’ve heard some landlords doing that in other states and other markets.  Mostly in New York, I’ve heard a lot of like one for one, months deferred now till the end of the lease.  It helps the tenants out a lot because they don’t have to worry about the payments now.  They will have to worry about them in the future but hopefully they’ll have cash flow and enough money that they’ll be able to afford to pay for those rents to stay in business.

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