Commercial Real Estate – Frustrations Mounting As Meltdown Approaches
It is about time for a blog and I wish I had something more uplifting to write about. But we all need to look at the reality of the situation we are in and do the best we can once we do. What is the situation I refer to you might be asking yourself. In the commercial real estate industry everything is linked together and when the link is damaged or broken the entire process suffers which is what is happening now. It starts with the tenants, who are businesses with leases in office, retail and industrial properties (but forget about the industrial tenants for the purposes of this blog) who are struggling. The reasons are varied but the bottom line is they are paying only some or possibly none of their rent. So their landlord cannot pay his debt service to his lender, who most likely is a bank. Now the bank is flooded with these types of situations. What do they do? They can agree to adjust the terms of the loan allowing the property owner to adjust leases and offer concessions to tenants. In that scenario they risk even more by throwing good money after bad. Or they can just take the property back and assume all the expenses of running and owning it. That typically leads to a sale which is less than the value of the property, so the bank ends up losing out too.
If there is no more Government stimulus money and or extension of the PPP loans and unemployment, we are heading to a massive economic meltdown by year end. And we haven’t even talked about the virus! Strictly speaking from a commercial real estate standpoint, there is only one defense against the virus, retrofitting a property’s HVAC system with new virus killing filters. If that doesn’t happen the property is just the same as before and whatever is in the air will keep spreading. So until that happens or there is a real vaccine we are in the most frustrating situation where we really can’t move forward or backwards now. It doesn’t matter when you choose to return to return to the office, it will be just the same as when you left it.
American leaders failed to understand the simple premise that if you stop or control the virus you can reopen businesses and schools but not before. Since they are doing it before things will slide back and get worse again which is what is happening already. Seems clear as day to me yet so many cannot see it coming. My frustration is through the roof right now, at how poorly this whole thing has been handled and all the lies that are being told to the American public about it. But eventually it will pass and I will be very thankful once it does. I wonder when that will be and what the world will be like at that point. As always thanks for reading and have a great day.
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