What were the biggest impacts Covid-19 had on commercial properties and property management in 2020?
The full impact of Covid-19 on commercial properties won’t be known until restrictions are completely eased. Some cities and states have gone back to tighter restrictions. Louisiana allows for many businesses to remain open with restrictions, but we also don’t know what might be imposed on a federal level or what the future brings. As of December 2020, we saw many retail businesses close and many more hoped for a successful holiday season to make up for lost revenues throughout the year. Industrial business has seen the benefits of the increase in shipping and deliveries. Additionally, chemical plants, their suppliers and service companies have benefited from low natural gas prices. The office market is seeing some ask to downsize and/or request a reduction in rents. This trend will continue for quite some time as lease terms expire and companies determine their true needs for space. Long term, it might be cheaper for companies to invest in technology rather than large office space.
What were some important steps your team took to address the unpredictability of 2020 and stay connected with your clients’ needs?
As soon as restrictions were anticipated in March, we began communicating with tenants and owners to gather information on how they would be impacted. We helped tenants modify their leases through rent deferments and/or extending their lease terms. We also helped owners communicate with their mortgage companies or financial institutions about deferments on payments. For the most part, banks were willing to work with the owners, which then allowed them to be more flexible with plans for tenants. Everyone is feeling pressure from the economic downturn of COVID-19 and our success rate will ultimately depend on cooperation from all sides. While we still have a long way to go, I’m glad we were able to provide support to some great businesses that needed it.
What trends in commercial real estate do you foresee for 2021?
There are a few potential trend paths for commercial real estate in 2021. Assuming we have another near full year of business restrictions we will have a lot more of the same: Continued unemployment, more business closures, and hardship on our economy as a whole. This could result in foreclosures across all property types and companies/investors who were overleveraged prior to the pandemic will face greater hardships depending on their tenants’ ability to survive continued business closures. A continued eviction moratorium would put more pressure on these investors and their mortgagees. Reprieve in this citation would come with a comprehensive recovery package that truly takes landlords and financial institutions into consideration.
However, with the introduction of vaccines, there is optimism for a return to normalcy. Although, many are apprehensive about its long term effectiveness. Regardless, it’s a step in the right direction to ease restrictions sooner than later. I’m hopeful for an economic boom once restrictions are eased, but the longer the pandemic impacts personal income, the more difficult for economic spending. It will take some time to understand the long term impact to commercial real estate.
Is buying or leasing a better move for businesses?
First and foremost, it’s important to talk to your CPA or financial advisor before making long term financial decisions to determine how they impact you and your company.
We definitely get this question a lot. The vast majority of start-up businesses would benefit long term by leasing property rather than purchasing for several reasons. First is risk. In either case, it is likely the business owner will need to sign a personal guarantee; however, there is likely much greater risk in a purchase than a lease. Second, a short-term lease would not impact the businesses balance sheet as much as a mortgage or other long term liability. Third, how the business will handle growth should be considered. Most start-up businesses allow their space needs to grow with them, which allows them to better budget their real estate costs as a factor or percentage of their revenue.
More established businesses may elect to purchase their real estate assets. This is beneficial for a long term understanding of average costs without having to adjust for increases as often. Again, it’s important that these business owners consult with their financial advisors on the long term impact of a purchase.
Another avenue for an individual is investing in a real estate asset and leasing that property back to his or her business. This lets the investor recapture the cost of the investment personally as well as allowing the business to have a better long term understanding of rental expenses with less concern of lease restraints or termination. A written lease agreement is still necessary in this case, and the rent should still be at or near market value for the investment to work for the individual. Other things to take into consideration are the personal relationship with the individual/investor or as well as what legally may happen if the investor leaves.
What is the brokerage process and why is it beneficial?
In the real estate industry, the terms “broker” or “brokerage” are loosely defined as the practice of representing buyers and/or sellers in sales transactions and landlords and/or tenants in lease negotiations. Legally speaking, an individual with a Broker’s License has more advanced experience and education than someone with a salesperson’s license. Additionally, every real estate company must have a licensed broker on hand to oversee all real estate activity.
The brokerage process can range from simplistic to very complex depending on the nature of the transaction. A prospective buyer or tenant may reach out to a broker with space needs or investment criteria, budget and geographic parameters. The broker will then work with that individual or business through the entire process from identifying the best location through the real estate closing and beyond.
A seller or landlord may have a broker assist them in marketing their space to prospective buyers and tenants. In this case the broker works with the owner to determine the market rate and develop a marketing plan for the property. The broker is typically compensated for services after completion of a sale or lease based on a percentage of the sale or lease value.
While the broker has a legal obligation to ensure your best interests are taken into consideration, a good broker will treat the process in a service-minded manner, helping you along the way regardless of the project’s complexity. At Barker Property Management, we work hard to ensure our clients are getting the best value possible and our relationship goes well past the transaction.
What’s the most valuable thing a professional property management company can provide its clients?
We look at property management as a value add to our clients. An experienced property manager recognizes ways to maximize investment value by increasing property revenue while decreasing expenses without sacrificing the integrity of the property. Streamlining communication and building trust between tenants and owners is an important part of the property manager’s responsibilities.
At Barker Property Management, we utilize our knowledge and expertise with continuing education and three prestigious designations (Certified Property Manager, CPM; Certified Commercial Investment Member, CCIM; and Certified Shopping Center Manager, CSM) along with the Accredited Management Organization designation to ensure our clients are receiving the best care and service possible throughout the changing commercial real estate landscape.