Commercial Real Estate in the Pandemic – a Study in Two Markets

  • Brad Ritz
  • 10/27/20

The pandemic has affected the lives of, nearly everyone, all over the world. The commercial real estate industry has seen it’s fair share of casualties and devastation as well. While one can presuppose a position that there can be no casualties to mere buildings in a pandemic. It does, however, greatly effect the people who make their livings with them and from them.

They are, in essence, an inherent lifeline to the American economy. When those who own the buildings (by outright or share), own businesses in the buildings (by outright or share) or work within those buildings

There will likely be less demand for commercial real estate due to the rising popularity of online shopping and working from home,” said Ivy Investments global economist Derek Hamilton in an e-mail.

That’s why giant corporate real estate firm Brookfield Property Partners (BPY) said it will lay off 20% of the 2,000 employees in its retail arm, which owns malls and other shopping centers that include Tysons Galleria in Virginia and the Grand Canal Shoppes at The Venetian Resort Las Vegas.

Commercial Side That Remain Strong...

There are lot of subsectors in commercial real estate,"
 - notes Fernando De Leon, managing partner at Leon Capital Group, a real estates investment firm.

Some parts of retail are even holding up well, said Michael DeGiorgio, founder and CEO of CREXi, an online real estate marketplace that has partnered with Leon Capital Group.

Pharmacies, grocery stores and restaurants with thriving takeout and delivery businesses are doing particularly well, DeGiorgio said. “The lights are slowly turning back on, ”DeGiorgio said. “People may be anxious to go back out, go shopping and eat out again. ”But it’s definitely a case of haves and have nots when it comes to in commercial real estate. Many hotel, office space owners and specialty shops are struggling. ”Hospitality and retail have been decimated. The office side is still up in the air,” said Ivan Kaufman, CEO of Arbor Realty Trust (ABR), a real estate firm that invests in mortgages tied to commercial real estate and multifamily apartments. Kaufman said that many big tech companies, which have done well during the pandemic, are still committed to having people come to physical offices occasionally instead of doing all work remotely. ”The complete elimination of offices is not happening. Many companies realize they still need them even though demand may be softer, ”he said. “It’s not all doom and gloom. It’s an adjustment. ”Kaufman added that the start of school across the country will be key to the return to normal for Corporate America. He thinks more working parents will be able to head back to the office on occasion if their kids can attend school more consistently.

More Aid From Washington Needed

Still, Federal Reserve chair Jerome Powell acknowledged the continued softness in commercial real estate during a press conference last week.Powell noted that many commercial real estate firms are unable to take advantage of low interest rates to borrow more money due to legal obligations in their debt covenant agreements.

That means that some businesses are unable to fully take advantage of low interest rates, as homeowners can by refinancing.

There is some hope that Washington will do more to help commercial real estate.Congressman Van Taylor, a Republican from Texas, wrote a bipartisan letter this summer urging Powell and Treasury Secretary Steven Mnuchin to boost financial aid for the industry in order to “bridge the temporary liquidity deficiencies facing commercial real estate borrowers.”

“These industries don’t need a bailout, but they do need flexibility and support to keep their doors open,” Taylor wrote.

Where and when those monies will appear remains to be seen.

Residential Real Estate Still Reigns Supreme

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