Experts: Commercial Real Estate Industry Sees Hardships Yet Continues to See Hope on the Horizon

Commercial real estate has experienced one of the hardest hits when it comes to the coronavirus impact on local and national business, but there are rays of hope among industry experts and companies who are working hard to navigate the shifts in office, retail, hospitality and more.

There are the surface changes, such as virtual showing and the move toward full-time remote work. There were major changes in the way offices, hotels and stores handle safety, sanitation and mask policies. But despite those stressful changes, officials at commercial real estate companies and construction firms believe there is hope on the horizon and that people will still want to work in office settings going forward.

On the downside, according to a recent KPMG study, 68% of large-company CEOs plan to downsize their office space as a consequence of the pandemic. Small businesses are also significant lessees across the United states and are being hit hard by the pandemic.

A new national report shows the hotel industry is facing a historic wave of foreclosures as the COVID-19 pandemic continues to devastate small-business hotel owners and its workforce. Since the beginning of the pandemic the hotel segment has faced a historic number of delinquencies and is the most heavily hit sector of the commercial mortgage-backed securities (CMBS) market, according to the American Hotel & Lodging Association.

While decreasing rent is a short-term fix, it’s not sustainable, especially given bank commitments on property mortgages, according to transformation expert Amy Radin, the author of business book, “The Change Maker’s Playbook: How to Seek, Seed and Scale Innovation in Any Company.”

“Property owners and managers have to face the reality that the need for traditional shared workspace is on the decline and the nature of the space tenants and buyers want is changing,” Radin said. “It’s time to reimagine and build a new path forward for the commercial real estate world during and post-COVID.”

On the plus side, however, there is reason to see light on the horizon. For example, co-working spaces such as Bamboo Detroit are still going forward with building out new spaces for in-person co-working as well as adjusting their spaces to accommodating working parents – whether it is bringing their students into work with them when possible or offering space to certain educators to use during the virtual-learning shift.

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Experts also predict that there will be a boom in certain kinds of commercial real estate, especially within the retail world. More capital is likely to go to the construction of “essential” businesses such as grocers, dollar stores, pharmacies and medical centers – all things that have proven to be needed during the coronavirus quarantines as well as in general.

Extreme safety
Andy Gutman, president of Southfield, Mich.-based commercial real estate management firm Farbman Group, said they have had highs and lows during the coronavirus pandemic, but the big picture gives the company hope.

“The important thing (about coronavirus downturns) is none of us within commercial real estate caused this to occur,” Gutman said. “Because of the fact that it’s no one’s fault, we’re seeing more collaboration and collaborative efforts to pull us out of it. That’s why we’re doing ok. We’re seeing people working together to get us out of this.”

When coronavirus hit, Farbman went to its tenants to talk about rents and payment plans. Deferred payment plans were activated, and Farbman said it would work with its tenants to make sure they had time to recover. In April, its collections were higher than expected at about 85%, Gutman said. Since then, collections have continue to improve with 96% collections in August.

“We’re cautiously optimistic,” Gutman said. “A lot of people are concerned (commercial tenants) won’t take up as much space going forward, but it’s too early for that prediction. If you don’t have a pressing decision to make, we’re telling people to look 90 to 120 days out – we won’t fully know the landscape until there’s a vaccine. Then, we can star to see what will happen.

“The one thing we do know,” he added, “is that people want action. People can work from home, but human beings are collaborative. Most of us can’t wait to get out of their basement offices.”

To balance going back into the office, Gutman said Farbman has put in extraordinary safety and sanitation efforts, such as antimicrobial buttons to put over regular elevator buttons – this extra touch of safety helps people feel good about coming back into the office, he noted. At its buildings, Farbman is doing extra cleaning, putting in hands-free openers in public spaces such as restrooms as well as changing air filters more often so people feel more comfortable.

Building anew
Troy-based KIRCO MANIX experienced some worry with the coronavirus pandemic, especially when Gov. Gretchen Whitmer issued an executive order limiting construction projects in April. A May 1 order, which went into effect May 7, allows most construction projects to restart with safety and social-distancing protocols in place.

“We were re-engaged as soon as the executive order was lifted. From that point forward, we’ve been working six, 12-hour days to make up for some of the lost time,” said Douglas W. Manix, President of KIRCO MANIX, which provides construction services in office, manufacturing, distribution, retail, healthcare and senior-living market sectors.

For 2020, KIRCO MANIX officials said the company is forecasting to complete more than $100 million in construction, mostly in Michigan.

“Up until the COVID shutdown, we had a robust backlog (of projects) going into 2021. It was a healthy sales funnel,” Manix said. “Some jobs were in their early stages and they hadn’t broken ground yet. But as it turned out, all of our clients elected to move forward. … We’re a can-do industry that likes to build things (and) we’ve weathered brutal downturns before.”