Originally published in the NAIOP E-Newsletter on September 1, 2020 

The Federal Reserve last week announced it was ending its longstanding practice of preemptively hiking interest rates to stave off inflation. Chairman Jerome Powell said the central bank would instead focus on maintaining low levels of unemployment, even if it comes at the expense of higher prices for consumers. The Fed is expected to maintain its benchmark rate – which was cut twice back in March in response to the COVID-19 pandemic – at near-zero percent levels for the foreseeable future. 

Over on Capitol Hill, Senate Democrats are out with a new report. Called The Case for Climate Action, it recommends trillions of dollars in investments to cut greenhouse gas emissions and reach net-zero emissions by 2050. In terms of buildings in the commercial and industrial space, it highlights options for “decarbonizing everything,” but the plan is far less specific than the one released in July by House Democrats. Sen. Brian Schatz (D-HI), who chairs the select committee that published the paper, said many of the recommendations are intentionally open-ended in order to “maintain flexibility going into the next Congress.” 

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Originally published by Grace Winters and Timi Anyon Hallem in NAIOP's Summer 2020 Issue

It’s crucial to review contracts during uncertain times.

As global markets, economies and governments marshal their resources to respond to the COVID-19 pandemic, real estate professionals must assess their options to address and absorb the impact. A critical and time-sensitive activity is analyzing the force majeure provisions in important agreements and preparing to make creative arguments to achieve the most favorable outcomes.

What is Force Majeure?

A well-written force majeure provision broadly excuses nonperformance of contractual obligations when there are unavoidable events outside the party’s control that were not reasonably foreseeable, either when the contract was written or in the exercise of due care. Typical clauses include “acts of God” (such as earthquakes, floods or other natural disasters), actions — or inactions (such as unanticipated governmental action, delay or restraint, terrorism and wars), and usually some version of a catch-all provision referring to “other events outside of the control of the parties.” Many force majeure provisions specifically exclude increases in the cost of labor, fuel or materials; labor shortages; economic hardship; and transportation delays, unless they are affecting a wide area beyond the property in question.

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Originally published by Aquiles F. Suarez, Toby Burke , and Alex Ford for NAIOP's Summer 2020 Issue

Congress and the Federal Reserve took unprecedented action to shore up businesses, including commercial real estate.

As the COVID-19 pandemic began to shut down the economy, lawmakers in Washington responded, reaching agreements on several bills intended to help the country survive the economic chaos caused by the pandemic. Congress passed three relief bills in March, and the House passed a fourth bill in May that was headed for further negotiations with the Senate.

“Phase I” was H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act, signed March 6. It provided approximately $8 billion in additional funding to federal health agencies and eased regulations to allow for over-the-phone consultations between Medicare recipients and their health providers. The bill also empowered the Small Business Administration (SBA) to issue an Economic Injury Disaster Loan declaration, which makes loans of up to $2 million available to small businesses.

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Originally published by Shawn Moura Ph.D. on August 3, 2020.

Last week, NAIOP conducted its fourth monthly survey of its U.S. members on the impacts of COVID-19. Since April, the association has examined the pandemic’s effects on conditions in commercial real estate and evaluates how firms have responded. The July survey results reveal that commercial real estate fundamentals are improving, but that the pandemic continues to impact development projects and appears likely to remain a significant challenge for longer than many had initially expected.

The survey was completed by 347 NAIOP members between July 15-20, 2020. Respondents represent a range of professions, including developers, building owners, building managers, brokers, lenders, and investors.

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Originally published in NAIOP's Summer 2020 Issue by Ed Kimek, AIA, NCARB

The e-commerce giant understands how to connect products and consumers.

Commerce was changing before the outbreak of COVID-19, from the exponential trajectory of e-commerce, to the growth in consumer demand for more immediate goods, to the rise of urban industrial development to fulfill last-mile needs.

The unknowns of this novel virus have accelerated that change to a tipping point. The structures of commerce, and the development that supports it, may be altered for good. This crisis is proving the necessity of a resilient supply chain.

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Join us on Monday, July 27th as we hear a panel of experts discuss the present state of lending from different lenders’ perspectives on the present commercial lending environment. Submit questions for the panel in advance here.

Panelists

• • Scott Cook, Commercial RE Market Manager, TD Bank 
  • Anthony Fertita, Senior Managing Director, JLL 
  • Welch Liles, Director – Development, Asana Partners (Moderator) 
  • Brad Smith, Commercial Real Estate Banking Market Executive, Bank of America 

Registration

Registration for members will be free and $15 for non-members through July 22. Beginning July 23, the registration fee will increase to $10 for members and $20 for non-members. Prior registration is required.

House lawmakers last week passed the INVEST in America Act (H.R. 2), a $1.5 trillion infrastructure bill that has been a key priority for Democrats since 2018. However, the bill advanced on a mostly party-line vote – with only a handful of members on either side breaking ranks – suggesting its prospects in the Republican-controlled Senate are likely dim. 

The chamber’s Majority Leader, Sen. Mitch McConnell (R-KY), later confirmed that sentiment, saying: “This so-called infrastructure bill would siphon billions in funding from actual infrastructure to funnel into climate change policies… It will just join the list of absurd House proposals that were only drawn up to show fealty to the radical left.” 

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Primary Markets, Gateway Cities, Tier 1 Metros – we’ve all heard of them, and many commercial real estate professionals use them to group cities and markets together. Are these terms simply describing the flow of capital, or directing investment away from opportunities in other cities? How do they differ for commercial, industrial or residential properties? This webinar will share takeaways from a recent report from the NAIOP Research Foundation and discuss conclusions on the definitions, uses, advantages and disadvantages of sorting and ranking markets into tiers.

Speakers: 
Maria Sicola
Co-founding Partner, Citystream Solutions

Charles Warren, Ph.D.
Co-founding Partner, Citystream Solutions

Megan Weiner
Managing and Co-founding Partner, Citystream Solutions

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The City of Charlotte Small business network is more than 10,000 strong.

Add your small business to the Open for Business directory to have your information displayed on the Open for Business website and receive notifications when new access to capital opportunities and resources are available.

The Open for Business platform is a resource for Charlotte small business owners to help them withstand the impacts of the COVID-19 pandemic. By providing access to capital and other resources, the program is intended to help businesses survive the recovery phase of the pandemic and help prepare businesses to thrive in a post-pandemic future.

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Originally published on June 29, 2020 by Meredith Hobbs

The COVID-19 pandemic will set a “new normal” for the office workplace as companies adopt and integrate remote work practices deployed during the pandemic, according to a new report from Cushman & Wakefield. Consequently, it will morph from a single location to an “ecosystem of different locations and experiences.”

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NAIOP is offering all on-demand courses absolutely free to all members through August 1. No code is required. Members can log in with their member ID to see complimentary pricing.

Please note: The ARGUS Software Certification (ASC) - Enterprise Bundle is excluded from this promotion.

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Originally published on June 23, 2020 by Shawn Moura Ph.D.

Last week, NAIOP conducted its third survey of its U.S. members on how the novel coronavirus has affected their businesses and local markets. The survey examines the outbreak’s effects on conditions in commercial real estate and evaluates how firms have responded. The June survey results reveal that development conditions have continued to improve since May.

For the first time, NAIOP is publishing data it has collected on rent payments and tenant requests for rent relief over the last three surveys. As with other metrics, these data reveal gradual improvement in market conditions since April.

The survey was completed by 351 NAIOP members between June 15 and 17, 2020. Respondents represent a range of professions, including developers, building owners, building managers, brokers, lenders and investors.

Originally published on June 9, 2020 by Chris Barnet in DMagazine.com.

Imagine the last time you went to the doctor. You likely rode up an elevator and sat in a lobby or waiting room, elbow-to-elbow with other patients. You probably filled out paperwork, either with a pen and paper or maybe a touch screen device. Unless you were sick, you probably didn’t wear a mask.

The next time you go to the doctor, the experience is likely to be quite different. As a result of COVID-19, how medical office space—and office space in general—is used is going to change.

As physical offices are beginning to reopen and elective procedures are allowed, we are starting to have a better understanding of what a doctor’s visit could look like in the future.

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The economic disruptions from COVID-19 have had significant impact on the credit quality of tenants, building occupancy and demand from buyers, resulting in substantial uncertainty in the valuation of commercial real estate and complexity in the accounting for lease modifications.

John Thomas, CEO of Physicians Realty Trust, and Dennis Power, CFO of the Opus Group, shared their experiences with tenant collections, lease concessions, market demand, and the resulting impacts on real estate valuation across their market niches. Brent Maier provided his view on the impacts he has seen in his role as the leader of Baker Tilly’s real estate transaction advisory services team while Mike Kamienski and David Jamiolkowski, also from Baker Tilly, shared their view of how these issues will impact financial reporting from a real estate impairment and lease accounting perspective. Don’t miss this discussion of critical topics so you understand the valuation and leasing impacts from COVID-19.

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Originally published on June 5, 2020 by Shawn Moura, Ph.D. 

The coronavirus pandemic has accelerated social and economic changes that were underway before the outbreak, while also leading consumers, workers and employers to adopt new preferences and behaviors. Collectively, these changes will require that commercial real estate firms adopt new approaches to design, customer relations and business operations to be successful in the future. Christopher Lee, founder and CEO of CEL & Associates, offered his predictions for how the outbreak will reshape demand for commercial real estate in the U.S. and outlined steps that firms can take to remain competitive during a recent NAIOP webinar.

Lee observed that the commercial real estate market is currently about halfway through a downturn. Although the Federal Reserve’s intervention in credit markets and fiscal stimulus measures have mitigated some of the outbreak’s effects on the economy, “all of that is going to burn off fairly soon unless another economic stimulus comes forward.” Substantial economic uncertainty and fears about the coronavirus have paralyzed decision-making in most markets. Buyers are concerned about the pandemic’s effects on building revenues and expenses as well as potential liabilities from infections, and some may no longer be able to secure favorable financing for an acquisition. Sellers are uncertain whether they should sell now or wait out the pandemic, and are unsure whether they will have good options for investing the proceeds of a sale.

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Originally published on June 3, 2020 by Clay Edwards

As offices are set to reopen across the country over the next few months, many companies are considering all their options to make the workplace as safe and healthy as possible for returning employees. Companies will need to do more than put hand sanitizer dispensers everywhere and rearrange desks to put employees’ minds at ease.

Regardless of whether your company is heading back into the office ASAP or still managing a remote workforce, there’s still time to make updates with no or little disruption. At Skender, we’re actively collaborating with our clients to modify density and employee circulation to meet social distancing guidelines, and we’re seeing installations and renovations of all sizes. Here are 10 office updates that we’re recommending to support a healthy return to work...

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Originally published by NAIOP on June 9, 2020.

Last week, the Senate unanimously passed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010). The legislation eases a number of requirements that must be met in order for PPP loans to be forgiven. Notably, H.R. 7010 extends the “covered period” during which PPP loans must be spent on eligible funds, from 8 to 24 weeks, and allows recipients to use up to 40% of loans on non-payroll expenses, up from the previous cap of 25%. Shortly after passage, President Donald Trump signed the measure into law. 

Recognizing the impact the COVID-19 outbreak has had on businesses, the Treasury Department also took action on Thursday, releasing new guidance that offers relief to Opportunity Zone (OZ) investors. As a result, individuals and firms will be granted additional time to roll qualified gains into an OZ fund and can avoid penalties if “reasonable cause” is demonstrated. 

The companies represent different approaches to the future of real estate, and their success or failure will offer important lessons to landlords.

The collapse of WeWork’s $47 billion valuation was the most exciting real estate story of 2019. Landlords, lenders, customers and competitors watched in awe as the company crashed into a wall of scrutiny and ridicule. In 2020, Airbnb might offer a similar spectacle, with a $35 billion valuation and a growing number of questions about the company’s long-term prospects.

What propels both companies? The changing needs of end users and the growing appetite of venture capital investors to disrupt the way real estate assets are operated and transacted. Both trends will keep transforming the industry, regardless of the struggles of WeWork or Airbnb.

A Time of Transformation

The global economy is awash in capital. According to data from PitchBook and the National Venture Capital Association, venture capital investments reached an all-time high of $131 billion in 2018, exceeding the heyday of the dot-com bubble. Elsewhere in the financial world, the amount of capital available to institutional money managers is also at an all-time high, according to data from Preqin and Ernst & Young.

In theory, investors only want to fund “real” tech companies that have high margins, can scale quickly and operate in industries that are easy to disrupt. In practice, the industries that could be easily transformed by technology — media, business processes, financial brokerages — have already been transformed. As a result, investors are venturing further up the risk curve, seeking out companies that want to disrupt other, more challenging industries such as real estate, health care and mobility.

The NAIOP Research Foundation has published the NAIOP Office Space Demand Forecast for Q2 2020.

Key Takeaways:

• Due to the turmoil in the national economy, rising unemployment and continued uncertainty about future work arrangements, the U.S. office market absorption is forecast to decline into negative territory through the second quarter of 2021.
   
• The steepest declines may be experienced in the third quarter of 2020, with NAIOP's model forecasting a drop of 16.3 million square feet. Absorption rates will increase as the economy begins to gain traction in 2021.
   
• While the economic benefits of density and agglomeration are well-documented, COVID-19 may necessitate a type of "de-densification" in office space, at least in the near term. As a result, current office-using space will face short-term logistical challenges.
   
• While U.S. states begin the process of a staged re-opening, employees will arguably put a premium on workplace cleanliness. They will also put a premium on personal space, which may contribute to increased demand for office space.
   
• Many large organizations have begun to consider a "hub-and-spoke" model for work arrangements, enhanced by technology that allows for the economic gains from agglomeration while recognizing the challenges created by the pandemic.

Originally published on May 19, 2020 by Paul Letourneau

One doesn’t have to look far to see the immediate impact of the novel coronavirus on commercial property markets. Across the U.S., millions of white-collar workers are now working from home, stores and restaurants have closed their doors, and nearly 17 million Americans filed for unemployment insurance in the first three weeks after the pandemic began shutting down cities. Nearly one-third of apartment dwellers didn’t pay their rent in the first week of April, in addition to the countless retailers and hotel companies that are unable to make their lease or mortgage payments.

As lenders and investors grapple with these urgent challenges, many economists and industry experts are asking whether today’s social distancing measures will have lasting impacts. From a lender’s perspective, we’re already evaluating deals through a new lens. The aftermath remains unseen, but the current environment is raising several important questions about the future of all asset classes, including multifamily, office, retail and industrial.

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