Commercial real estate brokers hit by uncertainty, closures
“This year was going to be phenomenal. There were deals flying all over the place and values were driving up – and we just hit a brick wall.”
Joe Latina, a broker for Patterson Woods Commercial Properties in Wilmington, pretty much summed up how many commercial real estate brokersin Delaware are feeling today.
Brokering commercial real estate deals has long been a task based on personal interaction: site visits with clients, meetings to review deal terms and trips to conferences and meetings to prospect new clients. With the orders by state leaders to largely stay home to slow the spread of coronavirus though social distancing, however, brokers are trying to protect their staff and their projects in an unprecedented reality.
In his state of emergency order, Gov. John Carney forced real estate firms to close their offices to the public and prohibit open houses, but allowed them to transact business from home and hold scheduled showings for clients who still wish to do so.
Brokers like Latina, Pete Davisson at Jackson Cross Partners in Wilmington, and Rob Stenta at Pettinaro are trying to eliminate as much as face-to-face as possible.
“We’re all juggling time, phone calls and email. We’ve never experienced anything like this so it’s really untested waters,” Davisson said.
Jackson Cross sent all of its more than 50 employees home with a laptop in order to work remotely, instructing them that they were not allowed to come back to the office in order to abide by the guidelines suggested by public health leaders, Davisson explained. They’ve been using videoconferencing software to complete as much of the normal order of business as possible.
Stenta, the vice president of commercial leasing at Pettinaro, said that he’s working from home and is not scheduling site visits with clients. He noted that the internet and other tools has made doing that easier than it wouldn’t have been a decade or two ago, when blueprint reviews, site visits, term negotiations, and lease signings all would have had to be done in person.
“The safety of our communities is our top priority. We’re all taking the health guidelines seriously,” he said.
Latina said that he was closing a deal on a property amid the second full week of the coronavirus outbreak, which upended the normal flow of business.
“We were supposed to do a pre-closing meeting on site, but I switched it to a conference call,” he said.
Davisson said that prospects for new business have all but dried up, and much of the firm’s work is protecting previous projects in the pipeline. He said that he had spent the last few weeks searching for the right office building for a client when they called to tell him they were mothballing the move for now.
“They just said, ‘You know Pete, this just doesn’t make sense for us to get all lathered up over a possible building when we don’t know what’s going to be happening next week,’” he said.
Another client pursuing a substantial deal that he has worked on for a year told Davisson that it was delaying all further action on a lease for six months because of the uncertainty in the economy and its future revenue.
“That does impact you. That’s where the biggest problems are going to be, with tenants that don’t have to move,” he said.
With Carney closing nonessential businesses until as far out as May 15, it’s spooking even more prospects that may have been on the fence, said Davisson, who estimated that about half of his clients were in that group.
“That’s what gets people nervous is when they’re talking that far out in the future before there might be a recovery,” he said.
Stenta said that like all other brokers, most of the work in his pipeline has been put on pause as clients assess how they may be affected by the pandemic. He called the current climate “uncharted territory,” in which he’s talking with his clients about contingency plans more than anything else at the moment.
Before the state directives to largely avoid being out in public, Latina said his pipeline of projects was fairly full too. While he hasn’t yet lost a deal due to the uncertainty spurred by coronavirus, he has had to extend some due diligence periods and negotiate with clients over whether or how to proceed on deals.
Latina said he’s been working on a lease deal for a space on Main Street in Newark that was starting fit-out when the University of Delaware announced that it was closing its campus for the remainder of the school year.
“Now, if you’ve got a business on Main Street, even when you do get an opportunity to reopen, you’re not going to really get a chance to flourish until hopefully September,” he said. “So, there’s a lot of concern; obviously restaurants are pulling their hair out right now.”
Many landlords are also trying to do what they can to offer relief to tenants who have seen their businesses closed by the state or their customer base dry up overnight, Latina said.
That aid has run the gamut of complete rent forgiveness to deferment of payment until after the crisis ends to paying a percentage of the contracted rent, according to Latina and Davisson.
“There’s no formatting or across-the-board solution. Everyone is left just trying to fend for themselves, really,” Latina said.
At the same time, many smaller landlords will likely be hurt in the fallout as well. Latina said that he expects the landlords who only own one or a few buildings to be as hurt as retailers.
“When my landlords call me, I basically said, ‘Yeah, you’re going have to give some concession. But I’d be careful to lock yourself into a long-term commitment on the concession because we just don’t know long this will last,’” he said.
Whether the economic comeback is fast or slow will largely depend upon how government responds, Latina opined. He said he was encouraged so far by the record-setting $2 trillion aid package supported by Congress and the efforts by Gov. John Carney’s administration to allow restaurants to offer takeout and delivery service.
Latina said that he’s not yet concerned about lenders being reticent to complete commercial loans in a down economy, primarily because the Federal Reserve has cut its benchmark rate to near zero. That means that commercial loans can be found for as little as 2.5% interest, he said.
“The incentive is going to be there to continue to do business and continue to transact,” Latina added.
Unlike the 2008 financial crisis, which was spurred by a way of defaulting subprime mortgages, the current climate is spurred by an external factor that will subside, Latina said.
“Everybody wants to do business, we just can’t,” he said. “We hope that when the pause button gets lifted everyone gets back to work.”
Davisson said that he was not worried about the prospect of businesses growing comfortable to working from home during the crisis, and possibly forgoing leasing office space after it has concluded.
“I’ve been working out of my home office, and I can’t wait to be able to get in my car and go somewhere,” he said. “I suspect that most people are the same.”
Stenta concurred with Davisson’s assessment.
“As much as some people may be enjoying their current work from home set up, we expect most people will be looking forward to getting back to their actual offices and out in their communities, patronizing stores, salons, day cares and restaurants as soon as they say it’s safe to do so,” he said. “We are thinking of all our friends and business partners during this time and thankful for the essential workers out there still, especially the medical workers on the front lines of fighting the virus while we do our part by working from home.”
Latina said that he hasn’t really thought about how to reach new clients via social media or other avenues during a weeks-long period of stay-at-home orders by state leaders, but he’s been more focused on how to support some of his clients. He compiled a list of his restaurant clients that are offering takeout or delivery service and pushed it out to his email contact list to help tide them through the difficult period.
“That’s really what I’m more focused on right now. How can I help someone really in need?” he said.
By Jacob Owens