With the hospitality and retail sectors taking the biggest hits, there will be some empty storefronts and vacant malls, as big box stores—already on the ropes—begin to fall. But NH real estate firms are cautiously optimistic that the strength of the state economy going into this crisis will support a rebound.
In the short-term though, landlords are contending with rents not being paid. As large swaths of the NH economy were shut down in mid-March, some businesses, both large and small, opted to hold onto whatever cash was left on hand and not pay April rents.
Chris Norwood, president of NAI Norwood Group in Bedford, says among the landlords and tenants he has spoken with, upwards of 30% of retail either didn’t pay the rent or requested an abatement. It is less severe among businesses that were deemed essential with about 10% of office space tenants and 5% industrial tenants experiencing rent issues.
Joe Friedman, president of Brooks Properties in Salem, says about 10 to 15% of tenants are experiencing challenges, and the firm is working with them, taking it case by case. “We’ve cut back on some of the services that we provide, such as trash pick-up, as they are not needed since hardly anyone is in the buildings,” says Friedman. “We expect our tenants will want to see that we conserved resources on their behalf to try to get thought this and make it less painful for everybody.”
Norwood says while they are starting to see some tenants catching up on payments, there are also some that are closed for good. “My landlord clients have had some really tough calls from tenants in tears having to close up shop,” he says.
Closing up shop, however, doesn’t end an obligation to pay whatever remains on a lease, says Thomas Farrelly, executive director of New England Region Brokerage Services at Cushman and Wakefield in Manchester. “It’s no different than the lease on your car,” he says. “You can’t drive up to the dealership and tell them you lost your job and give the car back.”
Working With Tenants
Farrelly says some landlords who want to be a partner with their tenants have offered some flexibility but in these rent relief situations, there needs to be documentation and cause for rent relief. “You have to show why rent relief is needed and how you will pay it back. Landlords will need to be made whole in all these situations, because don’t forget, the landlords have a mortgage and the bank isn’t calling them and saying only send half the money,” he says.
And while many real estate deals pending when the pandemic hit have been put on hold, they have only been delayed temporarily, says Chris Pascucci, vice president of commercial sales NH/VT and a managing director with SVN The Masiello Group in Bedford. “Certainly, any deal that was restaurant or food service related—every one—was put on hold, without exception,” says Pascucci, “But to date, no restaurant deal has died and no one has canceled plans. They are just waiting to see how this pans out. There’s more wiggle room when leasing.”
Pascucci says one client had a 10-year lease in its final draft involving a $150,000 fitup. However, if new regulations emerge, such as walls between the seats, the fitup could cost another $50,000 and the negotiated rent may not work anymore and it’s back to the drawing board, he says. “What these people are afraid of is not a big economic crash,” says Pascucci. “The fear they have is long-lasting mandates or government rules,” which could reduce a 40-seat restaurant to 15 seats.
Investors Take a Step Back
It’s not just the individual business owners and entrepreneurs who are moving slowly, says Norwood.
“Investors are certainly taking a step back, not only because of the investment environment, but also because the lending environment has tightened up.”
He says he is still conducting tours and showing properties two to three times per week but the pandemic has affected everyone differently. The Paycheck Protection Program and Economic Injury Disaster Loan provided some relief, but probably not as fast and as fluid as was hoped, Norwood says. “But there was some liquidity in there that allowed people to pay the bills or use this as a breather to ask, ‘What does the next six months look like? How do I want to position my business? Do I want to renew my lease? Should I move forward with that purchase?’ all those questions.”
Moving Forward
For businesses deemed essential, including much of manufacturing, there hasn’t been as much disruption or concern over paying rent. There are supply chain issues and worker shortages, which were already a part of everyday life, and construction, also deemed essential, is moving forward with ongoing projects.
Pascucci says there are some multifamily developments in the works as well, but for early-stage projects the challenges of getting through the permitting process were exacerbated by the pandemic. Municipal land use boards must meet over conference lines, some without video, hampering professional presentations. “In one case, a town is just not holding any meetings,” Pascucci says. “We don’t know if that’s legal. We are in uncharted territory. There are so many unknowns in this, it’s odd.”
Some municipalities are at odds with state guidelines. While farmers’ markets were deemed essential, some communities are not allowing them, claiming it violates the rule against large public gatherings. With outdoor restaurant seating approved at the state level, Norwood points out that special permits are often required by the city, particularly when the tables are on public sidewalks. “Will the restaurants be able to get permits for outdoor seating controlled by municipalities?”
One question for commercial real estate firms is whether the work-from-home model will lead to a market decline for commercial office space. Cushman & Wakefield, a global company with 326 offices and 43,000 employees worldwide, has become a thought leader in the pandemic owing to a heavy presence in Asia and experience with SARS, says Farrelly. “We are able to call on the expertise developed in those countries and adapt it for COVID-19,” he says.
The company created a 34-page recovery readiness guide and a best-practice guide with strategies and conceptual diagrams for the “Six Feet Office” that show workstations with acrylic panels, like those installed at supermarkets, and more spacious floorplans.
Some companies will be able to space workspaces out as more employees continue to work from home. But Farrelly says while layouts and floorplans will change to adapt to post-pandemic models, the connections of people working together cannot be completely replaced by technology long term.
“You hire somebody and what do you do? You walk them around, make introductions, you lean into spaces. How do you do that from home? How do you cultivate a culture?” he asks. “Cushman & Wakefield has done studies on high-level engagement and those businesses are 20% more profitable. So how do you get engagement and form a culture for success if everyone is always working from home?”
Norwood says there are lessons to be learned from the crisis, including how creative businesses can be and the ability to pivot to new resources. “You have a whole wave of business owners learning about the Small Business Administration, perhaps there will be an enhanced awareness,” he says.
Farrelly sees some positive outcomes as well. “You can’t go through anything as challenging as this and not have some good come out of it. People are more deliberate in evaluating the pace at which they work, getting more in touch with their values, and not being such a slave to the 12-hour day,” he says. “People are figuring out ways to get things done and still find time for exercise and family.”
For Pascucci, he says he longs to return to lunch out with clients three days a week and meeting for coffee. He says he’d rather drive across the state for a meeting than spend anymore time on Zoom.
Current Issue - April 2024