How Real Estate Execs Are Soldiering On As Pandemic Takes Hold
Sheltering-in-place, working from home, going virtual.
These are not typical phrases in the commercial real estate lexicon, but as the coronavirus pandemic sweeps the globe — roiling markets, disrupting business and all matters of daily life — the industry is beginning to reckon with what lies ahead.
How long this version of the “new normal” lasts is anyone’s guess, but one thing remains true: The commercial real estate industry never stops.
Brokers, developers, architects and investors alike are adapting, and Bisnow spoke to dozens this week — in cities from LA to New York, Houston to London and Seattle to Hong Kong — to get a sense of how the coronavirus is reshaping the way they work.
“We’re hunkering down,” Seattle-based developer James Wong said. “We are strategizing. We know this will end.”
Deal flow hasn't yet stopped, and outside of the travel, hospitality and retail industries, panic hasn't yet set in. But there is a sense that the weeks ahead will be much slower than normal as everyone waits to see what happens next.
“I don’t know if now is the time to launch a new deal,” said Cushman & Wakefield Managing Director Susan Tjarksen, who is based in Chicago. “This is going to be a transition, so let’s all keep as cool as we can.”
‘We Are In Uncharted Territory’
The London-based asset manager manages multiple shopping centers and high-street retail properties, so the company is at the intersection of retailers and leisure tenants who have just seen the government advise the public to stay away from their premises. The landlords face decisions about whether to offer rent freezes.
“Everybody is shocked and concerned with regards to the severity of the pandemic and fearful of what the immediate future will bring,” Cooke said. “Many occupiers, particularly in retail, leisure and hospitality, are having to close down and have approached us to discuss cash flow challenges in the short term. Investors are naturally cautious and transactional activity has been subdued.”
He added that commercial real estate would have a big role to play in helping businesses, and thus the wider economy, weather the current storm.
“I think everyone is concerned and we are in uncharted territory, and there are going to be significant consequences with some tenant default over the next six months or so,” he said. “The industry needs to be proactive and ensure that occupiers are getting the support promised by central government to get us through to a more stable environment.”
Colliers International Houston President Patrick Duffy said this weekend marked something of an inflection point in the industry. The U.S. stock market had had its worst week since the Great Recession, and buyers recoiled from deals.
"We're here if clients need us, but most of them are still trying to figure out what they're doing, so it's been pretty quiet,” Duffy said. “We've got clients that are continuing to push forward and we're getting deals done. We've also had more than a few say, we need to postpone closing for a month while we sort all this out. It's been a mixed bag.”
Colliers Vice Chairman of Florida Institutional Investor Services Ken Krasnow said the market is generally pausing and assessing the situation after the coronavirus spooked the global economy, but that underlying CRE fundamentals remain strong.
“The initial fear was that a lot of people were going to cut and run and cancel contracts,” Krasnow said. “That would lead to a sense of panic. We’re seeing people requesting extensions, because they physically can’t come in to do an inspection, or the normal course of due diligence.”
This week, his business slowed down abruptly, but Wong, who is managing partner of SperryCGA-ENGVES, is hopeful this quick dip is only a short-term threat to the local commercial real estate market.
"It definitely has disrupted our business, we have to change the way we work, and also continue to be positive and calm the sellers, buyers, investors, tenants and landlords," Wong said. "I am not worried, as this period shall pass and business will be back to normal."
The facts on the ground in San Francisco are harrowing — the area is where most of California’s hundreds of cases have been detected. All six Bay Area counties enacted a shelter-in-place order that started a minute after midnight Tuesday morning.
Emerald Fund manages 1,600 apartments in the city and has had to take steps to ensure its residents don’t continue to spread the virus as they remain essentially trapped in its buildings.
“We have enhanced cleaning, closed our gyms, closed our swimming pools and made a major effort to protect the tenants,” Emerald Fund founder and Chairman Oz Erickson said. “Our major concern right now is providing legal and appropriate services as best we can. All of our other businesses, like looking at new developments, are on hold.”
In New York City, everything changed within a matter of days. Bars and restaurants can now only offer takeout and delivery. Gyms, casinos and movie theaters — along with the city’s schools — have all been ordered to close.
Like everyone, the city’s real estate players are switching between monitoring the news, transferring to working from home, soothing clients and mapping out a plan with a road map that keeps shifting by the moment.
“There are ways to put contingencies in place,” Barone Management founder Scott Barone said. “[But] ask me if I have a contingency plan in place when everything goes wrong at once, I’d be lying.”
Some Places ‘Can’t Afford To Close’
Many industry professionals over the past few days said their companies have given them the option to go into the office, and some are making staff work from home. But many commercial real estate jobs aren’t portable.
Rising Realty Partners owns and manages a $1.5B portfolio totaling 5M SF of commercial real estate in Southern California and Denver, and its CEO and co-founder, Chris Rising, is trying his best to set an example.
“I’m spending half my time at home and on-site,” Rising said. “We have a fiduciary obligation to keep our buildings open and keep it safe. We have property managers and cleaning staff. Some of our buildings and tenants in those buildings can’t afford to close.”
His office tenants include the Los Angeles Police Department, National Public Radio and the Associated Press. LA is one of the cities across the country that has instituted sweeping bans to close or limit bars and restaurants in an effort to prevent the spread of the coronavirus. Rising is reminding the tenants that have to come into the office to keep their distance.
“The hardest part of this whole thing is not the transaction part, it's the property management part. You need people on-site to run buildings,” Avison Young Managing Director Steve Dils said. “Accounting, brokers … [they] can work from home. Property management is a more tricky subject.”
Avison Young was on a voluntary work-at-home plan as of earlier this week, and many of the employees at the Atlanta office, which Dils leads, have decided to do just that. About 25% of the office showed up on Monday, Dils said.
Roadside Development has allowed its contractors and subcontractors to decide whether to work, and thus far they have chosen to continue, Managing Director Richard Lake said. He said the company is providing hand-washing stations and giving information to workers at its major development, City Ridge.
“The good news so far is the job site is mostly out in the open, not enclosed spaces,” Lake said.
D.C. Mayor Muriel Bowser said her administration is looking at halting all nonessential construction, which Lake said he is preparing for. Boston Mayor Martin Walsh issued a construction ban of his own this week, and New York is considering the same.
“When that [happens], we’re going to have to deal with the project and the delays,” Lake said.
On a conference call to discuss an office project in her home city of Phoenix, KatzDesignGroup principal Beth Katz said her construction partner was asked if workers even showed up to the site.
"He said he had a full crew, but he told his guys that if they had family obligations, he understood if they couldn’t come to work. No one is feeling symptoms and they want to work,” Katz said. “But he stressed that this could change at any minute."
Everyone is concerned, Katz said, adding that there will be huge delays on products that come from overseas. The majority of Luxury Vinyl Tile, for instance, comes from Southeast Asia. There will also be huge disruptions, even for products made in the United States.
"I'm a little worried, but mainly because I'm married to a physician who works in ICUs," Katz said. "They're all very worried about the lack of testing and underreporting that's happening. I just spoke to a plastic surgeon that I work with, and he's going to partially close his office and only see post-op patients. Social distancing."
Adjusting To The Home Office
On Monday, Perkins and Will held its first company-wide virtual office meeting. The architecture firm based in Downtown Los Angeles has more than 110 employees who are now required to temporarily work from home, Perkins and Will Senior Project Manager Drake Dillard said from his home in LA’s Baldwin Park.
“It seems to work very well,” Dillard said regarding the videoconferencing. “This was the first time we all called in. We’re still working and going at it. Now, we’re just working from home.”
Engel has been a leasing agent in Atlanta for more than 30 years, and even once had her own line of bobblehead toys, so her optimism shines through even as the pandemic spreads across the globe. Childress Klein has not made work-at-home mandatory, but Engel already does it at least twice a week.
“If they send everybody home for two weeks, it’s like everybody is on the same two-week vacation,” Engel said. “I think the silver lining is everybody just needs to just enjoy these few moments of less stress and embrace it all.”
Thus far, she said she has not seen any major impacts on her business, and has even given some tours. But the parking lot and decks at Cumberland Galleria — an office park she is in charge of leasing — are nearly empty. Other than that, she said the biggest change in discussions with her friends is about spring break plans.
“We're all just kind of laughing about it,” she said. “At a cocktail party, it’s ‘What kind of vacations did you cancel this spring?’”
Leaders at Boston-based architecture firm Sasaki began planning a coronavirus work-from-home strategy in early March, as U.S. public health officials urged Americans to practice social distancing to prevent further spread of the virus.
Sasaki has a “business telepresence robot,” named Ava, that allows workers like Chief Technology Officer Holly St. Clair — who was home sick before the outbreak — to connect and move around the office, using the robot as a kind of avatar.
“The robots drive around the office and have a screen on top where someone can remotely interact with others in the office,” St. Clair said. “I could just hear informal conversations in a way you can’t hear when you’re on Slack.”
Sasaki officially began its company-wide work-from-home policy on Monday and has completely shut down its office to employees. Client meetings have been moved to videoconference services like Zoom and messenger platforms like Slack. While there have been some adjustments in productivity — like slower-than-expected WiFi at home and the stress of projects still on deadline, St. Clair said the company is trying to maintain levity and creative perks.
“While we’re out of the office, if someone wants to check on the space, they can use the robot to walk around,” she said.
Hong Kong is something of a poster child for dealing with the coronavirus. In spite of its proximity to China, where the outbreak began, the small island with more than 7 million inhabitants has seen just 155 cases and only four deaths. Health experts have credited a rapid government response, which included mass testing and advice for citizens to work from home and undertake social distancing, in keeping the virus from spreading.
The decision to work from home has had some positive outcomes. His company put a four-month moratorium on all business travel, and Lau said in retrospect that was a sound decision.
“In fact it is quite efficient,” he said. “Physical meetings are minimized, and this releases more time for planning and execution. We have been using online messaging, video and audio calls, shared file and other work tools for a long time, even before the pandemics.”
Balanced against any positives on the business operation side, however, are the financial implications, and Lau gave a stark warning.
“I’m worried,” he said. “It is going to be worse than the [great financial crisis] a decade ago.”
Ethan Rothstein, Joseph Pimentel, Mike Phillips, Miriam Hall, Jarred Schenke, Jon Banister, Kerri Panchuk, Shawna De La Rosa, Dean Boerner, Deirdra Funcheon, David Thame, Cameron Sperance, Brian Rogal, Dees Stribling, Christie Moffat and Mark F. Bonner contributed to this report.