Commercial real estate firms confident they can weather pandemic
Transactions have been paused, but long-term development plans carry on
Faced with the coronavirus pandemic, Virginia-based commercial real estate firms say they’re pausing transactions in the short term, but are still moving forward with long-term development plans. The firms are also turning their focus toward supporting tenants and landlords through financial difficulties caused by the crisis.
“What our clients and owners need more than anything right now is their property managed and they need financial oversight,” says Lee Warfield, president and CEO of Henrico County-based Cushman & Wakefield | Thalhimer. “We’re seeing on the commercial side the stress on tenants, most especially the retail tenants and the restaurant tenants.”
The financial burdens feed up the food chain, Warfield says, starting with tenants who are unable to pay for rent. When tenants can’t pay for rent, then landlords will be unable to make their mortgage payments and lenders are going to have to decide how to react.
“We’re focused on that and how to effectively deal with these issues and keep our owners healthy,” Warfield says.
In light of the crisis, transaction volumes for commercial real estate are declining, bidding pools are smaller and sellers are delaying bringing assets to market, according to a statement from Los Angeles-based CBRE Group Inc., which has three Virginia offices. But some impacts will take longer to come to fruition, the firm adds.
“A short-term shock to commercial real estate values and operating conditions is inevitable in this crisis,” says Richard Barkham, CBRE’s global chief economist and head of Americas research. “We anticipate that the most extreme impacts will start easing by the end of the year. Some commercial asset classes, such as hotels and certain areas of the retail sector, already are showing severe impacts. Other effects, such as a slowdown in office leasing, will take longer to manifest.”
JBG Smith Properties, the Bethesda, Maryland-based real estate firm that is acting as landlord and developer for Amazon.com Inc.’s HQ2 East Coast headquarters in Arlington County, would not comment on how its business is being affected by the pandemic, but said it’s directing some of its efforts to keeping its properties virus-free.
“To aid in this effort, we have implemented enhanced deep-cleaning measures throughout all of the buildings we own and operate,” JBG Smith spokesperson Justina Lombardo says. The company announced on March 9 that an employee working for a tenant at JBG Smith-owned offices in Arlington’s Crystal City area tested positive for the virus.
Virginia Beach-based Divaris Real Estate Inc., which has big-box retail clients, says it hasn’t been seeing as much of a short-term impact as other commercial real estate firms.
“Quite frankly, we are still involved in a bunch of new leases with national retailers who don’t look at a next-month situation,” says Divaris CEO and Chairman Gerald Divaris. “I certainly believe there will still be a lot of business going on.”
Although some larger retailers might have long-term plans for developing or purchasing properties for new commercial real estate ventures, Divaris agrees with Warfield that transacting business will be challenging in the current climate.
“If you’re trying to sell a building today, that’s hard to accomplish because you can’t travel to that property to do your due diligence,” Divaris says. “So there will be a lag in the sale of properties. That is highly likely to occur.”
Matt Huff, president of Roanoke-based Poe & Cronk, says the commercial real estate industry won’t take as a big a hit from the current crisis as some other industries, as long as there are projects still in the pipeline. “We have projects going on [and] managers are coming up with plans to continue,” he says. “As long as we can do that, we plan to continue on.”
Rob Hargett, principal and co-founder of Richmond-based Rebkee Co., which is developing the $50 million, 220,000-square-foot, 4,500-seat indoor sports arena on the site of the former Sears department store at Virginia Center Commons mall in Henrico County, says its projects are also still moving forward as planned.
“It’s a day-by-day situation but currently those under construction continue and those in planning are still being planned,” Hargett says. “In the short term, we are focused on how to keep existing properties operating.”
Warfield adds that where a project is within its life cycle will have an impact on how much “pain” that project will feel during the pandemic crisis. Completed projects that are up and running will feel more stress from the existing tenant base, while projects under construction could be at risk depending on where they are in the development cycle, he says.
“The question is, can we get through this quickly enough?” Warfield asks.
Virginia Business Deputy Editor Kate Andrews contributed to this report.