Uncertain Times

Can we hit reset yet? I think we can all agree 2020 is not going as we all hoped or anticipated. Our hearts break for everyone that has been, and will be, impacted by the COVID-19 virus and the current state of the world; these are uncertain times. 

During uncertain times, it’s important to focus on the things we can control in our business.

It is important we are proactive and closely evaluate our respective situations.  We have received countless calls and emails from clients over the past seven to ten days with questions regarding the current status of the market, where we believe things are headed, what to do about transactions that are currently in progress and what they should do about current and future rent payments. 

Uncharted territory

To start, the answers are not cut and dry; quite often, “it depends on the specific situation,” as this is uncharted territory.  This downturn is much different than the financial crisis of 2008, as the economic fundamentals were solid prior to the virus presenting itself.  Is the San Diego commercial real estate market going to be affected? Undoubtedly yes – but for how long or how drastically, we won’t know for several weeks or even months. 

What we do know is that it’s very important for everyone to take a deep breath and invest a little time in understanding what is in your lease document.  In particular, the language related to Default for both Landlord and Tenant; especially understanding what the language states constitutes a Default, and why we advise not using it as a negotiating tactic.  It is also important to review your lease language related to such things as the Landlord’s Representations and Warranties, Common Area access, Insurance provisions, and the Force Majeure Language.  

Here is a link to a publication we believe is very well written, which provides a good overview of the COVID-19 lease issues to help you better understand each clause and their purpose. 

The importance of representation

Now that we are past the April 1st rent due date, more than ever, it is critical to get your real estate ducks in a row. Both Landlords and Tenants may be posturing and taking a hardline approach to rent payment, as both sides need cash flow to survive.  Experts who survived the last recession will argue that a lease modification, while never a sure thing, is better than litigation.  While attorneys get paid by the billable hour, real estate brokers get paid by coming up with solutions regardless of the resolution. Using an experienced tenant rep real estate broker to assist you will not result in a huge legal obligation. 

The new normal

When business returns to what will be considered the new “normal”, it might make the most strategic sense to restructure your existing lease in order to right-size, renegotiate your existing lease terms, or it might even make the most economic sense to relocate.  As such, we are here to offer our 45+ years of expertise in assisting your company in any way we can, free of charge, with no obligation to you. We have been through this before and are here to help.

Please stay safe and healthy.