The commercial real estate economy continues to feel the impact of the COVID-19 pandemic. While some asset classes and industries in commercial real estate show strong performance, others still face historic challenges.
Commercial Real Estate, at its core, is about people and the human factor, and greatly affected by how real estate is used and occupied. The ability for certain CRE industries and asset classes to sharply rebound from COVID (i.e., retail, office, hospitality) will depend largely on how our population lives, works, travels, and plays in a post-COVID world.
Leasing—leases entered into, and most boilerplate and template lease forms prepared, prior to the onset of COVID, need to be re-examined to ensure they are appropriate for a client in a post-COVID world. For example, do either of the parties need expanded force majeure protections, or does a tenant require additional flexibility to assign or sublet? Pre-COVID leases can't be relied upon to address the new and constantly evolving landscape.
An end to flexibility? Since the onset of the pandemic, we have seen borrowers, lenders, landlords, and tenants work collaboratively to reach short-term, stop-gap solutions to COVID. We expect to see less flexibility exhibited by lenders and landlords as these parties "kick the can down the road" and closely examine whether a long-term solution is possible, or make a difficult decision as to whether it's time to "cut the cord." In asset classes most impacted by COVID, such as hospitality, hotels, and retail, we expect to see fewer short-term solutions, which will give risk to an uptick in distress.