Valley Commercial Real Estate Industry Braces for Coronavirus Fallout

Article originally posted on Phoenix Business Journal on March 23, 2020

The outbreak of coronavirus has already had swift effects on several business sectors around the country, and the commercial real estate industry is looking for ways to best prepare for immediate issues such as tenants unable to pay rent, possible construction delays and an eventual shift in perception of office space.

Cheryl Lombard, CEO of Valley Partnership, an advocacy organization for the real estate development industry, said her organization’s members “aren’t even sure what to ask for at this point” in terms of what relief will be the most useful.

Lombard said she is advising Valley Partnership members to get in touch with their insurance providers, of all types, but especially for renters, to make sure there is money to pay the rent and in turn pay their lenders.

Gary Shaw, president of Arcadia Management Group, said the property management company has worked to streamline communication between tenants and its clients, the landlords, online with a web portal in efforts to be proactive in getting information to everyone.

“The tenant concern is obviously huge,” Shaw said. “Then it moves from the tenant to the landlord, who is asking, ‘What am I going to tell my lender?’”

Shaw said landlords need to be very careful and discuss each case with lenders before making lease modifications so they do not violate any covenants within their loans.

Lamar Hawkins, attorney, manager and owner of Guidant Law Firm, which has offices in Tempe and Phoenix, said landlords should be prepared to try to be flexible with tenants, because if someone gets evicted due to the inability to pay rent, it is unlikely that the landlord will be able to find a new tenant to fill their space.

“There is already going to be a devastating effect on the economy,” Hawkins said. “Bankruptcies will be through the roof.”

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Companies reassess the need for office space in the wake of the impact of the spread of the coronavirus that has forced employees to work from home.