In response to the continued disruption to our commercial real estate community resulting from the coronavirus pandemic, we are advising clients with regard to the impact on existing leasing relationships, pending contracts and ongoing transactions. While many of the earliest questions were similar in nature (e.g., force majeure, business interruption, quiet enjoyment) the answers differed depending on circumstances and contract language.
We are emphasizing the need to exercise caution and where possible, encouraging patience while we monitor the effect on the economy and the response of our local, state and federal governments. The impacts of the $2 trillion dollar federal stimulus continue to work their way through the markets. While the program promises to provide much needed support for the commercial real estate industry, there is uncertainty regarding program implementation and follow through. We are mindful that the impacts of this emergency legislation on businesses and future actions before the courts could substantially change our loss mitigation strategies over coming weeks and months.
For the most part, we are experiencing cooperation and understanding in our ongoing negotiations within the real estate community. Landlords and tenants are largely cooperating as they work to restructure short term rent payments. Correspondingly, landlords and lenders are modifying loans and adjusting short term loan payment obligations. The Federal government is playing an active role in facilitating these short term adjustments by easing banking restrictions and liquidity requirements.
Since the pandemic hit US markets, commercial real estate acquisition activity has slowed. Of the transactions that are proceeding, many have been renegotiated to substantially increase approval, due diligence and closing timetables. Leasing activity reflects a similar slowdown with prospective tenant’s future needs growing increasingly uncertain. Savvy market players are already on the lookout for distressed opportunities and institutional developers and investors are strategizing how to position their portfolios for the post pandemic economy.
At Wilentz, we emphasize the need for a measured reaction to the coronavirus pandemic that factors in our current reality and strategic planning for all likely outcomes. With rent defaults growing, bank underwriting has become increasingly uncertain. However, the decline in interest rates is nevertheless a meaningful market stimulant. Those companies that can manage to take advantage of the reduced cost of capital are doing so.
Since the coronavirus impact extends beyond real estate holdings and contractual relationships, the multi-disciplinary approach at Wilentz has enabled us to provide important guidance to our real estate clients on other impacts to their business such as employment, insurance and banking. Outside of the box thinking has never been more useful, and our lawyers are helping our clients to withstand and plan for a rapidly evolving and unprecedented environment.
Alerts and Publications:
- Governor Phil Murphy Issues Executive Order 142 Permitting “Non-Essential Construction” To Resume (May 14, 2020)
- Flattening the COVID-19 Approval Delay Curve: Public Hearings in a Socially Distanced Virtual Universe (May 13, 2020)
- Governor Phil Murphy Issues Executive Order 128, Authorizing Application of Security Deposit Funds as Rent Payment (April 30, 2020)
- NAIOP NJ Webinar: Commercial Real Estate Legal Issues During the COVID-19 Crisis, Presented by David Gordon (April 27, 2020)
- The Department of Community Affairs Adds Requirement to Executive Order 122 Mandating that Parties Responsible for Construction Projects Demonstrate to the Municipality that the Construction is “Essential” (April 17, 2020)
- Governor Phil Murphy Issues Executive Order 122 Restraining All “Non-Essential Construction” During COVID-19 Public Health Emergency (April 9, 2020)
- Does the Coronavirus Excuse a Commercial Tenant's Obligation to Pay Rent? (March 23, 2020)