Part II: Covid-19: What Commercial Investors Think
We wanted some views on commercial property in the time of Covid-19 from those at the coalface. So we talked to some of the investors we’ve profiled in the past. Here’s what they had to say...
30 April 2020
In my view, the Covid-19 crisis is a chance to reflect, to work with tenants and to seek opportunities. Our Prime Minister has implored us “to be good human beings”. That has prompted me to think about the underlying motivations of property investors, about what is really driving me and why, and about how I can become a better investor.
In the face of the financial pain of many, what could be more rewarding than helping a tenant in their time of need? So I’ve given all of my tenants rent reduction for the period of the lockdown. Many landlords are doing similar things and it’s truly inspiring to hear of all the stories of landlords and tenants working together as a team.
Going forward, I think it’s important that investors make the right decisions for themselves based on their financial position. They shouldn’t bury their head in the sand. But they should be proactive with their tenants, property managers, and property maintenance crew.
If they are in a strong position they should look at opportunities. If they are able to ride this out, then they should be full of hope for an exciting future. History tells us property will rebound in a boom like the world has never seen and we don’t want to miss out on that.
Commercial property has been viewed as a more secure investment in recent years. However, this pandemic situation has left many people wondering about its outlook, especially in the short term.
Many commercial landlords will now have questions about whether tenants’ businesses will survive, whether tenants can pay the rent, how long a property might stay vacant if tenants have to leave, or even if more businesses might opt for remote working in future.
The ADLS “no access” lease clause has caused a lot of debate because no one knows what it exactly means in a pandemic situation. Lack of legal precedent has led to different opinions about it. So the best advice is “negotiate, negotiate and negotiate”. I’ve reached out to all my tenants, negotiated with them and, fortunately, we’ve come to an agreement on the way forward.
In future, I suspect many commercial landlords – and probably tenants too will think about this issue a lot when it comes to negotiating leases.
If your tenant has reached out to you for a discount, don’t get into a dispute over rent. Instead think pragmatically: the best outcome will be to negotiate a middle ground. I believe that landlords should not take advantage of their tenants but, equally, landlords shouldn’t let tenants take advantage of them via the lease clause.
Rather than playing hardball, think about what will happen if your tenant does leave or go bust. It is going to be hard to replace tenants and the cost of a long vacancy might be far greater than a short-term discount.
One thing that this situation really reinforces is how important it is to make sure you always have some backup cash reserves. As that enables you to continue paying your loan commitments in the face of uncertainty.
This whole thing is brutal for business and there will be a lot of insolvency events. Tragically, that will include many commercial tenants – particularly in the retail sector, due to the carnage in the tourism and hospitality industries. Right now, there are lots of tenants who are struggling to pay rent and actioning the “no access” clause in the ADLS lease. That means times are tough for many landlords, particularly smaller ones, who rely on rental income from their tenants. I know of many landlords who are either not getting any rent or are not having it fully paid.
Still, most landlords are being pragmatic and talking to their tenants. They’re doing things like offering a period of reduced rent or making supportive arrangements that work for both parties.n It does mean some hard decisions are having to be made though.
Something to think about is that if you lose your tenants now it is going to be hard to find new ones, so you’ll be looking at long vacancy periods.
It’s important to remember this won’t last forever. So it’s best to partner with your tenants and work with them to find a solution. We really are all in this together. Landlords need to make sure they make sensible commercial decisions, but with a heart. ■