Real Estate in a COVID-19 World

What shall you do with your real estate interest in this new world? 

As employees flee work-spaces, the question arises, will they ever return?  Will anyone return to real estate built to host large groups of people: restaurants, hotels, churches, movie theaters, big box retail stores, everything stores like WalMart and Target, grocery stores, athletic stadiums, schools, universities, malls, airports, amusement parks, and large apartment complexes. This list is daunting and those that own and finance these properties are faced with convincing people to come back or finding themselves with relics requiring great expense to maintain with no hope of profitable utilization.

These issues affect several parties: tenants, landlords, developers, bankers, investors, insurers and government entities.  Each of these parties have agreements in place with the others. We first think of leases between landlords and tenants but insures have policies with both of these parties. Banks and investors have mortgages, notes, security agreements, financing agreements and loan covenants with landlords and tenants as well.

Local governments depend on revenues from real estate taxes to function and provide basic services. 

State and federal governments are expected to protect the general public from the pandemic, while keeping citizens employed and the economy strong. You may be thinking, thanks for news dump Barry, but what can we do?  While there is no single answer, I might suggest a process. The fact is all of these parties are in this situation together, they all look to a global solution of bringing demand back to fulfill the purpose of their investments, which is difficult as most of the agreements in place did not anticipate the occurrence of a global pandemic.  I am not suggesting that the agreements between these parties should be disregarded, in fact understanding of each parties’ position under the pre-pandemic law is key to understanding how to structure each parties’ position after we emerge.  Protecting these rights even when you need to make concessions will have an enormous value when things are ultimately settled.

For example, when as a tenant you ask for rent relief, do you lose the right of first refusal under the lease?  If you are a landlord seeking mortgage relief, will forfeiture protections be given up?  If a developer seeks property tax relief, will this violate the tax increment financing agreement with the local government to build infrastructure? Will state and federal governments stay-at-home orders or decisions to shut down legal services trigger force majeure clauses? Will insurance policies cover business interruption losses for tenants ordered to close their businesses? These questions may find a different result in a post-pandemic court of law than a pre-pandemic court.

Communicate openly and honestly with your real estate partners and become educated regarding your rights and agreements.

This is the process I suggest.  Your response to this advice may be “Barry, I have too much on my plate to become a real estate expert.”, “I am a manufacturing tenant dealing with laying off an entire workforce” or “I am a landlord trying to reduce operating cost in empty buildings.” or “I am a banker dealing with a flood of SBA loan applications.” This is where attorneys with knowledge of your current rights and the ability to communicate effectively with the other players in the real estate arena can take this burden off the long list of things you have to do today. I further suggest you ask for help now, while you still have the PPP funds to cover rent and salaries and be ready to make quick changes at the right time with knowledge of how those changes will affect your rights. The Covid-19 Rapid Response Team at Goosmann Law firm is ready to assist you in sorting through, understanding and ultimately negotiating your real estate future. With a team of curious and experienced attorneys committed to partnering with you throughout the pandemic and emerging successfully with you on the other side. For more information, contact Barry Sackett, Corporate Counsel at Goosmann Law Firm at SackettB@Goosmannlaw.com.