Commercial real estate is likely to be a mixed bag for some time. While retail properties and warehouses have benefited from the economic reopening in America, the COVID-19 pandemic continues to depress the market for office space. We turned to three members of the National Association of REALTORS®’ Commercial Committee—pros who focus on multifamily, retail and hospitality, and office—to share what’s happening in their market and how they’re moving business forward, even as the coronavirus’s delta variant brings a new wave of cases to the U.S.

Headshot of Carol Horsford for Commercial Connections.

Carol Horsford

My brokerage does both multifamily sales and property management. We manage about 700 apartments. We haven’t had many tenants who’ve needed financial assistance during the pandemic. We’ve worked closely with the few who have, applying for rental assistance funds on their behalf through the state’s UniteCT program. The money from that program has slowly been trickling in. The tenant must be an active part of the program and provide detailed information, so getting assistance really is a partnership between tenant and property owner.

The bigger issue I’m seeing is the need for property managers to be more responsive to tenants’ changing lifestyles. The work-from-home trend has opened new possibilities for the way people live. Many want to live more simply with less stuff and have the option to move more frequently. Smaller, furnished units and more flexible, shorter term leases are in high demand. Property managers and landlords are wise not to stick rigidly to traditional one- or two-year leases in order to attract more tenants..

The national eviction moratorium, which has been a bane for many property managers and owners, has highlighted the importance of having a strong tenant screening process. Any tenant can suffer unexpected financial hardship. But if you vet rental applicants thoroughly, you can choose stable tenants with the best chance of fulfilling their lease. Don’t skip on checking an applicant’s references from previous landlords. Checking these references can tell you a lot about the type of tenant the applicant will be. We look for people that have a positive rental history, solid employment, and fair to excellent credit. We work with all subsidies, agencies, and housing programs and have strong relationships with those offices and agents. We see those agencies as our partners.

Headshot of Bob Marchewka for Commercial Connections

Bob Marchewka

Face-to-face contact is vital for my business, so the reopening of the economy is helping me get back to my main sources of marketing. For example, monthly networking breakfasts for commercial brokers in my region—which draw 30 to 50 people—have always been a good source for referrals and ideas for business strategies. When these meetings transitioned to Zoom calls last year, they became less useful as far as networking goes. Now that we’ve returned to in-person gatherings, I’m able to sit down and have a real conversation with colleagues and prospects again.

I work a lot with owners of office buildings, and that market remains in flux as the country recovers from the pandemic downturn. Many of my clients’ tenants haven’t returned to their spaces full-time, and it’s a waiting game to see if they’ll renew their leases. It may take another year to fully understand what post-pandemic office trends will look like, which is causing my clients some angst. The return to physical interaction has been important for these relationships because the reassurance and hand-holding can provide in person is valuable to them.

Office vacancies in my market have gone from under 5% before the pandemic to over 10%. Many of my clients who have had vacancies for well over a year are holding onto their properties. They don’t want to sell low and miss out on a future recovery in the market. The problem is we just don’t know what’s going to happen or how long it’s going to take. Some of my clients are beginning to get antsy and want advice on when to pull the plug and sell. I tell them to consider how flexible they’re willing to be on price—some properties are going for as low as 50 cents on the dollar—and timeline. It can sometimes take a while to find a tenant whose needs the building meets.

Kansas City's Historic "Film Row" in 1946
© MISSOURI VALLEY SPECIAL COLLECTIONS, KANSAS CITY PUBLIC LIBRARY

Prime location: Broker Dan Sight says properties in Kansas City's Historic "Film Row," pictured here in 1946, are attractive to businesses seeking foot traffic. The area is now a vibrant cultural hub.

Dan Sight headshot for commercial connections

Dan Sight

In my 38 years as a commercial real estate practitioner and investor, I’ve been through many a downturn in the market. Three principles have remained true through all of them:

  • Don’t be overleveraged. Equity is a good thing. Don’t refinance and cash out. When the next market disruption happens, you’ll be in better shape than most.
  • Nurture the relationship with your lender. Let your lender know how you operate, and be transparent to build trust. The more your lender trusts you, the more they’ll be willing to make accommodations for you the next time there’s a dip in the market and you need help.
  • Look at your tenants as an asset. Know them, communicate with them, and help them succeed. If they are successful, your property will be as well. It’s always easier to work with your current tenants than to find new ones.

These rules were of the utmost importance when I opened a new property last year during the COVID-19 pandemic. I was near the end of a gut renovation of a 20,000-squarefoot historic commercial building in downtown Kansas City when coronavirus restrictions went into effect in March 2020. The building was already fully leased, with an international bridal shop, a boutique hotel, and a wine bar set to debut that summer.

“We all know that success in real estate begins with location. I can’t emphasize enough how true that is in the current environment.”

I immediately contacted my lender and was able to extend the terms of my loan in order to deal with delays in the completion of the renovation. Luckily, the disruption was brief, and my tenants were still able to launch when they originally planned. It was rocky for a while as we navigated new norms. But now, with the retail and hospitality industries roaring back to life in the national economic reopening, my tenants are doing more business than they imagined and can hardly keep up with customer demand. The high level of foot traffic is now attracting other prospective tenants to the building.

We all know that success in real estate begins with location. I can’t emphasize enough how true that is in the current environment. My building is in a neighborhood that was once underused, known to locals as Film Row, where prominent movie studios housed their distribution operations in the 1920s and ’30s. Revitalization efforts in recent years have brought a lot of cachet to the area, which has become a shopping, dining, and entertainment hub. Tenants are looking for ways to mitigate their risk, and being in a visible, heavily trafficked area such as this is a good bet.

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