COVID and commercial real estate
As the COVID-19 pandemic spread across the United States, its impact on the economy included Portland's commercial real estate market.
The extent of the coronavirus impact will continue to emerge in several ways over the coming months, according to Colliers International.
Jacob Pavlik, MRED Research Manager for Colliers International's Portland and Puget Sound regions, predicted the disruption to real estate would be "limited to significant concern on an individual level and uncertainty on an institutional level more than actual health risks."
In a white paper published in early March, Pavlik noted that office space in Portland would likely be impacted by temporary closures, increased janitorial expenses, and landlords favoring tenants with remote-work policies. The industrial market is more likely to be affected over the long term because of supply chain disruption and a shortage of consumer goods.
On the national level, the CBRE Group Inc. forecasts a medium increase in vacancy, which corresponds with past medium-sized recessions and is far below the recessions in 2001 and 2008-2009. Construction delays will lead to a slowdown in supply. The flexible office space sector, CBRE stated, faces "strong headwinds," as the supply is expected to decline.
The Building Owners and Managers Association International released a series of guidance documents to help property owners address the public health crisis. These include measures under the Coronavirus Aid, Relief and Economic Security (CARES) Act passed by Congress March 27. The act provides more than $2 trillion for economic relief to businesses and individuals, and BOMA International guided how it affects property owners, their employees, and their tenants.
Portland law firms that handle commercial real estate transactions ramped up their communication with clients via email blasts, blogs and virtual seminars. When Gov. Kate Brown issued a 90-day moratorium on commercial real estate evictions April 1, Tonkon Torp stated that the moratorium means that non-residential landlords are generally prohibited from terminating a lease or otherwise pursuing a commercial eviction based on nonpayment of rent. However, these protections only cover tenants who have invoked the order's protections.
In a blog post, Tonkon Torp's Will Gent advised commercial tenants to document any COVID-19-related business disruptions thoroughly.
"The moratorium only applies if the tenant provides the landlord with documentation or evidence that any missed rent payments were caused by the pandemic," Gent wrote, adding documentation such as proof of loss of income due to COVID-19 restrictions needs to be provided to the landlord within 30 days of when the unpaid rent was due.
Gent pointed out that commercial tenants must continue paying rent if they are financially able to do so, as the moratorium only restricts landlords from evicting non-paying tenants and does not relieve tenants of their obligation to pay rent. And if partial rent payments are financially feasible, tenants must make those payments as well.
Schwabe, Williamson & Wyatt noted in a March 23 post that COVID-19's impacts on potential real estate purchase and sales agreements include the key employees of buyers and sellers being unable to sign documents or take other actions necessary to close a transaction due to illness or remote working complications. Third parties such as escrow agents and title companies, banks, local recording offices and notaries may be closed, delayed, or otherwise unable to perform their obligations related to a closing, wrote shareholder Katherine Wax and associate Loren Snow.
Wax and Snow advised that due diligence may take additional time if a buyer's team is unable to inspect a property physically. Also, surveyors, contractors, inspectors, title companies and environmental consultants may require longer lead times with employers working from home or if they are working with a smaller staff.
While they advised that sellers provide more extended title review and due diligence periods, they also noted that sellers should be sure to limit the buyer's rights to extend due diligence for reasons unrelated to COVID-19.
"As many people are working from home, they are not receiving (or do not want to handle) mail sent to their business addresses and may not be able to easily print or scan documents," Wax and Snow wrote. "Consider requiring notices to be delivered by email and allowing documents that do not need to be signed in the original to be electronically signed and delivered by mail."
They pointed out that many courts are closed to all but family law and criminal matters, and that it will be difficult to legally resolve real estate disputes even after the courts restore normal operations because of the backlog. Wax and Snow advised parties involved in the dispute to consider alternative remedies to resolve the dispute.
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