projects but with scores of retailers going outof business, it isn’t easy to find new tenants.Vice president of retail development BritneyMroczkowski, though, isn’t deterred.
“I’m still doing all of my normal market-
ing tasks, but I’m just making a targeted list
and really looking at who’s doing well,”
Mroczkowski says. “I think it comes down to
who marketed themselves extremely well
during quarantine and how they’ve evolved
their business.”
For Mroczkowski, this means on-the-
ground research.
“I’m walking around town and, if I seesomeone that is doing great, I’ll reach outto them,” Mroczkowski says. “It’s just beinglaser-focused and, keeping your eyes onwhat’s happening in your market.”
CHANGING TRENDS
In other instances, 2021 will require beingable to react quickly to changing trends.The office sector, as one illustration, is stilltrying to determine how extensive andlong-lasting the work from home movement will be. There have been numeroussurveys that show companies are in nohurry to have their workers return to theoffice. One was conducted by S&P GlobalMarket Intelligence and it concluded thatpandemic-inspired workplace models willlikely stay in place following the pandemic.
Namely, it found that 69% of companieshave determined that 75% of their workforce can work remotely without issue. As aresult, 64% of companies plan to increaseremote work policies following the pandemic, compared to policies in place priorto the pandemic. In addition, 32% of companies will reduce their office footprint as aresult of remote work adoption. Smallercompanies are more likely to adopt thesepolicies permanently, and companies withfewer than 1,000 employees found that100% of the work staff could work remotelyin the long term.
On the other side is Marty Burger, CEOof Silverstein Properties, who doesn’t thinkCOVID- 19 will permanently alter the officelandscape.
“For the most part, most companies willsee the value in having an office,” Burgersays. “You can’t mentor people through aZoom meeting, and it is difficult to raisemoney over the phone. You can’t collaborate as well when you’re not all in a roomtogether.
“Net-net in the long term, we’ll need
about the same amount of space,” he con-
tinues. “I think it [the office transition
brought on by COVID] may benefit the
newer office buildings, but I still think ten-
ants in class B buildings will need the same
amount of space.”
In fact, in some cases, it may encourage
tenants to lease more space, he says.
“Spaces will change, but it’s tenant by
tenant,” Burger says. “There are many ten-
ants who had a very efficient space and may
need to have more offices now because they
were too efficient.”
What is certain, says Eric Cagner, execu-
tive managing director with Newmark
Knight Frank, is that there will be an overall
re-thinking about space. “For TAMI compa-
nies, space utilization has changed from
high density space where we were 165
square feet per person to a space that is
used for collaboration and culture.” As a
compromise these tenants may opt for new
boutique office buildings, like The
Warehouse in Manhattan, as a single-user
office space with increased privacy.
And of course, much will depend onCovid- 19 protocols and restrictions in subsequent waves, says Time Equities founderFrancis Greenburger. “These restrictionsconstrain economic activity and will affectwhether existing tenants pay their rent,renew their leases, and expand.”
BETTER LIQUIDITY, MORE
DISTRESS
CRE also stands to benefit next year fromcapital sources that are emerging fromtheir bunkers.
In its recent Capital Alert, Marcus &
Millichap reports that “recent conversa-
tions with institutions and investors across
the lending landscape suggest dynamics are
shifting quickly.”
Asian and European groups are looking
to invest in open-ended US funds while
banks and insurance companies are drawn
to commercial mortgage loans where they
can get yields of 2.5% to 3%. Investment
banks, for their part, are gravitating to
fixed-rate construction loans, which could
help them lock in low-leverage deals.
As usual, much depends on the assetclass in question.
Hotels, for example, are having difficultyfinding lenders and when they do the loansare only made available at double-digit rates.
Compare that to the manufacturedhousing sector, where capital is plentiful.
“The appetite for manufactured housing
communities from investors and debt pro-
viders has never been stronger, with no
shortage of capital in the market for virtu-
ally any transaction profile from core to
value-add,” says Zach Koucos, managing
director at JLL Capital Markets.”
“Fannie Mae and Freddie Mac are both
on track to exceed their 2019 manufactured
housing community loan originations, and
we’re seeing an ever growing field of capital
sources interested in manufactured housing
including life insurance companies, debt
funds, regional banks, CMBS / conduits,
bridge, and structure finance providers.”
Next year could also see some movement
in the long-anticipated but yet-to-material-
ize distress transactions. Almost since the
beginning of the pandemic, investors with
dry powder have been waiting for such
opportunities to hit the market. In late
April, for example, Mark Foster, attorney at
Snell & Wilmer, put together a couple of
distressed opportunity funds for his clients.
“They thought they might be able to get
some good deals,” he says. “They got a few,
but then that dried up.”
The reason, generally, is that lenders and
landlords have been willing to work on for-
bearance with their partners to keep the
market afloat. It is debatable how long this
spirit of cooperation can last.
Also, as Foster points out, eviction moratoriums have been another major reasonfor the lack of distress opportunities. “Rightnow, the tenant is in default, the borroweris in default, and nobody can go in and takethe property back and re-tenant it or anything,” Foster says. “They’re not sure whatthey want to do.
Foster thinks once the moratoriums onevictions are lifted, things will start moving.“When they do stop, there are going to be alot of chess pieces moving,” he says. “Mostretail tenants, like restaurants and fitnesscenters, will not be able to recover. I don’tthink the landlords or their lenders aregoing to be able to extend and do anything.All of a sudden, you’ve got a bunch of evictions and a bunch of half-vacant buildingsthat owners are going to have to sell. Andthey’re going to have to sell at a discount.”And that, in a nutshell, will be 2021’soverarching story: more opportunitiesamid the ongoing pain. ◆
