Look Up and Forward
The COVID-19 pandemic has claimed business as usual as one of its primary victims. With massive government bailout packages being introduced and public health advisories changing daily, Commercial
Investment Real Estate reached out to K.C. Conway, MAI, CRE, CCIM Institute chief economist and director of research and corporate engagement at the Alabama Center for Real Estate.
What can you do to fight a global pandemic? Conway suggests pragmatic, attainable solutions.
“I encourage a two-pronged strategy — one that I’ve developed and am currently using myself,” he says. “First, look up and look forward. You cannot see the light at the end of the tunnel if you’re looking down. And then, equally as important, engage in what-if thinking. Things are changing so rapidly, we need to be agile and be able to react to the plethora of things that are happening — Fed intervention, pronouncements by Fannie Mae and Freddie Mac, and FDIC loan modifications, to name a few.
“One day, you may say, ‘Gosh, everything looks gloomy,’ but what if the FDIC provides loan modification guidance? Guess what? That just happened. Are you ready to engage to keep your business going or participate to assist your client?”
On a recent trip to his dry cleaners, who was experiencing a much lighter volume of business, Conway decided to stop by the other tenants in the small shopping center. He saw a bustling crowd inside a printing and shipping outlet while restaurants remained empty. He then spoke with a florist
who was seeing above average traffic because consumers were sending flowers to quarantined family members.
Seeing the wide variety of situations faced by the tenants, Conway arranged for a meeting with the property owner. (This was before the FDIC small loan modification program was unveiled.) The conversation revealed that 60 percent of tenants needed rent abatement to make it through this
unprecedented situation. The solution involved offering struggling tenants free rent for 90 days with thriving tenants extending their leases so they wouldn’t be exposed for five years or more. The last part of the puzzle was finding a financial institution to make it all happen.
Conway and the property owner proceeded to approach a bank with their financial proposal, but it was constrained due a lack of guidance from regulators. They then approached a credit union, and the institution was very interested in what they had to say.
“The credit union was incredibly receptive,” Conway says. “The representative appreciated that the property owner had already thought through how to deal with the tenants experiencing disruption. He also liked the fact that we extended all the leases or could secure an extension for five-year
terms on others. He saw it as a reasonable, viable loan request.
“Guess what happened? The landlord received a loan commitment from the credit union, which gave him peace of mind that his tenants would not all be vacating in the next 60 to 90 days. The loan also gave peace of mind to the distressed tenants, knowing they could make it another 90 days. And
it meant the bank got paid, making it one less loan to worry about. This is a great example of look-up-and-forward and what-if thinking.”
Such pragmatic steps can position tenants, landlords, property managers, and lenders for long-term success, no matter how turbulent the current situation may seem.
“Think about our Greatest Generation,” Conway says, referencing those who were born in the first few decades of the 20thcentury. “They endured world wars and survived the Great Depression. Engage in Greatest Generation behavior. Keep your eyes up and looking forward.”
For more resources, visit CCIM Institute’s Coronavirus (COVID-19) Resources and Guidance page.