FOREWORD BY EDITOR, ANDREW CHILVERS
As the Covid-19 pandemic continues to disrupt businesses across the world, one of the biggest debates being played out is the future of property – in the city centres and suburbs; in office space, commercial and residential.
Just what will the world of real estate look like at the end of 2021? Will cities return to normal, and office space and retail malls remain the same, or will they be changed forever?
Most legal and financial advisors in the real estate sector agree there is an element of crystal ball gazing, but likewise there are now clear signs of how things might just look in the near future.
Helping clients in the new normal: How are legal advisors assisting clients during the ongoing pandemic lockdowns? How important has the Counsel role become?
Things have been a bit different here in Utah. Early on, from March to May 2020, everybody thought the world was going to crash and everything was shut forever. Then most places started to open up at the end of June. Since then, we’ve had restrictions similar to those that have been talked about in Belgium. Generally, however, everything’s open: that’s retail, restaurants, office space. It’s usually capped by about 25 percent or 30 percent of capacity, so it’s a little bit different to California.
Business is still down from what has been comparable to in previous years. As a result of that, a lot of my older clients tried to avoid using attorneys early on in the pandemic and negotiate themselves. They were worried they’d have no income coming in, so they did their own deals. But this is changing now.
All the tenants who thought they were getting free rent for a period of time now realise it was deferred rent and they’re still only at 25 percent capacity in their business, particularly restaurant clients. The problem now is they’ll soon be paying rents that are going to be higher than those pre-pandemic because they’re trying to catch up on all this deferred rent. A lot of those clients are coming to us and we’re pretty busy with that kind of work right now.
A lot of what we’re doing now is interpreting that, helping them get through those problems. We’ve been working with the tenants and landlord, figuring things out for them and also working with lenders. That has been where I’ve spent a lot of time; working with landlords and lenders, trying to get those provisions, personal guarantees and things like that extended for tenants.
In truth, it’s more difficult than I thought it would be. I can usually buy a little time and we can negotiate with them. We have offered a lot of collateral but the lenders are afraid of when is this going to end and when are the tenants going to come back? If you’re a mixed-use or a pure retail area, lenders don’t like to do anything because their analysts are telling them shopping centres are not coming back.
Sound of the suburbs. As more people and businesses flee city centres for the suburbs, will real estate investors look more closely at long-term suburban development projects?
Here in the west of the US, the suburbs have always been something that people have lived in. Everybody was used to commuting 30 minutes to 60 minutes every day to get into the city centre. It started to shift a little 20 years ago to get people back closer to where they worked, with upscale city centre apartments. Then over the past six, seven years, especially here in Salt Lake City, they’ve started to develop business hubs along the interstate highways. For instance, at the southern end of Salt Lake City we have the technology hub with companies like Adobe and eBay setting up.
That has become the norm pre-pandemic, so people are able to live close to where they work without having a huge 60 minute commute into the city centre. Out here there’s not a lot of public transportation, so everybody’s driving.
Now with the pandemic, people have been working from home and they realise even more that working close to home is a better work-life balance, cutting out the commuting time and if businesses understand that, I think they’re going to continue to develop in the suburbs and leave the city centre behind.
I don’t think it’s going to have an impact here and in most other cities in the Rockies; they’ve been planning this for four, five years.
“The mall stores are done.” How long will it take for shopping malls to recover from Covid-19 in your jurisdiction?
We’ve seen a lot of this structural change in recent years; bowling alleys added to shopping centres on the old anchor side to keep parking in different areas. Cinemas have been key and even gyms. Landlords here are changing the name from a shopping mall to a lifestyle centre.
We’re seeing a lot of tenants trying to create showrooms, which is how they want to use their space. Recently, we had a major national tenant electronic company that took 5,000 square feet, and now wants to change it to 500 square feet as a showroom; not have any product there and ship everything online.
On Phillip’s point, what we negotiated was to keep track of where their online sales are. We set up a radius 20 miles from the location. The tenant then gives the landlord two percent of every sale that happens within these four zip codes. That was part of the rent concession that we were able to give to them.
Malls will still be a place where people can go to feel part of an experience. It’s all about how landlords are going to reshape what they want to do, shrinking the number of malls in a geographic area from five to one or two. For those people who are left behind, consolidation is the only way to keep business going. I think that’s more the wave of the future as we move forward.