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How COVID-19 Will Change NYC Commercial Real Estate and Landlords

Jackie Maroney

Jackie Maroney

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While many NYC renters are trying their best to pay their rent during the Coronavirus pandemic, the commercial side of real estate is not much different.

Struggling tenants are asking for rent abatements and are trying to negotiate with Landlords, as owners are worried if the tenants they help will still be in business to pay back their agreed-upon share.

It also doesn’t help that the one beacon of light that small businesses were holding on to burned-out late last week when it was announced that the much sought after federal crisis fund of $350 billion created to help out small businesses, ran out on Thursday.

While most tenants, businesses, local restaurants, etc. were relying on this fund provided by the CARES Act, or the Coronavirus Aid, Relief, and Economic Security Act, they were furious to know that most of the money went towards larger well-known restaurant conglomerates instead such as famous sandwich shop Potbelly, as well as Ruth’s Chris Steakhouse.


  • Many retail and commercial tenants having to shutter their doors have directly affected their landlords with a great loss of income.
  • Some commercial tenants have been able to negotiate a deal with their landlords, but there is revenue loss on both sides.
  • There are a few government relief programs like the Cares Act, the Paycheck Protection Program, and Employment Retention Credit that might help some businesses stay alive.
  • The quarantine will affect businesses going forward, with a push towards digital/technology, working remotely, online sales, and transforming what future office spaces will look like.
  • The Coronavirus pandemic may also see tenants also being more selective in the type of landlord they are looking for when hunting for a space, whether residential or commercial.

How COVID-19 Affects Commercial Real Estate

While residential real estate is being heavily affected as tenants struggle to pay their rent on time, the commercial industry is also taking a hit.

While many mom-and-pop retail and restaurant businesses are being forced to close down, a surprising amount of corporate chains are also facing their own struggles when it comes to paying rent.

WeWork is among the corporate companies unable to make rent, as currently several of their locations are trying to re-negotiate their leases with the help of brokerage firms such as JLL and Newmark Knight Frank have held off on paying their April rent.

However, landlords and property owners are experiencing a domino effect, especially when a large tenant or restaurant is unable to pay rent.

Several landlords who have Staples as a tenant were only recently advised that the popular office supplies store would not be able to make April’s rent.

Two other well-known chains who have stopped paying rent in an attempt to reduce the rent?

Subway and Mattress Firm have also jumped into the Staples’ boat as they try to obtain rent reductions via lease amendments.

This puts landlords in a hard position as they are still on the line for their own debt-related responsibilities as well as important services such as sanitation and utilities.

Also, many owners have already amassed debt and can’t afford to waive rental fees.

Furthermore, many of these commercial landlords hold residential units and are also suffering from a loss of rental income on a second front from residential tenants who have lost their jobs.

Relief Programs Available to Businesses

While this news may be discouraging to some, it is important to know that while the crisis fund provided by the CARES Act may have run out, there are other avenues both landlords and tenants can explore before they wave the white flag.

However, it is first crucial to understand what options are out there and the difficulties that may be faced.

The CARES Act

Known formerly as the Coronavirus Aid, Relief, and Economic Security Act, the CARES act was set up with small businesses in mind. $350 billion was set aside to help companies with fewer than 500 employees, or those who operate independently such as an independent contractor.

In order to receive funding, companies applying must have been in business before February 15th, 2020, and must show that they have been keeping up with payroll during the pandemic as well as payroll taxes.

The applicant must also not have an open application already filed for a similar loan.

The loans given could have equaled up to 2 and a half times the amount of the borrowers’ monthly payroll expenses, but no more than $10 million.

When it was reported last week that funds had run dry, many business owners were upset to see that most of the funding had gone to large companies and restaurants.

Potbelly had received a loan of $10 million, while Ruth’s Chris Steakhouse somehow managed to get $20 million in loans despite the $10 million dollar maximum.

Hopefully, Capitol Hill will be providing some important updates regarding additional funding this week as the Small Business Administration (SBA) is unable to sign off on any more loans from the Paycheck Protection Program.

The Paycheck Protection Program (PPP) guarantees 100% forgiveness on loans so long as there is proof that the loan is going toward payments for rent, payroll, utilities, etc, and that employees are still staffed.

The Paycheck Protection Program

The PPP loan was created to help support small businesses and employees as the applying company must be able to prove that they consistently maintained payroll.

As stated above, the Small Business Administration will waive loans if businesses can show that all employees were kept on the payroll for at least (8) weeks and that the loan is being applied to cover costs such as payroll, rent, mortgage interest, or utilities.

Those interested in applying can do so via an SBA 7a lender or through any federal bank, credit union, or any Farm Credit System. The PPP is expected to be available up until June 30, 2020.

Employment Retention Credit

For employers facing closure due to COVID-19, you may be qualified to receive a credit each year against employment taxes equivalent up to 50% of wages for each employee for wages paid between March 12, 2020, and January 1st, 2020.

To qualify, employers must not have taken an SBA 7a PPP loan out prior to applying for the Employment Retention Credit.

The Future of Commercial Real Estate

In New York, landlords and tenants are quickly learning to think outside the box and get more creative in their approach to making ends meet.

One example of this is start-up company Cadence’s founder and CEO, Nelson Chu, who was able to secure 4 million dollars in funding, was able to sign a lease in March based on the agreement that he would only be charged once he moves into his new space.

Other owners and commercial real estate companies are anticipating a demand in health and safety measures such as employees consistently wearing face masks, the installation of temperature scanning devices, as well as the increase of wearing gloves.

Businesses are going digital

With helpful tools such as Zoom, a now popular app that turns your phone into a conference room, owners and tenants alike will be able to hold virtual meetings without ever needing to meet face to face.

Along the same lines, brokers are holding virtual tours to prospective tenants and are even taking classes on how to host these tours as they embrace this being the new norm.

Brokers who are unable to adapt to more technological means are suffering a hit as real estate touring has come to a halt and permits aren’t allowed to be pulled due to City Hall being closed.

One digital benefit is that both brokers and real estate owners can access the abundant amount of date available based on locality so that they can make highly informed decisions instead of taking a generalized approach.

The future effects on retail business

With the current stay at home mandate in effect for NYC, customers are forced to shop online and add to the decrease of brick and mortar shops as fear among the Coronavirus increases.

One benefit for NYC retail establishments is that rent in Times Square have decreased from 15.7% a year ago to $1,647 per square foot, while average rents are now $1,800 or less - the first time to happen since 2011.

Jeff Blau, CEO of Related Companies, predicts that malls and other retail shops will open after corporate offices have opened.

Owner of Hudson Yards and having a claim of the Shops at Columbus Circle, Jeff Blau advises that “People need to get back to work…and will likely spend weeks in the office - before they get back in the mall.”

How office spaces may change

The once favored open space layout may or may not change as employees return to their prospective jobs and rethink the idea of occupying in a densely populated workspace where sitting more than 6 feet away from someone may not be an option.

This may mean that the older style of individual offices may come back in style as most people could prefer to be more self-isolated rather than out in the open with several co-workers.

With health and safety being at the forefront of everyone’s minds, tenants may also prefer more lounge-style conference rooms, outfitted with spaced out seating and large screens for digital conferences as a way to connect with those working from home.

Building codes may also be affected such as standards on HVAC and square footage per person.

Working remotely may become the norm

This is a stark reminder that working remotely may be a trend that is here to stay as many companies race to adapt to today’s health and safety requirements.

Now that non-essential services in NYC are being mandated to stay at home, both tenants and landlords are realizing that the wants and needs of renters are changing.

As people work from home, it is very likely that this may be a sticking trend, especially for those who commute from out of state, such as Connecticut.

Even brokers are resorting to adapt to the work at home policy by finding means of hosting virtual tours via sites such as Youtube, Facebook Live, and Ideal Properties.

Landlords May Take On a More Hands-on Approach

Open communication with their tenants will strengthen bonds and may aid in a financially beneficial mutual relationship.

While some NYC landlords have already sent deferment letters, there are some encouraging stories out there.

Some tenants and landlords are learning to think creatively as they learn to work together.

One tenant was able to negotiate his lease to add a percentage with a less stringent finance charge in addition to his missed payments in lieu of not paying his rent for the next few months.

Other lease modifications might include a few months’ of rent for the year in exchange that the tenant will renew their lease.

While most landlords would love to help as much as they can, many have their hands tied as they are also financially obligated to pay their mortgages, bills, and other debt.

Because of this, lenders may be more than willing to help as their own money is on the line. Banks may soon be able to defer payments, making it easier for property owners to hold out on demanding rent from tenants.

NYC landlords currently do not hold much power when it comes to legally pursue claims against tenants who default on their rent.

This is partially due to the fact that the State of New York has suspended all non-essential court meetings, including evictions.

As per the 90-day moratorium, landlords may serve rent demands, but cannot go forward with any legal action, such as eviction, towards tenants.

More communication between landlords and tenants

Now more than ever, communication between landlord and tenant has never been more important.

If a tenant notices their landlord being more attentive and understanding to them during this difficult time, chances are, they are going to pay it forward to the owner.

Owners are also becoming more involved with tenant interactions and are seen frequenting meetings with the property manager.

Tenant communication portals such as Workspeed or Building Engines will be utilized more than ever since it stimulates communication between Property Management and tenants.

Landlords may benefit from overly communicating as most likely these tenants will remember these generous gestures and will be more than willing to renew their lease.

Future Sales in Real Estate

Deals that were near closing before the pandemic broke most likely got signed, but the industry is at a standstill when it comes to upcoming sales.

Those transactions that were already pending are still in the process of closing or are on their way to being signed.

Getting closure

While the world continues to adjust and adapt to the recent pandemic surrounding us, it also encourages us to communicate more than ever.

Meaningful relationships are being forged between tenants, landlords, brokers, etc. as we learn to navigate ourselves during these challenging times.

One important thing to understand is that there are plenty of options available as long as you seek out your options and keep an open mind.

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