Commercial property owners are facing the toughest times since the recession of 2008. A lack of customers has hit restaurant and retail businesses. Office spaces emptied during the pandemic. Workers may not return at all or their work hours may be split between home and the office. The changes in the economy caused by the pandemic may have only started.
Anthony Burton represents commercial landlords, managers, and tenants in Orange County and the Los Angeles area. He advises his clients to help them avoid legal problems, but if they arise, he can negotiate a favorable agreement or defend their rights in court. If you have questions or concerns about commercial real estate, call Anthony Burton today at (949) 244-4207.
Commercial Buildings in an Economy that May Not Need Them
Jon Goldman is the co-president of the Premier Properties commercial property management company, which manages around 100 properties in Palo Alto, Redwood City, and Menlo Park. He was interviewed by Palo Alto Online. He told them that from March of last year to February this year, he’s seen amended leases, companies using Class A office space mostly for storage, and tenants unable to pay rent.
He sees it as the most significant commercial real estate crisis since the 2008 dot-com bust and recession. Advertised, available space in downtown Palo Alto is at an all-time high at about 15% of the market, though Goldman says he’s almost certain the actual vacant rate is higher. “This crisis has just begun,” Goldman said.
Commercial tenants, many of them small business owners, need rent relief on spaces that aren’t fully used. Landlords and property managers are working with them to avoid ending relationships and risking more vacancies that may be harder to fill in the future. Both sides are stuck in circumstances beyond their control and they’re trying to make the best of a bad situation.
Commercial Space Won’t Be Filled by People Who Don’t Want to Come
At the end of last year, eight new leases by major Silicon Valley corporations for more than 100,000 square feet each were completed. But on the lower end of the business scale, the situation isn’t as rosy. Once prime areas like downtown Palo Alto and Menlo Park have dried up as leasing deals came to an end.
Goldman doesn’t predict Palo Alto’s total shut down, but because many employees won’t return to offices and many of them have closed, the pandemic’s toll will be much worse than what happened in 2008. He said that recovery occurred quickly, but if people don’t want to leave their homes and kids aren’t in school, the turnaround could be much different this time.
Goldman says his firm stresses working with tenants and renegotiating leases based on their circumstances. They’re not threatening tenants or taking them to court. John McNellis, the founder of McNellis Partners, takes the same approach. His company’s portfolio includes neighborhood shopping centers, supermarkets, and drugstores.
Hardball is Played by Landlords and Tenants
Last year McNellis Partners was one of the first prominent local property managers to ask property owners to support “mom and pop tenants” because he thought it was the right thing to do. Since his company focuses on more pandemic-resistant outdoor shopping centers and grocery stores, they haven’t suffered like other property managers.
McNellis says it’s not just tenants getting squeezed. He claims some “multibillion dollar” tenants have threatened to move out of leased space unless they receive a 20% rent cut.
“In a crisis like this, people’s, unfortunately for better or worse, characters come out,” he said. “We have people like the little massage center guys who are truly destitute…And we also have people who try to take advantage of this.”
We’re Here to Help
California and the rest of the world are in uncharted public health and economic waters. While the economy is improving overall, trends set into motion by the pandemic may drastically change commercial real estate as we know it.
If you or your business is a commercial property tenant, manager, or owner and you have questions about how to handle the problems you face, call us at (949) 244-4207 or fill out our online contact form today. We can talk about your situation, how California law may apply, and what you should do next.
