What The COVID-19 Means For Office Owners
The Covid-19 virus scare has had the whole world back on its heels in recent months. Health officials in over 100 countries are taking drastic action to get the upper hand on the rapidly spreading virus. This exogenous shock to the world’s economy will definitely set global GDP back for the short term, as various business sectors throttle back activity. Canceled flights, school closures, postponement of major sporting events and a general rollback of group-oriented events, will certainly send a painful ripple through the US economy. But, as commercial real estate professionals, we are especially tuned into the potential impact on leasing and sales activity, our topic for today.
So far, we have seen no change in market activity, but we think it is safe to say that widespread uncertainty over the eventual outcome to the pandemic, is figuring into the decision making process. Business decision-makers tend to adopt a more defensive posture when the near term business outlook becomes opaque. That may slow down the process and increase the time it takes to complete transactions in the next few months.
From a leasing standpoint, Orange County building owners may begin to see more requests for short term renewals, rights to terminate and shorter lease terms on new leases. We recommend to all property owners to take a fresh look at their rent rolls for ways to mitigate near and mid-term risk of higher vacancy. Taking a more accommodative approach with existing and new tenants may be advised for owners with occupancy challenges, at least until the longer term general economic outlook becomes clearer.
From a sales perspective, the Covid-19 crisis has given a huge boost those looking to borrow money to acquire commercial real estate. Mortgage rates offered through the Small Business Administration hit an all-time low last week of 2.878% for a 25-year, fully-amortized, fixed rate loan https://www.tmcfinancing.com/sba-504-rates/That same loan was offered at a rate of 3.71% just two months ago. On a $2.5 million initial loan balance, that equates to an interest savings of $333,594 over the life of the loan, not an insignificant amount. Conventional rates are also coming down, but they vary widely by lender type and differences in the underwriting criteria. It is safe to say that mortgage capital has never been cheaper than it is today, and for those who believe the crisis will pass and the economy will revert to its previous growth mode, it represents a huge buying opportunity. Though, buyers will still have to pay the current price premium, as we are yet to see any actual price reductions attributed to the Covid-19 scare.
While the impact of the Covid-19 issue is front and center today, there are indications that a peak has been reached in China and Korea, which could mean that the virus may have run its course. Reports that Chinese factories and retailers are reopening for business may be a fresh indication that a return to normalcy may be in the works. Apple has now reopened all of its retail stores in China according to a report published in the Wall Street Journal on March 13th.
What measures is The Kelemen Company taking? The Kelemen team has postponed group fitness classes held at the Atrium as well as closing the gym until further notice. The company is working closely with public health officials as well as with the Centers for Disease Control (CDC), whose guidance we are following. The health and safety of our partners, owners, tenants, & staff we serve are paramount as this situation evolves. Therefore, the team will refrain from in-person contact unless necessary. We will remain normal operating hours available via phone and email. The Kelemen property management team can be contacted at [email protected] or (949)668-1110. We wish you and your families well and thank you for cooperating with The Kelemen Company.
