It’s fair to say that COVID-19 has had a devastating effect on the world’s finances in a way not seen since the infamous banking crash of 2008. With people being advised to stay indoors or at least to socially isolate, countless employees have been forced to stay away from their workplaces. This has left countless commercial properties vacant, and countless businesses seeing their monthly income reduce, or even fall off the edge of a cliff.

This has of course had a dramatic impact for the owners of commercial properties that are leased to companies. If the business renting a commercial space has no income and no investment pots to fall back upon, they are hardly in the best position possible to continue to pay rent, at least in line with the terms agreed of their rental contracts. This means that property investors are seeing their levels of income plummet too. Property owners have their own expenses to deal with, such as land-leasing contracts, real estate taxes, insurance, banking costs and agreed maintenance costs.

The question therefore is how commercial property owners deal with this unprecedented financial furor. It may be tempting to evict businesses that cannot pay their rent, but the market is currently in no position to offer countless companies that are ready to jump in and replace the businesses that have been evicted. Low income is better than no income, surely, especially as COVID-19 will eventually be dealt with and – after a long, slow period of recovery – the business world will return to normal.

So, the question remains – what are the best strategies for dealing and working with commercial tenants in a down market?

If you want your commercial real estate business to survive, then you need to understand the situation your tenants find themselves in

One of the key ways that commercial real estate owners can come out of this crisis as unscathed as possible is by offering payment relief to the companies that are currently housed within the properties that they own. A cooperative agreement could be worked out where tenants pay a reduced amount of rental for a period of time, or even no rent at all. Then, once the world’s financial markets find a much firmer footing, the rental income that has been lost will be paid via slightly increased rental fees over a prolonged period of time.

This of course will mean that the owners of commercial real estate will have to take an intermediate hit, but we are talking about long-term survival here as opposed to a quick fix or any attempt to carry on as though nothing is happening. This is a world-wide emergency that has been felt across the majority of developed countries, and not just some local, temporary issue. Already, billions of dollars have been lost due to the simple loss in production across nearly every single business sector, and it’s something that’s wholly unprecedented.

As with all matters that deal with any kind of financial situation, communication is absolutely vital. If you are the owner of any number of commercial real estate properties, then you will need to reach out to your tenants so that they fully understand your assessment of the current situation. There is nothing worse for any business that’s currently struggling to have to ‘guess’ what’s expected of them because their commercial landlords are not communicating with them.

If you do not communicate then you may find that your commercial tenants do not communicate with you. You should not wait until the companies who are leasing your building start to fail to make their rental payments as by then it may already be too late. If you tell them you would be willing to accept reduced or no payments for a limited period, then they will factor this into their plans for survival and eventual recovery. Again, it is far better to be ‘owed’ money that will be eventually be paid rather than to receive nothing because a business has collapsed, and there are very few businesses around to step in and take over your now vacant properties.

Taking care of your own business concerns is just as important as taking care of your business tenants

Of course, your own survival is important too. As the owner of a commercial property you will recognize that you only receive around ten to twenty percent of the business income you attain as profit. The rest goes to all the expenditures you are accustomed to. If you have experienced a sharp fall in your rental income than how are you supposed to survive?

Again, communication is key. Both the Federal Government and State authorities have recognized that these are unprecedented financial times and that help is required from multiple agencies in order to prevent the entire commercial world from falling down a deep black hole from which it would take decades to climb back up from.

Some states are encouraging banks to defer interest payments for a limited period, on the understanding that the ‘missed’ payments will eventually be paid back over a lengthy term so not to disrupt businesses too harshly in the not-too-distant future. Banks are just like businesses – they would rather accept deferred payments than payments that they will never receive.

As the owner of commercial real estate, you will need to reach out to the people you pay money to and ask for financial understanding. Just like your tenants, you need to reach out so that you understand fully how your liabilities stand. By doing that you will be in the best place possible for the survival of your commercial real estate business.

Finally, you need to keep the faith. This pandemic will pass, and the world will eventually return to normal, even if it takes years.

This article has been written by Hooman Nissani of Nissani Brother Enterprises. If you need advice at any time about commercial real estate, then contact Mr Nissani here.