Melissa Molyneux: The suddenness of this has been challenging. I worked through the Great Recession and I was a new agent at that time. What was different is, we could all see that one coming. In northern Nevada, we were hit hard because it was regulated to housing and construction. With this pandemic, we don’t know how long it’s going to be, how deep it’s going to be. My guess is that it impacts retail, hotel and hospitality the hardest. How much is that going to bleed over into all these other areas?
David Cantwell: I’ve got a wide swath of different types of clients, so I’ve had different reactions in different places. For the most part, anybody associated with the food industry or pharma/science will continue on full speed ahead. Everybody else is pretty much on hold. Most of the businesses I’ve been working with all went on hold. As far as COVID-19 is concerned, I don’t think geography matters much. In general, I tell my clients to make a deal when the reasons are both clear and compelling. Right now, there’s nothing compelling anyone to sign something that could, either be something they don’t want very shortly, or be less expensive [after this is over].
Brenden Keating: The property manager’s job just got a lot more difficult. A large percentage of the tenants are calling in asking to not pay April’s rent. Each landlord is handling it differently. That’s a short-term issue, dealing with the tenants and managing cash flow. Nobody ever ran their budget for 2020 and said, “What would happen if we had zero revenue in 2020? How would we pay our bills?” We’re in the unknown. Those who took on a lot of debt will, obviously, get hit first. If it goes deep enough, a lot of people will get hurt. Long-term, there will be consumer changes. I drove down the street the other day and the Red Rock Casino parking lot was completely empty. How does that change the value of real estate? Maybe it doesn’t change, maybe it just goes back. I had the most fun I’ve ever had in my real estate career during the last recession. If this is the same thing, worse or a little better, we’re ready for it.
How will each Commercial Submarket Fare?
Tom Fennell: I was talking to our industrial team this morning; they’re still as busy as they were. Landlords up here are not really giving a whole lot of concessions on the industrial side. Most of them are essential businesses. I think industrial will be the least affected, especially if you’re in the supply chain, distribution or manufacturing. We represent a company that’s making ventilators and they are as busy as they could ever be right now.
Molyneux: My perspective is from the office side. In some of my assets, the landlords are working really hard to come up with a plan to control costs and help collect rents. Obviously, this is going to be very dependent on how long this goes. We have one asset that has 17 tenants, all office users. As of [early April], 11 have not paid rent. It’s not that their business is not doing well, these firms are just being very cautious with their cash. A lot are applying for the paycheck protection stimulus funds. What we have done so far is either amortized those rents and added them on to future rents or extended a term. It could be a band-aid if this thing goes on longer; those plans may have to change. That’s in the office world, I would imagine some retail tenants were hit so suddenly. If you don’t have customers coming in your door the next day, or you can only do takeout and your business is down 80 percent, those are the tenants I’m more concerned about.
Todd Manning: I specialize in retail. I’ve been doing that for 15 years. Retail is getting hit pretty hard right now. Rent is only a fraction of a retailer’s cost, there’s also their payroll, cost of goods and inventory. There’s a lot of other things that are stressing them. If we’re able to get back to some level of work in another month, I think there will be a significant level of restrictions on how we interact with one another. Things will change. Maybe over months or years things will get back to normal, but it will take a little longer. Retail was trending toward social, experiential businesses, which were becoming the new anchors. It’ll take a while for some people to want to be in those atmospheres. Things like concerts, conventions and stadiums, even when these open, people’s habits are going to be slow to get back to [normal]. Those businesses are going to be impacted for a while. There are going to be a lot of habits that change. This is all speculation. We really don’t know; this is uncharted territory. We’re all optimistic that we’ll get back sooner rather than later but there’s going to be some consumer changes that happen that will ripple through for years to come.
Have the State’s Restrictions on Evections Been Helpful?
Thomas Johnson: All landlords, if they’re smart, are working with tenants. We have a questionnaire for all of ours asking what help they need. We have a lot of restaurants [as clients]. On the apartment owner side, is this [moratorium on evictions] helpful or harmful to our industry? It just doesn’t seem to me like it was well thought out.
Frank Gatski: Some tenants are going to take advantage, whether they’re really struggling or not. We’re going to be looking to see who pays and who doesn’t. Then we’re going to reach out to each one of those tenants and try to work through it and find out if they really are struggling or if they are taking advantage of the situation. Our property management team has been sun-up to sun-down dealing with tenants asking for rent relief. It’s been mayhem; it’s unprecedented. The state has put restrictions in place, and I don’t think it’s a good thing. The landlord should have the right to work with each tenant, especially in the commercial world, when we’re talking about businesses. I understand when people don’t have anywhere to live but, in the commercial real estate world, this has put landlords at a disadvantage just to try to operate. We had a lot of deals on the table that were just shut down. It’s a scary time for us.
How has this Affected Financing?
Larry Singer: This goes all the way down the chain. It starts with the tenant, goes to the landlord which then, it obviously goes to the lender. What is the recession cycle of getting receivers involved and starting that whole foreclosure process?
Keating: In this cycle everyone, from the landlord to the lender, is being more forgiving and understanding. This wasn’t because somebody got over leveraged and it was all greed; it was something that’s hit the whole world. I’ve heard from our friends that own banks that they have a six-month reprieve from the FDIC (Federal Deposit Insurance Corporation) before they have to classify a loan as being delinquent. In my view, in the banking world, there’s going to be a six-month forbearance. In the CMBS (Commercial Mortgage Backed Securities) world, because it is servicers making decisions for bond holders, I think there will be less working with people and more moves to foreclosure. On the Freddie and Fannie agency side, for multi-family debt, they’ve announced programs already for forbearance. You have to prove a certain amount of cash flow drop and distress and then the government agencies are going to give some breaks. I think it’s going to take longer for this to work through the system, if it gets as bad as it did before, but maybe it doesn’t.
Gatski: As far as financing goes, no one is loaning money right now, as far as I know. Some lenders are working with landlords by giving us three- or four-months forbearance and adding it to the back of the loan, or they’re dropping the payments down to interest only. You have some lenders that are stepping up. Property owners that are in good financial position, that might own the building with low or no debt, are working with their tenants. Some are even philanthropic and stepped up and offered a 50 percent rent reduction for the tenants. Rent relief, not reduction.
What does the Future Look Like for Commercial Real Estate in Nevada?
Johnson: Our market was so strong before this [pandemic] happened that I really believe we’re going to see it come back fairly quickly. Although, I think there’s going to be a lot of other changes in the brokerage industry, particularly among agents. Agents that have been in business less than three years, are going to have a hard time adjusting to this new world we’re going to be in.
Gatski: I’m worried about Las Vegas. A lot of people I’m talking to are concerned. We are the “Entertainment Capital of the World”, and that means bringing people together. I can only hope the public has a short-term memory like they’ve had in historical times when stuff like this happens. Who would ever have thought that you would see the whole strip shut down and closed? That’s a big deal.
Johnson: I have a lot of historical perspective. [If I were to rank] it like a report card: For Q2, which we’re in now, it’s an absolute “F”; Q3 is going to be a “D”, maybe a “C-”; Q4 is a “C-”, maybe up to a “B-”. But, I think Q1 2021 is going to be a “B-” to a “B+”, maybe even an “A-”. We’re going to come out very quickly. I’m worried about Las Vegas; I grew up in Las Vegas. The prognosis I gave, I’m really addressing northern Nevada. Las Vegas is such a question mark.
Cantwell: I don’t know when we’ll come out of this thing, but I will tell you as a fiscal conservative that when you start talking about printing $5 trillion, I don’t know what the dollar is worth in 18 months.
Keating: All of our agents and property managers just need to be business advisers to their clients and think long-term. We don’t know how the future is going to look. This thing could snap back quickly, or it could be longer. You have to be prepared for all cycles and all situations. The biggest thing is, capital 60 days ago demanded a lot less return than it does today. We need pricing to equal where the investor thinks there’s value before you can find a bottom. In the last cycle, 2009 was a price discovery year. Lenders wanted too much money for their assets, sellers wanted too much money, and it took about a 24-month period for price discovery to happen. Then, in 2010, you started to see trades, where somebody started to feel this is cheap enough now that I can come back in. It’s really based on a confidence of capital and whether it takes 36 months to find that, or six months to find that. That’s what we all need to have happen to kick the gear back to a forward drive again.
Manning: Another thing we have to remember is, things are changing daily, weekly. Who knows? In two months, we could see cases fall off enough and people venturing out and realizing they are totally fine. It could change very quickly. In three, four or six months, people could realize they are fine going out, and then a vaccine comes. That’s the unknown. We don’t know how quickly these comfort levels will change. With Las Vegas being so heavily dependent on social interactions, we need that perception and comfort level to change as quickly as possible.
Singer: Prediction wise, we don’t know when we’ll come out of this. Our economy is so dependent of what the rest of the country is. Whatever happens, we should anticipate a bit of a lag behind the rest of the country. That being said, I’m optimistic because when people start to get out of their house, they’re coming to Vegas.
Fennell: We still have California to our west, this is going to continue to push companies out of California. Hopefully, as we change how we work, especially from the office side, companies are going to have a different opinion on being able to have some of their higher-level office components out of major markets.
Singer: I also anticipate we’re going to see very complex clauses pushed for by attorneys in leases to address this type of issue going forward.
Fennell: We’ve already started to see an addition to new leases to include pandemic language.
Keating: We’ve seen rent commencement dates tied to when the economy opens back up, or when Nevada doesn’t have a shelter in place. That’s so people don’t burn off a bunch of free rent when they don’t know when they’re going to actually be able to open back up again.
Gatski: It’s going to be interesting when this moratorium is lifted how many balances are being carried by landlords and what happens there. Is there going to be a slew of evictions? Are there going to be people who simply took advantage of the time and they’re going to have money to pay their rent again? Businesses, like ourselves, need to stay optimistic and hope for the best, but also prepare for the worst. I have no crystal ball. I have no idea how long this is going to take. We’ve found ways to be a lot more efficient with people working remotely right now, and getting a lot done. At the end of the day, we’re going to require less office space. I think that’s going to be, maybe, a new way of doing business.