Most real estate professionals expect at least some of their tenants to seek rent reduction or relief this month due to the COVID-19 coronavirus outbreak and are likewise employing a number of strategies to work with them on the issue.
That's according to the findings of a recent industry survey, in which 350 professionals responded over a two-day period. The survey is a collaboration between six area real estate industry groups: Marquette University Center for Real Estate, NAIOP Wisconsin, the Commercial Association of Realtors Wisconsin, Wisconsin CREW, Building Owners & Managers Association of Wisconsin and IREM Milwaukee. Results were released on Wednesday.
More than 50% of the survey respondents expected less than a quarter of their tenants would, by April 15, approach them with issues in making their rent payments.
Twenty-three percent said they expect 1-10% of their tenants to approach them and nearly 33% expected 11-24% of tenants to do so. Just six respondents (about 3%) said they expected no tenants to seek a rent reduction or relief during the outbreak.
Respondents indicated they were considering a variety of strategies when working with tenants. This survey question allowed respondents to select multiple options.
The most popular answer was making adjustments to term, such as extending terms in exchange for rent relief, with 107 respondents indicating they were considering the strategy.
Following that were adjustments to rent such as lower rent or rent-free periods (93 respondents), requesting financials and/or proof of distress (89 respondents), helping tenants apply for loans through the Small Business Administration (66) and asking tenants about their business interruption insurance (62).
Thirty-four respondents said they were not making adjustments to in-place contracts at this time.
Andrew Hunt, director of the Marquette University Center for Real Estate, said the most popular strategies fell in line with his expectations. This is good, he said, because it affirmed the assumptions he and other officials were making about the industry's response to the outbreak.
"Rent reduction and extension of terms were two things we were hearing the most before we did this poll, and sure enough the poll bore out those top two strategies were what landlords and tenants were working on together," he said.
Those who primarily work with, develop or own health care, hospitality and retail properties expect to be hardest hit by the outbreak.
According to the survey, about 28% of both retail and hospitality respondents expected 50% or more of their tenants to approach them for rent relief. About 30% of health care property respondents anticipated the same situation with their tenants.
"We’ve seen genuine collaboration resulting in conversations between the lenders and landlords, as well as the landlords and tenants," said Jim Villa, chief executive officer of NAIOP Wisconsin. "This will be key to ensuring the long-term stability and viability of commercial real estate."
Get more news and insights in the March 30 issue of BizTimes Milwaukee: