Landlords may need to deal

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Prior to Gov. Gretchen Whitmer’s March 24 order directing all nonessential Michigan businesses to temporarily suspend operations and ordering residents to shelter in place, the real estate industry already was suffering heavy hits.

According to Colliers International West Michigan, landlords and tenants were actively analyzing the pandemic’s impact on supply chain reductions, decreased retail and customer traffic due to previous social distancing recommendations, as well as the subsequent impact on employees, which would ripple through the housing market as cash flow slows.

Buyers and sellers are canceling face-to-face meetings, inspections and tenant interviews, Colliers said. The group also anticipated ongoing containment efforts, which will result in a significant backlog in lending and recording of transactions as government offices are required to close.

Kyle Sischo, Colliers managing director for real estate management services, said Colliers recently made the decision to close all of its offices over the next three weeks, but the group still is active in providing support and advice for clients during this unprecedented time.

From a building management perspective, there are two big challenges related to COVID-19, Sischo said. First is keeping track of COVID-19 and making sure tenants and landlords are safe, and second is coordinating and communicating requests from tenants for rent abatement and suspension during this difficult time.

“What we’ve been doing is communicating with our landlords and tenants so they know what’s going on,” Sischo said. “That includes tracking anything from tenants who have closed their doors temporarily or permanently and tracking if there’s been any potential virus, confirmed or not confirmed, in their locations.”

Sischo added Colliers had adopted these procedures prior to Gov. Gretchen Whitmer’s shelter-in-place order, which took effect on March 24.

Colliers still is giving recommendations to landlords and facilities to close up and maintain a heightened sense of cleanliness.

“We’ve stepped up cleaning standards based on each landlord’s discretion — changing the types of chemicals we used to clean, we’ve stepped up the quantity of cleaning,” Sischo said. “With the executive order, all that will change, because there’s a lot less traffic now.”

When it comes to rent abatement for tenants, Sischo said Colliers is looking for a “win-win” scenario for landlords and tenants. Tenants may not be able to make rent during the mandatory shutdown, but the cost will trickle down to landlords who won’t be able to cover their mortgage if they can’t collect rent.

“Many landlords are requesting that we ask tenants if they are making any requests, that they come to the table with a win-win plan that provides for a ‘give’ from the landlord and tenant alike,” Sischo said. “For example, if a landlord gives rent abatement, is the tenant willing to extend their lease term for X number of years or X number of months to recover the cost?”

As the COVID-19 crisis unfolds, Colliers has seen retail become first and hardest hit because it is so reliant on foot traffic, Sischo said.

“Once this situation clears, we are hopeful and expect they are coming back around quickly — those that can sustain the financial burden,” he said.

Manufacturing facilities, comparatively, are strong because, depending on the industry, they are providing essential goods, but if they face a slowdown in orders, they likely will take longer to recover due to the longer workflow of producing goods and fulfilling orders, Sischo added.

Colliers recommended remembering some lessons learned during the 2008-2009 recession. Interest rates likely will continue to decrease, and some restrictions on lending will be lifted

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