CRE Stakeholders Limit Risk Exposure In Coronavirus Crisis

NEW YORK CITY- The coronavirus pandemic has led to market contractions that have landlords calling their most trusted advisors for the next steps to take to limit their risk exposure. As the days of social isolation add up, tenants will seek rent relief and landlords will have to prepare on how to respond in the face of insufficient cash flows, Brad Tisdahl, CEO of Tenant Risk Assessment in New York, tells GlobeSt.com. 

Tisdahl urges that landlords should establish thresholds based on debt service and fixed cost coverage to ensure they have sufficient cash flow at an asset level to keep the lights on. In addition, he adds that landlords should create financial and business model tests for each business to determine whether or not to grant relief to the tenants and allow all but the underperformer to remain in their leases.

However, although the current picture looks grim for some landlords, all is not lost, Tisdahl said.

“The ongoing stimulus negotiations in Congress, coupled with the Fed’s recent announcement to continue its quantitative easing and market stabilizing actions, should reduce uncertainty and limit rent roll volatility,” he said.  

 The government’s response includes three main elements impacting commercial real estate.  First, small and medium-sized businesses are poised to receive relief through a $350 billion fund meant to mitigate layoffs and alleviate cash flow constraints.  Second, distressed industries, like travel, hospitality, and retail will reportedly have access to a $500 billion government loan facility, providing needed capital for key operating needs, including occupancy expenses.  Third, cash payments to individuals and expanded federal unemployment benefits for furloughed workers should provide additional liquidity in support of all sectors of the economy, according to Tisdahl. “This would be welcome news for small and independent office, industrial, and retail tenants as well as their landlords,” he said.