COVID-19 Drives New Construction Features, Financing Realities

The COVID-19 pandemic is fueling new safety-minded changes in construction design, according to a developer of office, industrial and multifamily projects.

Matt Khourie, CEO of Trammell Crow Co. said on a recent episode of CBRE’s podcast, The Weekly Take, that tenants are looking for “a healthier building” as they look to increase physical distancing and decrease shared contact surfaces.

In one current downtown Seattle project, builders are including a 100% outside-air ventilation system as well as a return-air area that uses ultraviolet lights to kill pathogens, Khourie said.

“And then there’s a whole technology developing now—and already had started, but it’s going into overdrive—on touchless,” he said. “Everything’s touchless doors. And that’s not just the main entry door. That’s the garage lobby doors. That’s restroom doors. All of those become touchless and probably effectuated by kind of a mobile phone device.”

Builders are also looking at touchless restrooms and elevators and potentially infrared temperature-taking devices.

“I think to build the lease office space in the future, you’re going to have to address the safety issue big time,” Khourie said.

And the new safety features don’t appear to be leading to runaway construction costs. Mark Wilsmann, managing director and head of real estate equity at MetLife Investment Management, joined Khourie on the podcast and said tenants of two large office projects underway in his portfolio have asked for–and are paying for–modifications.

Khourie and Wilsmann were bullish on industrial projects while they viewed multifamily construction as a longer-term proposition and office proposals best suited for pre-leased and build-to-suit situations.

Large banks have pulled back on some of their construction loan financing over the last few months, Khourie said, as they’ve focused on propping up the broader economy with federal relief packages.

“Putting together a syndication of banks to do a big deal is very difficult today,” he said. “But if you’re in a smaller situation dealing with regional banks, it’s actually quite liquid.”

Asked about the favorability of projects in central business districts versus suburbs, Wilsmann said MetLife has been directing investments toward smaller, “next-tier” markets, including Seattle, Denver, Dallas, Austin, Charlotte, Nashville and the Atlanta area.

“Living in a lower tax burden, and certainly the easier ability, at least at the margin, to kind of get around some of these smaller next tier cities, we think that they’re going to continue to be the beneficiary of movement out of California, out of the northeast and good markets to invest in front of it,” Wilsmann said.