By Dan Kemp, CCIM
April 6, 2020
I bet you didn’t see this coming. Neither did we. How could we have?
Many warning signs were leading up to the 2008 recession about the pending mortgage crisis and the risk of recession. The vast majority of America did not see it coming, but some people did heed the warning signs and prepared. Unlike the 2008 recession, COVID-19 took the world by complete surprise. Nobody was prepared! The effects of the disease are expanding daily, and its impacts on our lives, businesses and investments are not yet quantifiable, but it is real.
Compass Commercial is learning, as we work on the front lines with both tenants and landlords, how to navigate this pandemic. The landlord/tenant relationship and the landlord/lender relationship are the foundation behind our global and local economy. This global pandemic created the need to shut down businesses, caused a steep decline in revenue and put a strain on these two important relationships. Unfortunately, at this point, there are more questions than answers.
Many tenants have healthy businesses with cash reserves who will be able to weather the storm, even if it lasts for several more months. Businesses with limited cash reserves will need financial assistance if they are going to survive. Landlords and property managers are receiving requests from both business owners who need and who don’t need the help but are still looking for relief. Many landlords are seeking relief from their lenders so they can lessen the financial burden on their tenants. Lenders, in turn, are looking to the government to provide relief and assistance so they can assist landlords.
This raises the philosophical question, who should bear the financial burden of the impacts of COVID-19? The tenant, the landlord, the lender or the government? I would suggest it is everyone’s burden to bear to some degree, and nobody comes out of this without some financial scars. Tenants, landlords and lenders who have the financial means to weather the storm on their own can do their part by not asking for help. This will provide more assistance quicker to the companies who are desperate and do not have the same ability to sustain themselves. The survival of these hard-hit businesses is in everyone’s best interest, as it is our best bet to avoid a severe recession.
Where is the silver lining in all this? Is there one? It was difficult in 2008 to see any silver lining when most people knew there was no magic pill to heal the mortgage industry; we were in for a long multi-year recovery. I do not believe we are there yet with COVID-19, and there is still hope we can get this under control in a relatively short amount of time. The federal government’s extremely aggressive response to COVID-19 involved cutting interest rates, and since the financial crisis, banks are far better capitalized.
The government just passed a two trillion-dollar stimulus aimed at helping both businesses and households bridge the gap of the shutdown. We may not avoid a recession, but these efforts will likely lessen the impact overall. If we all do our part to stay home and implement the guidelines provided by state and federal agencies, we have a better shot at flattening the curve and getting business back to normal. The next 30 – 45 days will provide a lot of answers, so stay positive.
If you are like most of us at Compass Commercial, a few weeks ago, business was booming, and working with customers took up most of your time. We have been so busy working within our business that we have had little time to work on our business. Perhaps the biggest silver lining is we have more time to work on streamlining our operations, improving internal processes, implementing new technology, developing new skills and doing some strategic planning. Let us take advantage of the lighter workflow to better serve our clientele when the faucet gets turned back on. This is maybe our opportunity to reboot and retool our businesses for the future. Although we here at Compass are making plans based on the possibilities of both a shorter and a longer recovery, we remain hopeful and optimistic that the economy will recover sooner than later.