COVID-19 AND IT’S EFFECT ON THE SD REAL ESTATE MARKET

Covid-19 has undoubtedly been a disrupter in nearly all facets of the San Diego business world. While some businesses are seeing positive spikes in revenue, many other businesses are watching their revenue streams dry up. After wages, rent liability is generally the largest line item on a business profit and loss statement. With the lack of revenue and the difficulty of paying rent, tenants need to figure out a solution to minimize the consequential impacts of not paying rent or paying deferred rent, which will catch up to them in 12 months. 

SO HOW CAN BUSINESSES ALIGN THEIR REAL ESTATE STRATEGY TO MINIMIZE RENTAL LIABILITY ISSUES?

Layoffs, supply chain issues, and revenue decreases are all contributing factors to the economic instability that has made paying rent a struggle for many local tenants. As rent and outstanding liabilities increase, it is important to hedge against these issues as much as possible by looking for rent deferral and subleasing off extra space. The easiest and most important thing that can be done is personally, or with a broker working on your behalf, seek a rent concession from your landlord. Whether we are asking for rental abatement during the trying months, discounted rent, or rental installment payments, most landlords will work with tenants to ease the burden as it is in their ultimate best interest not to have to re-tenant their building. In unison with the above conversation, the second most important thing to do is engage a broker and talk about subleasing. It is fairly often that companies have an additional office or warehouse space they are not using that could have cash in hand value for someone looking for a bit of overflow space.

For businesses that have been fortunate enough to be thriving or continuing with little-to-no disruption, now would be a strategic time to analyze the benefits of renewing your lease early to lock in a lower rate. When evaluating an early renewal, the crucial questions to begin with are, is there less than 18 months left on the current lease, and does the business operate well in the existing space? If the answer to both of these was yes, then renegotiating early can be a good strategy. Bringing on a tenant rep broker for an early renewal can add significant leverage for the tenant because having someone who knows what the market is for additional concessions or tenant improvement dollars can maximize the value of the renewed lease. 

Finally, companies looking to make a long term investment should strongly consider purchasing a building for their company. SBA interest rates are currently below 3% (some as low as 2.68%), and SBA is paying principal and interest payments for six months if you close on a property before September 27th. Not to mention the significant long-term upside of appreciation seen by purchasing and holding a building.