With the future of retail real estate shifting as we learn the impact of COVID-19, many in the industry are looking for answers on how to proceed. We spoke to our CEO, Chris Maguire, who pulls from his 37 years of experience to share what past downturns have taught him. In our interview below, Chris speaks on what multiple roles in the industry should be doing at this time to emerge stronger. His outlook is hopeful and his confidence is inspiring for industry professionals who feel uncertain. Read on for advice from our favorite industry veteran.
You’ve led SRS and Cypress to growth on the other side of every crisis and recession since SRS’ founding in 1983. While this pandemic is unprecedented in modern history, what lessons learned from previous downturns can you share with the real estate service providers in the retail industry?
The most important thing, in any adverse situation, is to continue to communicate. This is much easier to do when the news is good, and much more difficult when it is not. Leaders must realize that it is their job to show their people a path forward and create a vision for what the future might look like as we work through the difficult times. Those of us in the retail business have been on a roller coaster ride since the financial crises. As opposed to alternate asset classes that have soared in value over the past five years, some areas of retail have been negatively impacted during that same period. This has been due to outdated concepts, online shopping, poor locations, etc., so, we have been dealing with challenges well in advance of COVID-19. Now, we have another barrier to deal with that will cause further consolidation in the retail business and that will include tenants, owners, and advisors. However, we have found that during these uncertain times, there is a lot of creativity that comes forward. I can promise you that not all retailers and restaurant concepts are feeling sorry for themselves, many are working on their plans to restart and to take advantage of a reset in competition and potentially some consumer behavior. This could manifest in new concepts, new ways of operating, and continued optimization of existing portfolios.
Where should service providers focus their time while transaction volume is down?
While there are similarities to previous downturns, there are also stark differences. Never before have tenants been mandated to close their businesses for extended periods of time. Therefore, as advisors, our work has temporarily shifted to rent relief and doubling down on portfolio strategy and optimization. Additionally, we’re seeing an increase in inquiries for corporate real estate outsourcing. If retail real estate service providers are not plugged into those workstreams, they should use this time to get to know their clients and markets better. There is nothing wrong with driving sites, updating their contact databases, etc. Now is the time to work your contact database as no one is in a meeting or on an airplane, so give them a call and catch up!
How can landlords, tenants, and lenders work together to find sustainable solutions to the challenges presented by COVID-19 and where do your advisors fit into those solutions?
As we all know, neither owners, tenants, nor lenders caused this dilemma, but all will suffer its effects. As a result, the best outcome for all is to work together toward an amicable solution quickly. Pain will be felt by all parties, but the quicker we can reach a consensus on economics, the sooner all of us can work on the plan to get back to business. Service providers can, and should play a key role in facilitating these discussions. While neither side had resources on the bench to handle these types of discussions, the brokers do and are ready to engage.
What advice do you have for those tenants struggling to make rent payments?
As stated above, any retailer that has been ordered to close or partially close (take out/delivery) has lost its revenue stream and has obligations, in addition to rent, that they have to continue to pay to remain viable. I would advise any and all of those tenants to engage in a verbal discussion with your landlord as soon as possible. Letters do not do much good as they typically start from a narrow point of view. Most landlords are going to be reasonable as they are looking for a quick solution as long as it is equitable. Conversely, the landlords need to be realistic as well. It does not do them much good to get space back that was previously occupied by a healthy, rent-paying tenant that turns vacant requiring additional downtime and capital investment to lease-up.
What advice do you have for owners struggling to make mortgage payments?
Retail owners are in a similar position in their discussions with their lenders. While those situations can vary dramatically depending on loan-to-value, previous cash flow, or refinancings, the owners have also been damaged by this event and the lack of rent received. Most of the lenders we have spoken with are working with their borrowers to help bridge the expense gap. Same advice here – the sooner the parties can engage, the more beneficial the conversations and eventual outcome. Lenders want their borrowers and collateral to remain healthy and have a vested interest in seeing that the proper amount of capital is available to ensure a property can continue to operate at the level prior to closure.
In times of uncertainty, what helps you stay positive as a leader for your companies?
Positivity is not an option, it is mandatory. I am not saying that leaders should be unrealistic, but we will get through this, just like we have in every other tough environment before this. So, why not focus on that future positive outcome and take the steps necessary to reach it? Cast the negative news and naysayers aside as they will be wrong long term and that is where we are headed.
For more industry insight on COVID-19, visit our COVID-19 Retail Real Estate Resource Center.