COVID-19 and Commercial Real Estate Considerations

Commercial real estate (CRE) valuations are currently in a state of uncertainty for various property sectors, as the depth and duration of an economic downturn is still unknown.

Landlords, tenants and lenders are hungry for data that reflect COVID-19’s immediate effects on levels of rent deferrals and abatements and the longer-term effects on rents, expenses and occupancies, but the script is still being written. All parties are in the middle of multi-faceted negotiations between stakeholders with diverging interests.

Many landlords are initially taking “hardball” positions to preserve asset values but ultimately recognize that they need their tenants to successfully navigate the crisis. Yet, landlords risk tripping debt covenants by granting too much forbearance to help ailing tenants, which brings lenders and special servicers into the mix.

The following is a collection of observations based on FTI Consulting’s review of current economic indicators and interactions with landlords, tenants, and their creditors.