Real Estate & Construction  April 7, 2020

CEO Roundtable: Real estate, construction execs believe demand is strong despite coronavirus

FORT COLLINS — Several leaders of Northern Colorado construction and real estate companies believe the economic havoc of the novel coronavirus will only temporarily slow business in the region, but leave a lasting impact on how people live and interact.

The group of 12 executives gathered for a video chat discussion on the real estate industry Tuesday morning for BizWest’s bi-monthly CEO Roundtable.

 

SPONSORED CONTENT

Ways to thank a caregiver

If you have a caregiver or know someone who has been serving as a primary caregiver, March 3rd is the day to reach out and show them how much they are valued!

Managing loss of rents

The most immediate concern across the real estate industry in recent days has been arranging rent agreements for tenants whose businesses were shut down by local public health officials minimizing any reason for people to leave their homes other than for essential products.

Kittie Hook, managing director of Newmark Knight Frank in Denver, said discussions between landlords and tenants are occurring en masse, with a common agreement being forgoing rent for a month in exchange for extending the lease term.

“It’s up in the air there, and they’re all trying to figure it out,” she said.

Julia Crawmer, a broker at Mountain-Plains Inc., has also seen some landlords reduce base rents as a gift to their tenants, or tap into the security deposit as a source of rent payment.

“It helps the landlord as well as the tenant for this period of time,” she said.

Waypoint Real Estate managing broker Josh Guernsey said he’s seen local banks being fairly lenient in demanding payment from landlords or building owners, meaning tenant businesses aren’t being forced to pay immediately.

“From a property owner perspective, lenders are really coming in and helping people out, and I think with 60 to 90 days, it’s giving people some runway to let everything calm down and get back to some type of normal,” he said.

 

Deals still happening at a slow rate…

But the economic volatility of the coronavirus hasn’t completely shut down dealmaking.

Pete Kelly, a first vice president with CBRE in Fort Collins, said his company’s national data shows there are still leases being signed and buildings trading hands at a simple scale, but larger multi-property deals or investment buys are slowing down.

That’s partially because small businesses are eligible for $349 billion in bridge loans as part of the federal government’s $2 trillion effort to keep the economy afloat while much of it is shut down, but larger corporate entities and investment buyers don’t have access to that stimulus.

“There are still deals happening, but they tend to be single-tenant, good credit, really easy to underwrite. But if there are many variables, those deals have been extended,” he said.

 

…while construction continues on a slower schedule

Brandon Myers of Westmark Homes in Windsor said residential homebuilding has slowed in project pacing so workers can maintain social distance on job sites, but construction is for the most part continuing.

Although the need for social distancing is slowing home construction, housing starts in the Denver metro area are continuing, he said. That provides an opportunity for residential builders at a time when homeowners along the Front Range are pulling their properties off the market.

“They’re not going to be putting their houses on the market, so that’s really where new construction can build and fill a void as far as the housing needed here in Northern Colorado,” he said.

But closing projects has become more difficult as local governments keep their workers from heading out to job sites as often. Connie Dohn, Dohn Construction chief financial officer, said several cities clustered near Denver have stopped final inspections alongside fire authorities in Northern Colorado. 

That causes delays in delivering a new building.

“We’re kind of up against a rock and a hard place because the builder’s risk (insurance) is expiring,” she said. “…It’s definitely taking a longer period of time to get these things through.”

Will Welch, principal at Wm. T. Welch Co. in Fort Collins, said some of his projects have been delayed because parts and supplies that usually come from Asian manufacturers aren’t available because of various shutdowns in the region.

“A lot of these products, particularly if you’ve got to order a one-off replacement, they’re getting to be super hard to come by,” he said.

 

Coronavirus’ economic effects will linger past the pandemic

As the world adapts to living in social isolation to prevent spreading the novel coronavirus, the roundtable wondered what trends will remain after extreme distancing is lifted.

Tom Livingston of Livingston Real Estate and Development said one of his tenants, a group of therapists, has shifted its practice online and is working from homes. He expects that to remain in some form once offices are re-opened.

“I think this is a trend we’re going to see, some small office users that are going to become more comfortable working from home. That’s going to create some vacancy, although it won’t be significant,” he said.

But Stu MacMillan of MacMillan Development Co. said some of the engineers and architects he works with aren’t as keen on the work-from-home life.

“I see where it’s going efficiently, but what I see is they mention that they miss collaboration in the office and the creativity,” he said. “I think there’s that side of it, the social side.”

Shawn Sullivan, a vice president at The Neenan Co., said the crunch of critical care beds in Colorado and other states hard-hit by the pandemic will require health-care providers to think about how to handle another crisis situation with the space they have available.

Right now, Larimer County is working with The Ranch in Loveland to house non-critical COVID-19 patients who are homeless.

“If you have 100 (intensive care unit) beds in Larimer County… are you going to start planning for double or triple that amount, this big expensive space, to house people for a future pandemic?” he asked.

Harrison Resource Corp. president Craig Harrison said the shift toward online commerce has intensified, particularly with delivery and curbside pickup for grocers. He expects grocery chains to look at downsizing new stores to prioritize pickup and keeping larger stores as warehouses.

“Now people are used to that and said, ‘wow, for $6 I can skip that experience,” he said.

But the largest question facing the roundtable, along with the rest of the global economy, is when life will return to some level of normal after the pandemic subsides.

Ryan Schaefer, CEO of NAI Affinity in Fort Collins, is concerned a multi-month shutdown will force several small retailers, bars and sit-down restaurants out of business because there isn’t enough credit or savings to reopen at a later time.

However, he expects those businesses and other in-person services to recover because people have an inherent need to socialize.

“It’s just how quickly are the masses going to get comfortable with coming back and being in close proximity to other people?” he asked. “…I think it’s just going to take a little more time for that to come back, and maybe other parts of the market.”

The CEO Roundtable in Northern Colorado is sponsored by Flood & Peterson, Plante Moran and Elevations Credit Union.

FORT COLLINS — Several leaders of Northern Colorado construction and real estate companies believe the economic havoc of the novel coronavirus will only temporarily slow business in the region, but leave a lasting impact on how people live and interact.

The group of 12 executives gathered for a video chat discussion on the real estate industry Tuesday morning for BizWest’s bi-monthly CEO Roundtable.

 

Managing loss of rents

The most immediate concern across the real estate industry in recent days has been arranging rent agreements for tenants whose businesses were shut down by local public health officials minimizing any reason…

Sign up for BizWest Daily Alerts