The first domino is Coronavirus, which authorizes government officials to manage the affairs of industry, schools, shopping malls, restaurants, sporting events, recreation, graduations, marriages and all aspects of daily life. This is followed by the domino that promptly shuts down all non-essential businesses, in turn giving rise to the closing of shopping centers that contain restaurants, salons, gyms and the like. A monumental weight falls onto furloughed and fired employees, who subsequently require the allocation of millions of dollars from the state for unemployment benefits. Gross receipts tax collected for goods and services sold in the marketplace effectively dissolves, a detriment to local governments who rely heavily on gross receipts tax to operate. The next domino is weathered by the landlord, who receives calls from tenants inquiring about reduced and/or deferred rent payments. Service providers and vendors are unable to collect for the services they provide. Likewise, lenders are grounded by landlords who cannot meet their mortgage obligation often resulting in loan modifications; left unchecked, these will lead to foreclosures. The bank’s real estate owned (REO) department, where troubled assets end up, will have an increased number of properties to write down and are forced to write down these loans. This domino rebounds back onto the lender who, losing profit on non-performing loans, is forced to put additional capital into the bank to cover losses. Money dries up and borrowers cannot obtain loans due to stricter underwriting requirements.
Multiply this scenario exponentially and we begin to comprehend the enormous impact of COVID-19 on commercial real estate. To our detriment, Coronavirus has triggered illness and death on a global scale and, in our lifetime, has made the largest adverse impact on the economy in the shortest amount of time. Hope persists that the run time of this disease will be brief. We will persevere and I anticipate the emergence of an intrepid new normal.
Walt Arnold, CCIM, SIOR
Managing Director | SVN/Walt Arnold Commercial Brokerage, Inc.
6200 Seagull NE, Albuquerque, New Mexico 87109 Suite A
Office | 505-256-7573 Direct | 505-256-1255