Uncertain Times
As we watch the daily news broadcasts, the harsh reality of our economy is tough to ignore. While the long term condition may be unknown at this time, we can say, with utmost certainty, that the current economic conditions are affecting all facets of the commercial real estate market. The foremost hurdle we face today is a lack of capital in the market. Lenders are reluctant to lend on commercial real estate or to provide capital for business improvements or expansions. Consequentially, Tenants are hesitant to agree to long term leases and / or expansions until the economic direction is more comprehensible. It is as though everyone is nervously waiting on the proverbial sideline in anticipation of some clear direction in the economy.
While we do not hold the ability to foresee when the economy may turn the corner for the better, one thing still holds true: Lenders must loan money to make money and companies must borrow money to invest in their businesses. From a tenant representation point of view, if Tenants can protect future needs with reasonable profitability, now is an opportune time to make a long term commitment. In recent days the federal government has infused the banks and capital markets with an unprecedented amount of money. Lenders might increase their underwriting standards for borrowers but at the end of the day will fund solid companies.
Many Tenants who hold leases that are up for renewal in the next six months are hesitant to sign a long term lease until there is some direction with the economy. Landlords understand this reality and are becoming more willing to do what it takes to keep their current tenants. There will be opportunities for Tenants in office and industrial space to negotiate favorable leases. Landlords are offering free rent and below market rates to secure long term, credit-worthy tenants. The continued drum of negativity from the media reminds us that real estate is down. However, down markets have the potential to create tremendous opportunities for well informed Tenants.
