Last week I participated in a Webinar panel hosted by Financial Poise that was moderated by Ron Shapiro from the Rutgers Business School titled “Repurposing Commercial Real Estate in a Post-Pandemic Environment.” My participation focused on the Lender perspective and dealing with properties that have struggled and/or are in need of loan restructuring, recapitalization and repurposing.
Other panelists included Joseph Lubertazzi, Chairman of McCarter & English, LLP, Gregg Haft, CEO of Haft Real Estate Investments, Patrick Lesbirel, Principal Architect of Brick City Reconstruction and Jonathan Schultz, Co-Founder and Managing Principal of Onyx Equities, LLC.
Each panelist brought a unique discussion to the program and it was enlightening to hear different viewpoints on the topic of repurposing (also referred to as “adaptive re-use”), particularly with the Covid pandemic as a backdrop. Chaos seemed to be a consistent theme with no single direction in any asset class. For instance, the trend of multifamily condo conversions was strong but contrasted against another trend of groups buying major blocks in condo developments with the intent use as multifamily rentals.
The topic of office use was timely given the distribution of vaccines – are people going to go back to the office? The pandemic forced everyone, particularly small to mid-sized firms into “the cloud” and many discovered that working remotely was feasible. Other panelists pointed out however, that human interaction, particularly in a mentoring fashion is not feasible via Zoom.
Having worked remotely myself before the pandemic I can attest to the fact that gaining consensus in a collaborative work environment is challenging, particularly when certain key roles play hide-and-seek and avoid making decisions. There was consensus, however, that the Monday to Friday in-office work schedule is going the way of the dodo bird!
A few additional takeaways:
- The “wave” of loan defaults that were expected to follow in the path of the “Great Recession” has not materialized. Yet. Many lending institutions are sitting on problem loans modified through extended forbearance agreements. Also, according to Trepp, the next few years of CMBS loan maturities include over 1,350 loans totaling over $220 Billion in principle with a Debt Service Coverage Ratio of less than 1.20x, the bare minimum necessary to be refinanced.
- The conversion of older city center office to residential uses will continue despite pandemic induced urban flight. They will come back.
- Older, non-functional industrial will be repurposed to lifestyle retail (think brew pub) and loft-style residential. Suburban bank buildings are being converted into franchise restaurants – the drive through is already there!
- Obsolete big-box retail will also continue to be repurposed into a variety of uses from last-mile distribution to call centers to entertainment venues.
A final note that everyone seemed to agree upon, the pandemic didn’t necessarily cause a wave of repurposing but in many ways accelerated existing trends. The creativity of the development community in identifying consumer demands will continue to fuel the “adaptive reuse” of obsolete real estate. To help this process along Brighton Capital Advisors is there for any debt and equity needs.