How To Stay Ahead Of Real Estate Market Impacts During COVID-19

Jeana Goosmann: 0:01

Do complex legal issues hold you back? Let's get energized and bring clarity to your top legal questions. This is Law Talk with the Flock by Goosmann Law Firm. Hello, I'm your host Jeana Goosmann. Welcome to Law Talk with the Flock. I am a CEO, author, lawyer, and managing partner of the Goosmann Law Firm here to help navigate you and your way through the law, your business and life as a leader. And I am super excited today because I have with me three guests, three attorneys from the Goosmann Law Firm that are all part of our business transaction and real estate department. And joining with me here today is Andy Simpson. Andy, give everybody a wave and a hello.

Andy Simpson: 1:00

Hello! Good morning!

Jeana Goosmann: 1:01

Awesome. Barry Sackett.

Barry Sackett: 1:05

Good morning everybody!

: 1:07

And Alex Berenstein.

Alex Berenstein: 1:09

Hello, hello.

Jeana Goosmann: 1:12

Awesome. And these guys are here to join me today and we're going to talk about what's going on in the real estate industry and how it is affecting all of these different types of businesses while we're dealing with COVID-19 and the pandemic. And it's definitely effected businesses of all kinds in every different sort of way. And I thought it'd be great to get some insight and to see what's going on in the real estate industry and how we can help everything from top developers and festers builders, buyers, sellers, landlords and tenants. And then we're going to discuss our way and how we need to stay ahead of this in the real estate industry and what we can expect from the market during these uncertain times. So we have a lot to cover today and we're going to try and push our way through it on this may the fourth. So I may the fourth be with you guys any Star Wars fans here? Nobody. I probably know as much about Star Wars as any of you, it sounds like, given that my husband and my son are both fans, so I have a knowledge from a second, you know, second degree of knowledge I guess. So I might screw up some of the terms. We better just move on from Star Wars and start talking about real estate. Something we actually know about. Alright. So Barry, let's kick it off with you and how developers and investors have been impacted during COVID-19.

Barry Sackett: 2:33

Yeah, it really depends on kind of where they were in the development process and the investment process. You know, those that had development underway that had started building, generally have continued to build with certainly a lot of uncertainty on the other side and their investors are very nervous. Some of the developments that are not yet as we say in the ground have put a pause and think, you know, is this the right time? What are some of the variables that are undoubtedly coming our way? You know, the other variable is we haven't really seen a program from the federal government or state governments to support the developers and the landlords and the divest investors. They've focused more on individuals and small businesses at this point. They've certainly promised some assistance, but we really haven't seen what that is yet.

Jeana Goosmann: 3:32

Okay. Very good insight. And also with financing, right. The banks have been so tied up dealing with things like the payroll protection program and the PVP that I think that they're a little bit behind on some of their commercial deals. Have you seen that to Barry?

Barry Sackett: 3:47

Absolutely. Yeah. You know, that really what they're focusing on is those tenants. And that's good because that kept the landlords in cash flow in the short term. So they've really focused there even though a much bigger part of their portfolio so certainly for community banks and regional banks is that commercial lending, commercial real estate are part of their portfolio. So the bankers that I've had a lot of conversations with certainly are very nervous about what's that going to be like when the PPP monies run out for those tenants. Are they going to continue to be able to pay their rents and how that's going to work. So there's certainly some nervous bankers, but they have kept busy with dealing with on the consumer side and on the small business side with the PPP loans. And so that's kept them you know, a little more focused there.

Jeana Goosmann: 4:39

Andy, let's jump over to you for a minute and talk about builders and how builders have been impacted. Excuse me, and what are some of those top issues that we're seeing as it relates to builders?

Andy Simpson: 4:49

Okay. Yeah. As I talked to my clients who were builders, whether they were scaling is, you know, the two luxury home builders eight year or the sort of large scale building, 30-40-50 homes a year on up. They've all indicated to me that they're all very, very busy right now. Things haven't slowed down for them. Their workforce has been intact and finding good subs is just as hard as it used to be. So I think the demand is there. I'm sure that goes a lot along with the interest rates being lower from the buy side. And we're talking about new home construction here. The title companies have pivoted very well and easily to provide closing services. You know, it took about a week there, but the sales are happening. I would echo, I think when I talked to my folks, what Barry said was what we are seeing on the development side from the bare ground, you know, buying by developers to put the infrastructure in for the builders to ultimately buy the lots is those deals are slowing down, particularly the ones that were sort of late stream due diligence. And so what I'm telling my builders is at some point there may be an inventory crunch because that large scale development has slowed down. So continue to partner with their development colleagues and be looking down the road for their next subdivision, their next set of lots so they can continue to meet the demand of their clients. That's what I'm seeing.

Jeana Goosmann: 6:16

Good advice. Thank you Andy and Alex, let's jump over to you and talk about buyers and sellers. I know you do a ton of that work, especially in Iowa. What do you see in Alex?

Alex Berenstein: 6:27

Right. Well, to kind of piggyback off of the very first thing that Barry said is at first it really depended on where everybody was at in the transaction. You know, deals that had been put together at the first part of 2020. We saw a big rush from buyers and sellers both to push those deals up and get those closed there. There was a lot of uncertainty and, and what's going to happen going forward. And there still is. And so we saw that big rush right at first to get all of those deals in. And now we're kind of seeing that uncertainty play out in maybe not quite a slowdown, but definitely, a more pragmatic approach, you know, the ability to facilitate the transaction has definitely become more complicated. You know, you've got sellers who understandably don't want a bunch of strangers coming into their home to look at properties and you've got buyers on the same way saying, I don't want to just go into somebody's home and start looking around when I don't know the health situation there. And, that applies to the other parts of the transaction you have. It's difficult to find appraisers and inspectors who want to go in these homes and get into the nooks and crannies and do what you have to do to do the due diligence in a deal like that. When the appraiser doesn't feel safe going into a property.

Jeana Goosmann: 7:43

So it's summertime right now, or we're going into summertime, which is usually the busy season for home transactions. What are you seeing as it relates to how the season is impacting given the fact that we're also dealing with COVID-19?

Alex Berenstein: 7:55

You know, I think we're going to see a pretty similar volume to what we did last year. I think we might be a little bit slower to get there as we kind of come out of this peak season of COVID. But I think the summer is really going to see pretty much that same volume. I think you're going to see a lot of sellers who are looking to move properties, either to free up some cash or just to move into different ventures. It'll just kind of be a question of when we reach that tipping point. I think the one thing that you will see is where you had a lot of home sellers who were having a happy transaction where they're looking to sell their property to move up to the next level. You know, it's a family who's had a couple of kids now they're stepping up in that tier. Unfortunately you're going to see some people who need to sell their property because they need to have some more cash on hand.

Jeana Goosmann: 8:40

Absolutely. With the unemployment rate that high that certainly is a factor, isn't it? And then on the other hand, you've got a lot of people who have spent some time at home and maybe said, I don't like this house anymore. I want to move. I need a different kitchen if I'm going to have to cook in it. So yeah. And it's just a little different on how you're getting the transactions done. Like you said, you might have to find some new vendors or be a little creative, use technology in different ways than we have before. A similar to how we're all doing this, a live or not live, but this podcast here today. So Barry, let's jump back over to you and talk about how landlords and tenants are being impacted.

Barry Sackett: 9:18

Yeah. You know, on both sides of the landlord and tenant clients that we have really recommending getting out in front of understanding your lease requirements and and rights and understanding that you may not enforce them the way they're written because I haven't seen very many leases that anticipated a global pandemic. And there's certainly maybe court battles in the future about whether that applies in some cases or not. But in the short term, you know that the tenants are looking at staying in their properties. Landlords would love to continue to get rent and the banks that are waiting for their mortgage payments would love to continue to get payments. So what I'm communicating is understand what your rights are under the lease and then communicate. If you're getting PPP money, tell your landlord you're getting PPP money. You know, understand where you are. Keep them informed of where you are business-wise and how you're working forward to do that. And if it is a situation where you're not going to open up or you're going to make a change, let them know sooner rather than later. You know, there's going to be a point in the next three to six months where there may be a lot of commercial real estate on the market and this may be a better time to have it on the market then and if that's going to be the case that there may be a reason to do it sooner than later. But communication is really key. Understanding your rights. And I know a lot of those tenants aren't real estate attorneys that understand all of those rights. And so it's really important for you to pull out that 20 to 30 page lease that you signed five years ago and haven't thought about and understand what that says. And on the landlord side, you know, you may have had a policy of how to deal with delinquent rents in the past. That policy should probably change. And you should really look at, you know, how do you keep your tenants in there because you may not have a lot of other tenants pounding on the door to get in. And so what can you do to work with them? Because if you can see them through this time and get to the other side and your bank works with you, you know, then you've got a much better situation than if you're six months down the line with an empty building because there may be some more. So really need to communicate, need to understand what you've got. Understand your rights and, you know, if you make concessions on either side, does that affect some of the other rights in the lease? If you're paying your rent, does that affect some of the rights you have for renewals? If the landlord allows a waiver of a rent and one month, does that continue on or how is that communicated? So it's a really important time to be in front of that and understand it. And I know there's a lot else, a lot of other things going on, but you know, on that, on the landlord tenant issues, that's certainly something big. And in most states, foreclosures have been judicially stopped. But by decree, at some point that's going to change too. So, you know, being ready for that to change and being in front of those issues is really important right now.

Jeana Goosmann: 12:38

Thank you. Barry. Now, Andy, you help co-lead our transaction area and can you help explain to everyone how Goosmann Law Firm can help in this time?

Andy Simpson: 12:49

Well, as it relates to real estate specifically or any business transaction, we have, you know, we're a full service law firm as you know, and we have the bench strength to really help with any matter relating to and or touching real estate. Whether that be the raw ground development, helping that developer get entitlements, and or financing with the local jurisdiction, whatever that may be. Because we're in three different states all the way through the builder. And as Alex said, the closing process so we can really help out with anything that's needed. Lease negotiations. And I will also add something we didn't talk about here, but I think Alex did touch on it. I think he used the phrase happy transactions. I'm starting to see a little bit of, you know, some litigation coming out of some of these closings and we absolutely can help advise folks on that end as needed. And those would be the not happy transactions, those would be the not happy transactions, but, and we, you know, the other thing is we represent, as you know, a lot of financing institutions, so anything revolved around real estate, we're happy to help.

Jeana Goosmann: 14:00

Excellent. Well, thank you so much guys for joining me today on this podcast and help walk through some of the issues that we're seeing in the real estate area and some of your great advice for people and as they think about what's going on right now and also preparing for the future during these uncertain times that are certainly caused a lot of broad, sweeping, fast change for our clients. I want to encourage everyone as well to check out our COVID-19 Toolbox on the homepage of Goosmann Law. You can find that at the very top. You can click on it and it's right there. It has a lot of great tips and tools for you. We've been fast at work to try and make sure that we're bringing the best advice out there possible when they've been passing all of these big new laws. So thank you again for joining me today. Stay safe, stay healthy and go make it a great day. Everyone. Make it worth it. Thank you.

: 14:51

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