Q&A | Noah Shaffer

Noah Shaffer began advocating for net-leased property owners, whose office, retail and industrial properties were mostly free-standing operations or contained five or fewer tenants, in 2018. Shaffer’s knowledge of the asset classes came from his affiliation with net-lease commercial real estate brokerage firms Calkain Cos. and 3 Properties, both in Tampa. Confidant Asset Management, which provides a single-source operation for property management, coordinated more than $2.15 million in capital projects for clients last year.

In which direction do you expect the region’s commercial real estate market to go – V-shaped recovery or one that’s flatte

I think the pandemic is going to be what ends the growth cycle the region has been experiencing the last eight to 10 years. It’s a very challenging time now and it’s hard to see how real estate, especially retail, recovers in a relatively short period of time. The deals that have been completed over the past few months were already in the works before COVID-19 hit, but few people are pursuing things now and that’s across all asset classes. That’s largely a function of the credit markets. There’s still select lending, but it’s very hard to acquire new debt right now and equity is being rightfully cautious. It’s hard to price out any asset with income being where it is at present. And buyers and sellers don’t seem to be on the same page. 

What steps can landlords take at this juncture to help themselves and their properties?

Landlords need to monitor their assets and take a more active position than perhaps they have before. They need to understand what it will take to keep tenants in place or replace them – though I would say now is not the time to considering replacing a tenant. It’s not the time to have vacancy. We’re going to be entering a tenant-friendly market shortly, if the number of tenant defaults predicted come to pass. I think landlords should try to have as much cash as possible on hand over the next 12 months or so, because more tenants will ask to restructure their leases and for relief from existing terms. The challenge will be in how much relief to grant and how long.

What steps can tenants take at this juncture to help themselves and their businesses?

On the tenant side, we’re seeing a lot of tenants seeking ways to restructure, and for them, that’s going to be critical in many cases. Many rental rates that were in place before the pandemic simply are not sustainable now. Tenants will be wise to find ways to lower their costs and take a hard look at their businesses and analyze their business models for new avenues of revenue. Tenants will have to keep adapting and be strategic in how they allocate capital. Companies will need to look at whether their leases make sense for them going forward. For instance, some companies may need more space because they have to spread out as never before, while others may need less space because so much of their workforce will work from home. 

The retail and hospitality sectors have been particularly hard hit by the pandemic. Do you expect them to bounce back in the near term as Florida’s economy re-opens?  

Retail will bounce back sooner than hospitality, I believe. Hospitality properties are, and will, have a hard time. Florida retail is being supported by local customers, which shows the importance of having a true brand and a following. I expect retail to recover, the question is how long can businesses afford to hang on, and if they can’t then who will step in to pick up that business?  As for hospitality, I don’t see that fully recovering until a COVID-19 vaccine is developed.

Assuming there’s no second wave of COVID-19 in the offing, where do you think the region’s CRE industry will be at this time in 2021?

Where we are in June 2021 will be largely contingent on when we see full operations resume. If we don’t see a significant decline in the number of coronavirus cases by October, then next June I think vacancies will have doubled from 2019 levels and rents will have dropped about 15%. If, however, we get back to full capacity by late July, then I think we’ll see a good number of companies be able to work things out and work out lease restructuring deals with landlords. It’s really dependent on when people can get back to their pre-COVID-19 lives and go to the office, go out to eat, etc. – if that’s ever going to be possible.