Alex ConnThanks for joining us for the final part of our blog series on potential liability of landlords reopening shopping centers in Ohio. In this part four, we are going to take a look at proposed COVID-19 related legislation that is traveling through the Ohio general assembly.

On September, 2, 2020, the Ohio General Assembly enacted HB Bill 606 and Ohio Governor Mike DeWine now has 10 days to respond. As this bill has yet to be signed into law and may receive further modifications, we urge you to double check the final text that is signed into law or have your counsel do so. If signed as is, this bill would give significant protections to businesses and premises owners in regards to claims brought against them based on consumers contracting COVID-19 at their premises, so long as there is no reckless conduct, intentional misconduct, or willful or wanton misconduct on the part of the business or premises owner. Even if there was such misconduct, the bill would prevent plaintiffs from joining together in a class action. This protection would apply retroactively from the date of the Governor’s Executive Order 2020-01D, issued on March 9, 2020, through December 31, 2020.

The relevant text of the bill is as follows:

“(A) No civil action for damages for injury, death, or loss to person or property shall be brought against any person if the cause of action on which the civil action is based, in whole or in part, is that the injury, death, or loss to person or property is caused by the exposure to, or the transmission or contraction of … [the novel coronavirus that causes coronavirus disease 2019 (COVID-19)], or any mutation thereof, unless it is established that the exposure to, or the transmission or contraction of, any of those viruses or mutations was by reckless conduct or intentional misconduct or willful or wanton misconduct on the part of the person against whom the action is brought.

(B) A government order, recommendation, or guideline shall neither create nor be construed as creating a duty of care upon any person that may be enforced in a cause of action or that may create a new cause of action or substantive legal right against any person with respect to the matters contained in the government order, recommendation, or guideline. A presumption exists that any such government order, recommendation, or guideline is not admissible as evidence that a duty of care, a new cause of action, or a substantive legal right has been established.

(C) If the immunity described in division (A) of this section does not apply, no class action shall be brought against any person alleging liability for damages for injury, death, or loss to person or property on a cause of action specified in that division.”

If this bill becomes law as-is, landlords can breathe a little easier, although the recommendations covered in part three of this blog series would be still valid and relevant for, at a minimum, public relations reasons, and would be advisable to follow to make sure that no court could find you to be acting recklessly or with wanton misconduct.

Thank you for joining us for this series. We appreciate the time you took to read our thoughts on the current situation and hope that this has been helpful. If you have any questions, please feel free to reach out to us!

Alex ConnThanks for joining us for part three of our blog on potential liability for landlords reopening shopping centers in Ohio. In this part three, we are going to make some recommendations to landlords on how to try to best protect themselves.

At minimum, landlords should (a) closely follow CDC guidelines for commercial establishments, as well as (b) post warnings at all entrances to the shopping center detailing (1) the measures the business has taken to prevent the spread of the virus, (2) that customers are responsible for abiding by any rules or guidelines the shopping center has put in place for everyone’s protection, (3) that these measures do not guarantee a person will not contract the virus while at the shopping center, and (4) that customers enter at their own risk. The CDC guidelines are as follows (note that not all of these guidelines are strictly applicable to common areas of enclosed malls or open air centers, but provide instructive guidance as to how those areas should be managed):

Practice good hygiene

  • Stop handshaking – use other noncontact methods of greeting
  • Clean hands at the door, and schedule regular hand washing reminders by email
  • Promote tap and pay to limit handling of cash
  • Disinfect surfaces like doorknobs, tables, desks, and handrails regularly
  • Increase ventilation by opening windows or adjusting air conditioning

Avoid crowding

  • Use booking and scheduling to stagger customer flow
  • Use online transactions where possible
  • Consider limiting attendance at larger gatherings

There are also the following resources offered by the CDC for posting information at the property, in addition to the landlord’s own postings:

In addition, landlords should look to the International Council of Shopping Centers or other industry guidelines, such as those found here.

What is not certain right now is just how far a landlord needs to go to fulfill its duty to an invitee. This question will likely be answered by the courts as cases arise and the courts review the actions a landlord took to protect its invitees. The best recommendation at this time is to comply with all governmental and industry guidelines and to do whatever a landlord feels like it can do competently. Competency is key here, as it is easy to imagine that a landlord could actually increase its liability if it takes on something and performs negligently in executing that task. This extends to the landlord’s contractors, such as security and cleaning. The landlord must make sure that it is setting expectations and that the landlord’s contractors are performing as expected.

Perhaps most important of all, a landlord should check with its insurance carrier for the carrier’s expectation of what a landlord needs to do in order to be covered under its commercial general liability insurance. These policies should, but may not always, cover a claim from an invitee who is claiming harm from a landlord failing to exercise reasonable care in implementing, enforcing, or warning of the risk of potential exposure to the coronavirus.

We hope these recommendations have been helpful. In our next blog, we are going to take a look at a proposed COVID-19 related legislation that is traveling through the Ohio general assembly.

Alex ConnThanks for joining us for part two of our blog on potential liability of landlords who are reopening shopping centers to consumers in Ohio. In this part two, we will do a deeper dive into the negligence standard in Ohio.

A plaintiff must establish three elements for a negligence claim: that (1) the defendant owed the plaintiff a duty of care; (2) the defendant breached that duty of care; and (3) as a direct and proximate result of the defendant’s breach of the duty of care, the plaintiff suffered injury. When we talk about duty, we are referring to the relationship between the plaintiff and the defendant. To determine that relationship, we look to the Ohio definition of an “invitee,” which is a person who rightfully enters and remains on the premises of another at the express or implied invitation of the owner and for a purpose beneficial to the owner. In the case of a consumer at a shopping center, the consumer would be there because of the express or implied invitation of the landlord, as the landlord is holding out the shopping center as a place to visit and shop. In addition, the consumer is beneficial to the landlord, as there is no reason for a shopping center to exist and there would be no tenants without consumers coming to the shopping center.

So what duty does a landlord owe to its invitees? Good news here for landlords – it’s not too intense. A landlord just has the duty to exercise ordinary care to maintain its premises in a reasonably safe condition and to warn invitees of known latent or hidden dangers. However, it is key to note that duty does not extend to premises not in the possession and control of the business owner. This control typically involves the right and power to admit and exclude people from the premises.

Of particular relevance to a landlord, when a party other than the owner possesses a premises (such as a tenant leasing space in a shopping center), the tenant, and not the landlord, owes the applicable legal duty to the invitee. Thus, the tenant, and not the landlord, is liable for injuries occurring to a third person on or off the premises. In the case of a shopping center, this means that the landlord owes a duty to its invitees for the common areas only, as that is the part of the shopping center where a landlord has actual physical control. The tenants are responsible and liable to consumers in their separately demised spaces.

In regards to a landlord’s duty to warn, there is no obligation to warn if the danger is open and obvious. It is possible that the courts would decide that the knowledge of the danger of COVID-19 is so widespread that it would be open and obvious to an invitee. However, it is difficult to say with certainty, as typically this knowledge test revolves around something visual, not something invisible to the naked eye like COVID-19. As an example, Ohio has determined that there is no duty to warn an invitee of the dangers associated with natural accumulations of ice and snow. However, that carve-out from duty is limited in that it applies only to those who could observe and appreciate the danger. While it is certainly reasonable to expect an invitee to appreciate the danger of COVID-19, can an invitee really observe COVID-19? That might be a tough sell, but the general public’s knowledge and appreciation of the dangers of COVID-19 is very relevant to our discussion on negligence.

This is important because of a particular defense to negligence claims that will likely be of significant help in the event a negligence claim is brought against a landlord, that being comparative negligence. In 1980, Ohio adopted comparative negligence as its standard for evaluating and measuring negligence claims. This means that the law looks at the situation and assigns a proportion of blame to each party, and the parties share the cost of damages and losses according to their share of negligence. This “blame game” is determined by the jury or judge, depending on the type of trial. It is reasonable to assume that a judge or jury would assign a percentage of the blame from a consumer contracting COVID-19 from a visit to a shopping center to the consumer themselves. The public is very much aware of the dangers of COVID-19 due to the immense amount of news coverage in addition to its dominance of social media. Further, depending on what governmental restrictions or regulations are in place at the time the consumer contracted COVID-19, there might be “stay at home” orders or other relevant orders that the public knows about. A full or partial violation of those orders would increase the portion of tortious conduct assigned to the consumer who is out on a shopping trip.

We hope this look into negligence claims has been helpful. In our next blog, we are going to make some recommendations to landlords on how to try to best protect themselves against such claims.

Alex ConnCommercial landlords all over the country are currently attempting to navigate the complicated waters of reopening during the COVID-19 pandemic. This is a difficult process, as there often seem to be different requirements for each state, county, and even city. In particular, the question of potential liability to customers seems to be of utmost importance. I recently reviewed this question from the perspective of an Ohio landlord and that lens should be kept in mind while reading this series of blogs. However, there are some commonalities across the board that should be helpful to any landlord looking for any guidance available.

The reason this question of potential liability is so important is because any likely lawsuit from a consumer against a landlord for contracting COVID-19 while visiting a shopping center will likely be based on a claim of negligence. Under Ohio law, a landlord has a duty to its consumers to exercise ordinary care to maintain its premises in a reasonably safe condition and to warn invitees of known, latent, or hidden dangers. However, a landlord only has to do this in the common areas of the shopping center where it has actual control over the areas. Within a tenant’s leased premises, that duty falls on the tenant. In the event a negligence claim is brought against a landlord, the landlord can use the affirmative defense of comparative negligence. What this means is that, because of the widespread awareness of COVID-19, and the widely recognized means and methods that can be used to protect yourself from it, if consumers do not follow proper announced guidelines, a portion of their damages would be deemed to have resulted from their own actions. It is arguable that simply going outside invites danger from COVID-19, and individuals are knowingly taking on that risk whenever they do so. To protect itself, a landlord should comply with all governmental and industry guidelines, make sure its contractors are doing the same, post warnings, and check with its insurance carrier to make sure it is covered by commercial general liability insurance.

The following blog posts will take a closer look at the Ohio law on negligence, the duty of a landlord to a consumer, and the affirmative defense of comparative negligence, provide some recommendations for mitigating liability, and examine upcoming relevant legislation, starting with a review of negligence claims.

Alex ConnThere’s no question that these past five to six months have been a troubling time for both landlords and tenants. Each group is struggling to figure out how to work with the other to move forward, hopefully amicably, and to come through this pandemic in a position to regain lost ground. Of course, payment of rent and related charges are at the forefront of this issue. This particular topic has been fodder for a large amount of debate in both legal and business circles, with a number of potential defenses put forward as possibilities for tenants to use. Most of these defenses are more theoretical than not, and generally have yet to be tested in the context in which we all find ourselves. However, there are some cases worth keeping an eye on as the number of lawsuits related to payment of rent (or more specifically, non-payment of rent) grow.

The Gap v. 44-45 Broadway Leasing Co.: In this case, the court required The Gap to put up a bond of almost $6 million to cover the allegedly owed rent. However, the court did reduce the bond amount by 10% of the May and June rent as a nod to the effects of COVID-19. While the judge has not said that The Gap is entitled to abate 10% of rent for those months, it could be a sign that the judge does feel that The Gap will not ultimately have to pay 100% of the rent due under the lease.

Giglio’s State Street Tavern v. Kass Management Services: In a somewhat similar case, Giglio claimed that the government restrictions that resulted in the closure of its restaurant amounted to force majeure. The judge agreed and gave the tenant a 75% reduction in rent from April to June. Without knowing the exact language used in the lease’s force majeure provision, it is hard to say how controlling this decision will be, but there’s clearly some sympathy from at least some judges for tenants dealing with the impact of COVID-19 and its related governmental restrictions.

The Gap v. Crown Acquisitions and Prime Property Fund (Morgan Stanley): The Gap has filed a countersuit in this case arguing that the “purpose of the lease has been completely frustrated” and, as a result, the lease was effectively terminated in March due to the closure caused by COVID-19.

The Gap v. Brookfield: Similar to the above, but involving significantly more locations (and money), The Gap has argued that it does not owe rent to Brookfield because the leases are actually terminated due to the COVID-19 restrictions that made the leases “illegal, impossible, and impracticable.” Moreover, The Gap also requested a refund of March rent due to breach of contract, declaratory relief, and unjust enrichment.

Abercrombie & Fitch v. Simon: Abercrombie has made a claim against Simon for “wrongfully extract[ing] rent payments from ANF retail properties leased from Simon.” They based this argument on the various states declaring lockdowns on nonessential retail. Because the states mandated the closure of the premises, Abercrombie is claiming that all rent is abated for the duration of the government enforced closure. Abercrombie made some rent payments under protest and is asking the court to return those rent payments.

Backal Hospitality Group v. Moinian Group: Backal, using the same argument that Abercrombie used, said that New York’s closure of its store meant that its lease with Moinian was terminated and demanded that the rent collected by Moinian during the closure be paid back. In this case, the judge ruled against Backal, saying that Backal had “unilaterally attempted to terminate the lease in a manner violative” of the lease.

Of course, one case does not make law by itself, and the success or failure of various tactics has yet to be decided. However, at some point, there will be a tipping point of decisions that will likely influence the rulings of other courts. It will be interesting to see which side these decisions come down on and how that will impact negotiations between landlords and tenants for rent relief.

Jodi RichOn April 1, 2020, Ohio Governor Michael DeWine signed Executive Order 2020-08D, which requested commercial landlords to suspend rent and evictions for 90 days and requested commercial lenders to forebear mortgage payments for 90 days. My first impression of the order was that it had no teeth. For various reasons that were understandable, the Governor made a request to landlords and lenders, but there was no requirement to the order. Nonetheless, I suggested in early April that clients provide copies of the order to their respective landlords and lenders as persuasive evidence that rent deferral or mortgage forbearance was reasonable and should be granted. Landlords and lenders who were in a position to grant deferral or forbearance and that had the mindset that the crisis would pass, and when it did, wanted a good relationship with its tenants or borrowers, entered into amendments to their contracts. Those landlords whose lenders refused accommodation were less likely to grant accommodations to tenants.

Commercial real estate is a delicate ecosystem. Without customers, tenants cannot pay rent. Without tenants paying rent, landlords cannot pay lenders. Governor DeWine’s order implicitly acknowledged this system, but without any enforcement mechanism, the impact was limited.  

A bill pending in California’s Senate gives some tenants the ultimate bargaining power, the right to walk away. Senate Bill 939 has been through several rounds of amendments, which have narrowed its application and scope. But the current form of the bill, as amended on May 22, 2020, still tilts the scales to the side of the commercial tenant to the detriment of landlords. Section 1 of the current bill provides relief to all commercial tenants by making it unlawful for a landlord to serve a notice requiring payment of rent or replenishment of a security deposit; retroactively voiding a previously delivered request for rent payment or service of a three day eviction notice; permitting a tenant to move to set aside previous eviction judgments; and banning late fees.

Section 2 of the current bill has received the most attention and push back by landlords. As drafted, the bill gives certain small businesses operating an “eating or drinking establishment, a place of entertainment, or a performance venue,” the right to terminate their leases and pay up to three months’ past-due rent incurred during California’s state of emergency if the landlord refuses to negotiate a lease amendment. The bill would also release lease guarantors from liability. It does not address landlord’s obligations to their lenders. While Ohio’s order had no teeth, the California bill gives some tenants absolute power to terminate their leases. What to do if you are a landlord with a CMBS loan whose special servicer is unlikely to quickly approve a lease amendment and entering into an amendment without such approval will trigger bad-boy non-recourse carve-out liability?

Several federal programs have been developed in the wake of the COVID pandemic. The Ohio order and California bill highlight why patch-work state orders do not work. DeWine’s hands were tied in interfering with commercial loans that may have been made by out-of-state lenders and governed by the laws of other states. California’s Senate bill tries to fix the woes of hospitality tenants to the detriment of landlords and lenders and seems to forget that federal law provides a mechanism through bankruptcy for a tenant to terminate its lease liability. Congress’s instinct to pour money into the hands of businesses as fast as possible to allow them to stay in business and pay obligations was the right instinct. However, most of the relief payments were not aimed to help tenants pay rent or landlords pay mortgages. The Paycheck Protection Program (PPP) provides incentives to use at least 75% of the loan proceeds for payroll purposes. PPP itself is being beta tested on businesses as regulations for the program are rolled out and revised. There is no federal program aimed to help shopping center landlords pay their mortgages. The next relief package needs to come from the top and needs to recognize that commercial real estate players are all dependent upon one another.

Robert L. McEvoyCOVID-19 has impacted the world unlike any event in recent history. While most industries have been affected, commercial real estate may suffer the most. Recently, I read an article from ZDNet that made me pause. The article cited a Gartner survey that concluded 74% of CFOs believe that a number of employees will be permanently moved from working on-site to working remotely in order to decrease commercial real estate costs. But, is this permanent shift likely or even realistic?

In the business world, with the implementation of social distancing and shelter-in-place orders, many “essential” companies decided to close their offices and transition their employees to working remotely. As a result, companies are realizing now what they’ve suspected for some time – most day-to-day tasks can be accomplished from home. With a host of technology and software at their disposal, businesses are now positioned, better than ever, to move employees off-site.

What are the repercussions of this? During previous economic downswings, commercial real estate has remained fairly consistent due, in part, to longer lease terms and having corporate entities as tenants. However, will recent events disrupt the market to the point where we see a decrease in demand for office space? Many real estate professionals see that as a possibility. After all, prime office space is costly, particularly in major markets, and trimming down on the amount of space needed can mean big savings for companies.

In the past, companies focused on increasing revenues to grow their bottom lines. However, at a time when competition for market share is fierce that focus has now shifted to cutting costs. This shift has become even clearer during this pandemic as many entities have tried to off-set losses by decreasing payroll costs through layoffs and salary cuts. Although it may be unrealistic to think that companies will, overnight, move a majority of their workforces to working remotely to save money, the current crisis may force companies to take a serious look at their overhead costs and determine whether they can reduce their office footprints while maintaining the same levels of productivity and accessibility. For some businesses, this may mean considering the consolidation of offices with many employees working remotely. Others may evaluate the possibility of moving certain business functions off-site, such as accounting and billing. For smaller businesses, working from home may not be possible, whether due to lack of technology infrastructure, operating procedures, or otherwise.

The truth is that we do not truly know how adverse the effects of this pandemic will be, nor do we know what the commercial market will look like moving forward. It is hard to say that office space will become obsolete as the need for such space is dependent upon many factors that vary not only by industry but also from business to business. Regardless, there is a shift in the mindset of companies that cannot be denied. The only looming questions are how big of an impact will it have on the demand for commercial real estate and how long will it take to come to fruition? At this point, only time will tell.

Alex ConnIt is no doubt that retailing as an industry, and we as a nation, and indeed as one interconnected world, are facing a generational issue of great seriousness and magnitude. COVID-19 is changing our habits as individuals and as consumers, and while there are undeniable and significant problems that have been caused by this new environment, that does not mean that the retail industry is not already adapting to our new (but hopefully temporary) reality in order to meet the needs of consumers. Many segments, including but not limited to medical, grocery, and delivery are desperately hiring in order to keep up with demand.

In descending order of big flashy hiring numbers, Instacart is searching for 300,000 workers, as “the last few weeks have been the busiest in Instacart’s history” per CEO Apoorva Mehta. Walmart is looking to hire 150,000 people by the end of May. Amazon is seeking 100,000 new employees. Dollar General and Dollar Tree are planning to hire a combined 75,000 additional workers. CVS is hiring 50,000, while Walgreens is hiring 10,000. Kroger is also looking for about 10,000 new hires. Dominos is seeking an undetermined number, but is trying to hire 1,000 new workers in Chicago alone. Aldi, H-E-B, PepsiCo, Publix, Sprouts, and Stop & Shop are also actively looking for new hires. Uber is encouraging its drivers to explore the delivery options via UberEats and says that there has been a 10 times increase in restaurants signing up for delivery services. There are many others that are not listed, but a simple google search shows just how many positions are starting to open.

In addition to these named bigger companies, this shift is also impacting companies further down the supply chain. Lineage Logistics, which is the largest refrigerated warehousing company in the country, is hiring 2,000 additional workers. The 3M division responsible for the N95 respirator masks is hiring, as is GE Healthcare, as they plan to collectively pump out COVID-19 related equipment including CAT scanners, ultrasound devices, mobile X-ray systems, patient monitors, and ventilators.

While it seems obvious that many of these industries are the logical ones to shift and grow into these slightly new roles, it will be interesting to see how the rest of the retail world evolves as well. As one example, craft stores like Joann Fabrics are offering curbside pickups, giving families another option to stay busy at home. Restaurants are discovering and inventing new ways to get their menu options onto the plates of consumers without seating them in their dining rooms. While this is a horrible way to force changes in the retail industry, companies and the industry as a whole will see significant innovations from this situation, long after COVID-19 is hopefully a distant memory.

Until that time, wash your hands, keep practicing good social distancing, and stay home if possible. From myself and everyone else at Ulmer & Berne LLP, I hope you and your loved ones stay safe and healthy.

Steven LarsonIn Part One of this blog post, I discussed an article recently published by CRE – The Counselors of Real Estate entitled, “The Coronavirus, the End of the Cycle, and U.S. Commercial Property Markets: Early Thoughts.” In this Part Two, I will continue my discussion of the long-term issues facing the real estate sector as a result of the coronavirus.

Bricks-and-mortar retail has spent the past 10 years experiencing a seismic shift toward e-commerce, eliminating mainstay stores like Sears and Toys ‘R Us and forcing retailers to adapt to changing consumer shopping habits. Social distancing and stay-at-home orders have greatly increased our reliance on e-commerce. Consumers who have shunned e-commerce in the past have been forced to adapt and may continue to utilize its convenience once the pandemic passes (hello, mom and dad). It is, therefore, reasonable to assume that there will continue to be an increase in empty storefronts and closures of malls that were already struggling to keep tenants, particularly with vacancies left by restaurants that could not weather the storm. This e-commerce shift, however, will continue to benefit the industrial and logistics market, particularly last-mile logistics.

The biggest potential long-term shift may be in the office leasing market, as companies are forced to allow workers to work remotely. Companies are essentially test-running virtual workplaces for the next four to eight weeks, and some may decide to make that shift permanent for its employees and greatly reduce their physical footprint. There are a myriad of reasons to bring employees together in a workplace, but for jobs that can be performed remotely without much need for collaboration, employers may seek to minimize lease overhead. This shift would actually create a boon for those flex-space owners who are likely going to feel significant strain in the coming months.

For an interesting discussion on COVID-19’s impact on commercial real estate lending, please see this post by my colleague, Kristin Boose.

Ultimately, both the short-term and long-term effects on the real estate sector will depend on a number of factors that are nearly impossible to predict right now. Those factors include: the duration of this pandemic; whether we face a second pandemic in the fall and winter; what actions the federal and state governments take to ease the short-term crush on families and small businesses; and whether the financial markets can quickly get back to full speed. To quote the author of the article referenced above, “This is going to be ugly. And we won’t know for a while just how ugly or for how long.” Be mindful, however, of the wise words of Marcus Aurelius, “Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason which today arm you against the present.”

Steven LarsonCRE – The Counselors of Real Estate recently published an article entitled “The Coronavirus, the End of the Cycle, and U.S. Commercial Property Markets: Early Thoughts.” The article provides excellent insight into the current headwinds that the economy and more particularly, the real estate industry, are facing from the perspective of an economist. Below is a summary of the article, with my own commentary added.

As the United States (and the world) hunker down for at least the next four to eight weeks of stay-in-place orders and rising COVID-19 infections, it is clear that the current pandemic will create at least a short-term recession across the globe. Economists and analysts have been saying for the past two years that our growth engine was nearing the end of its cycle, but no one predicted this would be how it goes down. The most important questions, from an economic and a real estate perspective are: How long will our lives be upended? When can restaurants, stores, hotels, and small businesses get back to normal? How will landlords, tenants, borrowers, and lenders mitigate losses and work together to avoid widespread eviction, foreclosure, and bankruptcy? Will the Fed’s actions give banks the confidence and the credit needed to lend? And ultimately, what structural changes await us at the other end of this pandemic?

From an economic perspective, mass layoffs in many industries combined with sinking consumer and business confidence will have a significant effect on spending in the next couple of quarters. As of this writing, Congress just passed and the President has signed a $2 trillion stimulus package (the CARES Act) that may help to reduce the economic impact on small business, as it contains an aggressive forgivable loan program that is designed to help small businesses meet their financial obligations and keep their employees on the payroll over the next few months. For more information about the CARES Act, click here.  In the meantime, many Americans are trying to figure out how to survive the next few weeks or possibly months with reduced or eliminated income. Unseen are the effects that stay-in-place orders will have on the supply chain-side of the equation. However, in some states, the number of “essential businesses” are far greater than you would imagine (at least Ohio thinks lawyers are essential!).

Short Term Issues

From a real estate perspective, there are both near-term and long-term consequences of this pandemic. As April 1 approaches and rent becomes due, thousands of landlords and tenants have been vigorously reading their leases and analyzing their options. Clauses often overlooked, like force majeure, take on a new importance as many tenants have been forced to shut down and may be unable to meet their rent obligations. As tenants fail to make rent payments, come May 1 landlords may struggle to meet their debt service obligations or worse, fail to meet their debt service obligations AND fail to satisfy their financial covenants. Landlords who have tenants who were forced to close will need to work closely with their lenders to get in front of any potential defaults.

Business interruption insurance initially provides a glimmer of hope to many businesses, but many insurance policies specifically exclude outbreaks and pandemics – it is of course important to review your own insurance policies regarding any potential recovery. In the short term, it will take the cooperation of tenants, landlords, and lenders to find temporary solutions, or the courts (once they open again) will be jammed for years working through all of the eviction, foreclosure, and bankruptcy suits. Worse, though, would be the empty store fronts and thousands of failed businesses that could not navigate these unchartered waters if all parties involved are not able to work together.

In the real estate sector, the most vulnerable in the near-term are assets with travel-related uses, such as hotels and flex-office space owners. Business travel is limited to only the most essential and vacation travel has ceased almost entirely. And, although not a significant industry in Northeast Ohio, for flex-space owners, tenants sign extremely short-term leases and the easiest overhead for those tenants to chop will be rent.

Apartments may experience a drop in demand as tenants lose income or jobs and are forced to move back in with mom and dad. As apartment leases expire, tenants may seek cheaper options like finding additional roommates or moving away from the downtown core of higher rents and smaller spaces.

Retail owners and tenants will suffer a lot of pain in the coming months until consumers feel confident (and have permission) to leave their homes and start spending again, assuming they have the money to do so. Slim margin businesses like restaurants may not be able to weather the storm and will lead to an increase in bankruptcy filings.

The office and industrial sectors are less likely to see short-term impacts, but nonetheless may see rising vacancies as companies downsize. Niche markets, such as student housing, are also seeing an immediate strain as students are forced to move home and may cease paying rent. Owners of senior living facilities may face serious financial strain if COVID-19 makes its way into one or more of their facilities.