How Presidential Elections, and Transfers of Power, Affect Commercial Real Estate

With the election in the rearview mirror, and a new administration set to takeover operations at 1600 Pennsylvania Avenue in January, it’s time to look ahead. But, one topic we wanted to explore that was relevant in the run up to the election, and should still be relevant now as we transition to a new administration, is what effects a presidential election has on commercial real estate.

During election years, it’s not uncommon for many investors to adopt a “wait and see” position due to the uncertainty of a new administration’s, incumbent or otherwise, impact on trade policies, interest rates, and tax law. Beyond the fear of the unknown, a new administration, Republican or Democrat, doesn’t necessarily lead to chaos within real estate markets. There may be, though, new policies put in place that could affect valuations and overall return on investment of commercial real estate property.

The four things most likely to be affected by a Presidential election are:

• Cap Rates
• Tax Laws
• Trade Policies
• Appreciation Rates

Cap Rates

A cap rate is a tool frequently used to indicate “the rate of return that is expected to be generated on a real estate investment property. This measure is computed based on the net income which the property is expected to generate and is calculated by dividing net operating income by property asset value and is expressed as a percentage.” Low cap rates indicate the overall risk assessment and return on investment (ROI) are low, while high cap rates indicate high risk and high return.

Normally there are multiple factors that can affect cap rates, but during an election year there is the added variable of changes in interest rates as a new administration could cause rates to fluctuate. There is also the added risk, or reward, of the market reacting to new policies, which could affect available inventory.

Tax Laws

Depending on which party has a majority in Congress, it is not uncommon to see changes or updates to current tax laws when a new administration comes in. When looking at laws that affect commercial real estate, the ones which could have an impact pertain to credits, deductions, and liabilities. Tax laws can be a double edged sword when it comes to commercial real estate, as new deductions could make a property an even better investment, while an increase in tax liability when a property is sold will cut down on the net profit the seller makes. As of this writing there is projected to be a divided, or at the very least balanced Congress, which makes it harder for either party to affect change for tax policies affecting commercial real estate.

Trade Policies

While less likely to impact commercial real estate, trade policies can affect different segments of the commercial real estate market. Varied industries or regions can be disrupted by changes in trade protocol with a foreign country, which could trickle down to users and owners of commercial real estate.

Appreciation

Appreciation rates can be affected by the uncertainty an election year brings, as commercial property prices tend to rise slower in an election year as the market waits for the election results. Historically, this has benefited property buyers.

Other Potential Impacts

What elections don’t do is upend commercial real estate returns. A recent report which pulled National Council of Real Estate Investment Fiduciaries Property Index data from the present back to the 1970s, showed that ROI for institutional investors tended to do well under both Republican and Democratic administrations, averaging better than 8.5 percent annually. The report shows that investors should focus on economic cycles, interest rates, and developments in relation to COVID-19 to determine property and leasing trends, and fundamentals.

The election, ultimately, won’t have an immediate impact on the real estate market. While investment markets will be affected, those effects will happen over the course of the administration’s time in office, and will hinge on how policies affect spending trends that drive growth and industry.

That doesn’t mean industry professionals aren’t watching the election closely, though. In a survey conducted by Berkadia, both investment sales professionals and debt professionals said that the election was one of the most important issues impacting multifamily. There is possibility for disruption in the multifamily market if eviction moratoriums continue and there is no program put in place that backstops landlords.

While we could see changes to the 1031 Exchange program and the Opportunity Zone program under the Biden administration, the long-term effects won’t be felt for a few years, until we see how the market reacts to the laws and policies the new administration puts in place. Regardless of political leaning though, investors should feel confident that their commercial real estate investments should perform well, no matter which political party is in charge.

CDC Outlines New Ban on Apartment Evictions

Earlier in the pandemic tenants and landlords may remember layers of complicated executive orders which outlined when tenants could be evicted for non-payments. At a federal level the evictions were for all apartment tenants whose landlord’s had a federally backed loan that lasted until the end of July of this year. On top of that, in New Hampshire, an eviction ban for all property types ran through June. 

Under both of these programs it was noted that the rent money was still due even though there was an eviction ban in place.  However, there was concern that tenants who were in economic trouble would see their rent accrue and be faced with a lump payment at the expiration of these moratoriums. To combat this, Governor Sununu used some of the CARES Act funding to put direct payments into the hands of tenants who found themselves in these situations. The total funding amount was $35 Million, with just some of those funds making it out as of September.

Now another moratorium from the federal government has been issued. This time from the CDC, which outlines that tenants of apartments cannot be evicted for nonpayment alone. It only applies to tenants who earn less than $99,000 individually or $198,000 jointly. Additionally, they have to illustrate that they have exhausted all other assistance opportunities and that their inability to pay is based directly upon COVID. Much like the other eviction bans outlined above, this new program does state that the rent is still due.

This program is still new and it will take time to work out. Based upon what we are hearing, there are various housing groups lobbying around the order, which may result in further modifications or legal challenges. In the short term the ban is in effect and landlords should read in detail prior to taking any action against any tenant.

What The Results Of The NH Business Resiliency Survey Mean For Commercial Real Estate

In June, the University of New Hampshire Survey Center worked on behalf of the NH Small Business Development Center to conduct a survey of over 1,500 small businesses in New Hampshire. The survey was distributed through over 50 business organizations throughout the state, and the highlights can be found here https://www.nhsbdc.org/2020surveyresults. The questions asked in the survey were specific to the economy and COVID-19.  

We wanted to share our thoughts on the results, as it impacts commercial real estate.  Let us start with the more empirical data from the survey, as questions relating to a business owners belief or concern can be heavily swayed by many subjective items.

Employment is a key driver of real estate consumption. For office space, a full time employee will need 200 to 300 square feet of space in an office environment, though there is less of a clear correlation in the retail and industrial markets.  In February of this year a similar survey noted that all businesses in the data set averaged 22 employees, while the June survey resulted in 18. However, a positive sign is that the decline in employment was centered on only 40% of the businesses surveyed.

The suggestion from this correlates with the essential/non-essential data. Just over half of all of those surveyed were deemed non-essential. These were a wide range of retail, hospitality, and some service businesses.  It remains to be seen, but it appears that the steep decline in employment was centered on the non-essential businesses within the retail facing world. Largely speaking, office employment appears to remain steady. 

In addition to employment data, the survey also drew inference on businesses ability to meet their other commitments, such as paying rent. Close to half of all businesses surveyed claimed their revenue dropped by 50% or more. What is alarming is a majority of the businesses surveyed were unable to defer or modify any payments to vendors, such as landlords. Clearly this would create a huge imbalance that is not a surprise to anyone.

To reclaim these lost revenues, businesses sought new funds from various services to meet obligations.  Of the relief programs supplied by the Federal Government or the State, the Payroll Protection Program was utilized by 60% of all of the businesses, the Main Street Relief was used by about 40%, and the Economic Injury Disaster Loan was used by about 25%.  To get into the numbers, it appears that food service and hospitality were more likely to take out the EIDL Loans or the Main Street Relief Funds. These are the same businesses who were more likely to have their employees go onto unemployment while their businesses were deemed non-essential.

More subjectively, a majority of business owners feel that the NH Economy will recover within the year. But, business by business, there is concern about the forthcoming changes. A strong majority see work from home being a key focus of their business planning, along with changing a physical location. The data does not go into more specifics, but it is clear that we all are looking at ways to be more flexible with our space. It remains to be seen if this translates into a lower demand for office square footage.

Of note on the retail side would be that close to two thirds of all respondents see the need for curbside pickup and the same amount for delivery. In a practical sense, what will that mean for civil engineering moving forward? Do we need new lanes and parking spots to accommodate the quick in and quick out that these concepts demand?

The data is always to be taken for the snap shot it is. Commercial real estate is slow moving, as leases, purchases, and developments take time. It remains to be seen how these statistics will impact the details of the commercial real estate deal.

Major Changes Coming To Rental Property In New Hampshire On July 1st

Beginning on July 1 there will be major changes to the prior eviction stays in New Hampshire that were put in place through Executive Orders earlier in the pandemic. However, apartment tenants who have concerns about rent payment should be able to access the new $35M fund that will be set aside for assistance.

On the apartment rental side, throughout the pandemic there has been some concerns about payment of rent from both renters and landlords. While unemployment rates have risen to historical highs, renters without jobs have been concerned about payments. Offsetting these concerns has been an infusion of additional funds from the federal government to increase unemployment benefits. The net result has been that tenant defaults and rent contraction has yet to surface in a major way. However, with the expiration of the expanded unemployment benefits, there is concern of some folks losing their ability to pay.

The CARES Act, passed by Congress, also afforded each state with so called Flex Funds. New Hampshire’s share was $1.2B, and it has been used for various COVID related challenges. One recent announcement, was that Governor Sununu will be taking some of those funds and directing them to housing assistance:

“Governor Chris Sununu has authorized the allocation and expenditure of $35 million from the CARES Act Coronavirus Relief Fund (“flex funds”) to support families or individuals in need of housing assistance as a result of COVID-19. Of the allocated $35 million, $20 million will be initially expended, with $15 million being held in reserve, for rent stabilization and housing support.”

The goal of the program is to provide assistance for those folks who may not have the funds to pay, or may otherwise have back payments on their apartments that they may need to clear up. More on the fund can be found here: https://www.goferr.nh.gov/covid-expenditures/new-hampshire-housing-relief-program.

The goal is to have the funds and the distribution set up by July 1, which coincides with the reopening of evictions.

On March 17, the Governor announced that he was putting a freeze on evictions throughout the pandemic. While there were a narrow band that could move forward, non-payment evictions were stopped. As a practical matter, with the court system shut down, there was no channel for the process to go through. This stay on evictions was for all asset classes. Office, Industrial, Retail, and Apartments, were all collectively stayed on having evictions. As of July 1 this is being lifted as a result of Executive Order 51. More info on this can be found here: https://www.governor.nh.gov/sites/g/files/ehbemt336/files/documents/emergency-order-51.pdf

It is clear that the goal is to soften the concern of non-payment by providing some floor of support to those in need through the $35M flex funds, and dove tailing that with the lift on the eviction freeze. It is worth noting that many landlords and tenants on the commercial side have worked through payment plans, and the hope is that the landing this summer, for all asset classes, will be as soft as it can be.

Landlords and tenants alike should also take interest in the fact that the Executive Orders are not the only governing documents relating to evictions. As part of the CARES Act, the federal government did put a stay on evictions for certain federally backed mortgages on apartments. All parties should research accordingly.

July 1 is right around the corner, and it is very important for all parties to read about the funds, understand if there is appropriate access to them, and see how these new orders affect them, their families, and their businesses.

Contrasting Boston's Return to Work With New Hampshire's, And How It Could Affect The New Hampshire Office Market

On Memorial Day week, Boston City Mayor, Marty Walsh, announced the Return to Workplace Framework for Commercial Spaces the full details of which can be found here: (https://www.boston.gov/news/return-workplace-framework-commercial-spaces-boston).

Today we contrast this with the Stay at Home 2.0 initiative by New Hampshire Governor Chris Sununu and speculate what Massachusetts’ policy means for office space, particularly along the corridors to New Hampshire.

It is worth acknowledging by almost any standard, Massachusetts has been harder hit by COVID-19 than the Granite State.  Reopening standards and regulations surrounding masks and social distancing tend to be stronger in the Bay Stay. As it relates to office space in New Hampshire, the standards for the Universal Guidelines have been set by the corner office, and no additional local regulations have superseded it. However, to the South, there is a statewide standard for office space, and in this case the Mayor of Boston has added additional layers to that standard.

When the stay at home orders are lifted in New Hampshire, office employers and their staff who were previously “non-essential” can start going back to their bricks and sticks offices.  Currently, the regulations on these businesses are centered on the employees and employers, not the built environment. For example, the standards discuss temperature checks and Q&A with people entering the building.   Some in New Hampshire are receiving guidance from the Re-Opening Taskforce and then subsequent guidelines endorsed by the Governor that is more specific to that industry.  So, for example, hair stylists have specific standards that really apply to just their niche, and the task force has addressed this.

However, in Massachusetts the guidelines for office users are in place and very clear. When they reopen the State has stated that, “businesses and other organizations shall limit occupancy within their office space to no more than 25 percent of the maximum occupancy level.” Keep in mind, for standard office build out with mix of cubicles and hard offices, the average demand is 4 people per 1,000 square feet (sf).  That is a rule of thumb and you should consult your local code to check what is appropriate for your business. So, the standard would be 1 person for every 1,000 sf under the new reopening order.  

In addition, the statewide orders would ask for cubical barriers to be taller than a standing person, that common areas be reconfigured, and other broad based social distancing goals. Within Beantown, further restrictions are in place, such as requirements for elevator density, lobby and reception areas, as well as cafeterias. These guidelines are very specific.  As most of the office environment is multi tenanted in the city, the reading of these does create a challenge for both tenant and landlord as to the compliance.

While these specific standards for office space have not yet been released in New Hampshire, we do know that in both New Hampshire and Massachusetts there is a phased approach for these reopening’s. As metrics of COVID-19 improve (or god forbid worsen) the standards may change over time.

What will this mean for the office market moving forward in New Hampshire and Boston? Many have speculated, and we have commented, that there could be dramatic impact from COVID on the office leasing market. Some bloggers have stated that larger offices, with only 1 or 2 people per 1,000 sf, will be the new norm, and office demand will rise. While others have said that only a skeleton crew will go to offices, while most work from home, and office space will plummet. But these trends are too early to tell. The only clear piece of data is that for those employers who are looking to get back into their buildings, there is exploration of new office furniture such as the aforementioned taller cubicles.

However, in light of our headline, we should discuss what these guidelines will do to the cross border tenants. Estimates are around 80,000 people travel from New Hampshire to Massachusetts each day.   It is not out of the question to believe that regardless of what standards are created in New Hampshire, that some employers who see benefits of in person office space versus work from home may open satellite locations in New Hampshire, rather than have team members commute. 

In the long run, it will be curious to see if this speculation will play out on a broader scale in the office market, with more New Hampshire based satellites. The corollary would be in the residential real estate market, where there is speculation of a lasting impact on people leaving more densely populated areas to live in more rural environments. If this is true, would it not also follow that the same is true for employers and lessees of office space?

There is much that is speculation, and aside from anecdotal stories about which office users will be opening up when, it is too soon to predict long term trends. Until then we will watch the Stay at Home 2.0 orders as well as the subsequent phasing levels and see how tenants and landlords react.

Looking At The HEROES Act And Its Potential Additional Funding For Real Estate

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was passed into law on March 25, 2020.  The Act had a number of large sweeping investments into states, businesses and individuals. The main ones that we have focused on in these blogs are those impacting real estate and small business. Tools within the Act included the Paycheck Protection Program (PPP) and Economic Injury Disaster Relief (EIDL).  Recently the State of New Hampshire has announced that the Flex Funds provided to the State within the CARES Act will in part be used for a Main Street Relief Fund, which was just put in place on May the 15^th. 

However, with all of these funds it is clear that the American economy is hurting even as states start to reopen. It should come as no surprise that many people started pushing for additional rounds of stimulus.  And so it came to pass out of the House of Representatives that the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act was passed on the same day Governor Sununu announced the Main Street Relief Funds. The act outlines a number of spending and investment priorities for future relief for Americans. However it is a long way off from becoming law.

The $3 trillion dollar bill passed the Democratic controlled house by a vote of 208 to 199. In order to move forward the bill would have to pass the Republican controlled senate, where Senate Majority Leader Mitch McConnell has said that we should wait until we see how prior rounds of stimulus investment play out prior to passing new investments. Specific to the HEROES Act, he described it as a, “big laundry list of pet priorities”. It is clear that as written this bill is not going anywhere.

It is with that caveat that we jump into this writing to explore the “pet priorities” in the act. If, and when, future rounds of stimulus come, it will have to pass through the House and some of these fingerprints may be left on the commercial real estate industry.

The bill takes aim at expanding the aforementioned PPP and EIDL Loans. The former would be extended through the end of the year, with carve outs to ensure that some loans are given to small businesses. The latter would be given an additional $10 Billion worth of funding after those loans have seen their funding sources shrink.

The SBA 504 and 7A programs would see their loan limit increase to $10 Million each, which are currently at a fraction of those levels.

A proposed moratorium on evictions of non-paying apartment renters for 12 months after the acts passing would be one priority that would impact landlords.  In addition there would be $100 Billion of funds for rental assistance.

These are but a fraction of the priorities outlined in the $3 Trillion bill. Additional changes for personal and corporate tax structures are detailed as well as additional investments for states and schools. All of this discussion on stimulus is clearly theoretical. None of this has a chance of reaching the President’s desk for a signature as written. Keeping an eye on the text is important to understand what items could be coming down if we see yet another round of stimulus.

How The Main Street Relief Fund Will Help New Hampshire's Small Businesses

There is more relief coming for small businesses in New Hampshire through the Governor’s Office for Emergency Relief and Recovery (GOFERR). The relief package was announced on Friday the 15^th of May, which is also the day the first applications could be made. Funding in the amount of $400 million of expenditure has been authorized to be given based upon needs. 

With the authorization of the CARES Act, Congress created waves of relief for individuals and businesses. At this point most of us are familiar with the acronyms of PPP (Paycheck Protection Program) and EIDL (Economic Disaster Relief); there were additional benefits to individuals such as the stimulus checks and expanded unemployment benefits. In addition the CARES Act created Coronavirus Relief Funds. These funds were to be given to each state to be used as the state sees fit.

According to the Treasury, the funds are “to provide ready funding to address unforeseen financial needs and risks created by the COVID-19 public health emergency”. In addition the federal government put up some rails on how the dollars could be spent. Some of that is still up for interpretation so we will leave that for another blog.

New Hampshire was given $1.2 Billion in flex funds, and $400 Million of it has been earmarked for small businesses under the Main Street Relief program. Our interpretation is that the small businesses of New Hampshire really made their cases. The PPP and the EIDLs were helpful. However, some of the benefits of those programs either have been slow to pass or could not be realized by the businesses as they have been all or partially closed during the qualifying period. Additionally, as was widely publicized, the PPP was a race to the application booth which created the need for the second round of funding. 

To put the amount of funding in context, in just New Hampshire the initial round of PPP loans covered some 11,000+ businesses and over $2 Billion dollars. This new Main Street Relief Program will be funded with roughly 20% of that amount. I never thought I would say that $400 Million may seem like limited funds, but it is so. As a result it appears that the State is adding qualifying language to their application process.

The PPP loans were first come first serve, and by and large had no liquidity test for approval. The Main Street Relief funds have two main differences. First, there is an open round of application. So long as you apply by May 29, 2020 you will be eligible. But it does not matter when in that two week period you apply. The second difference is that you must tell the State all of the additional funds you have received from the CARES Act. This presumably will allow them to prioritize the funds to small businesses that were left off of the carousel the last go around.  All of the various dates and detailed information can be found here (https://www.goferr.nh.gov/covid-expenditures/main-street-relief-fund).

From a real estate perspective there are a few items that are not clear, at least not yet. Are independent contractors as small businesses eligible for these funds? Are businesses that are otherwise holding companies for real estate eligible? Are the funds a loan, a grant or a blend? What can the funds be used for within the businesses? It will take time for these things to come to light, but in the meantime our advice is to review the application and make sure you are lined up prior to the May 29 deadline. 

Leases In The Time Of COVID-19

COVID-19 has had a giant impact on our way of life, though at his point that doesn’t need to really be said. But with every day that brings us a new normal that we have to adjust to, it also brings new repercussions. That is also true for the commercial real estate sector, particularly commercial real estate investors and users.

As more and more businesses begin to shut their doors to work from home, or because of government mandates, questions have begun to arise for both owners of commercial spaces and their tenants. The biggest question of all, “do tenants have a right to stop paying rent due to the coronavirus?” This is a complicated question, one that, depending on how long the pandemic lasts, might be answered by the state, if not federal, government.

The answer to the question is, in most cases, no. Whether a tenant has a right to stop paying rent due to “force majeure” or any other number of clauses is ultimately based upon the specific language and terms laid out in each specific lease agreement. This, though, does not take into consideration if a floor or entire building is closed down by either the property manager or owner. Before mandating a floor or building closure, landlords and property managers should carefully review all possible impacts that decision could have.

While the legalese of each specific lease will ultimately determine whether a tenant is required to pay rent, landlords and tenants should still review their leases to ensure they understand their rights in these unprecedented times. 

At the end of the day though, due to the stress that many tenants, especially those in retail and hospitality, will be feeling at this time, the government may see it fit to step in and take extraordinary measures to ensure that businesses and people survive the financial impacts of the pandemic. For multifamily owners and tenants there have already been discussions within government of suspending rent payments, and some states, including New Hampshire, have already suspended evictions. This is also inclusive of commercial evictions as well.

The most important thing for tenants and owners to do right now is open up communication channels to discuss issues both tenant and landlord face, and come up with creative solutions that benefit both parties. For example, relaxing enforcement of continuous operation covenants, or, if a tenant comes to a landlord needing rent relief, entering into short-term arrangements that provide partial base rent abatement.

While challenges do indeed lay ahead, they can be overcome. By understanding that we are all feeling financial and personal stress right now, and finding ways to work with each other, we can come to a common ground that is fair to both parties. Taking this approach in life, and in real estate, will make dealing with the effects of COVID-19 at least a little easier to handle.

Maintaining The Health Of Your Investment Property During COVID-19

The COVID-19 Virus has made a giant impact on the health of people around the world. We encourage everyone to be vigilant and follow the guidelines in place to protect oneself. Not to minimize the health effect, these articles will be about COVID-19’s impact on real estate, which is our expertise. The stock and bond market is widely transparent on a minute by minute basis and we hope to provide a transparency into the real estate market.

COVID-19 has thrown us all into unprecedented times. We’re all getting used to a new normal, and that is also true for commercial real estate investors and users. With the highly contagious nature of COVID-19, and its ability to live on different surfaces for multiple hours, and sometimes days, the cleaning of work spaces and common areas has never been more important to maintain the health of building tenants and guests.

But, responding to this pandemic starts with awareness. Owners and property managers should consider educating their tenants on steps that they can take to limit the chances of others getting sick. Spreading information through emails, mailers, and posted notes can be done to ensure that tenants are aware of what the disease is, how to prevent it, and how landlords and property managers are monitoring the situation and keeping tenants informed of updates, and especially what precautions are being taken.

Awareness is only part of the battle, though. Landlords and property managers should be proactive about disease control measures. The frequency of regularly scheduled cleaning could be increased, with a primary focus on making sure that regularly touched surfaces, such as door handles, counters, devices, etc. are cleaned as frequently as possible. Consider stocking up on disinfectants and supplies, and hand sanitizer and disinfecting wipes could be made available in all common areas.

According to some experts, though, the first line of defense against COVID-19 is improving a building’s air quality. Improving air quality is not only the best way to improve a building’s health, but also give it its biggest ROI. Owners or facility managers could consider running the fans, upgrading the filters, and keeping the filters clean. Also, by letting in fresh air in large quantities, owners and property managers can help dilute airborne contaminants, reducing the risk of infection.

If improving air circulation is not an option, then investments could be made on improving air circulation. By upgrading filters to what’s known as an MERV rating of 13 or higher (which is what hospitals use) filtration systems will be able to catch more than 80 percent of viral particles. Higher humidity ranges, between 40 and 60 percent, are also optimal for lessening a virus’ ability to spread, but tenants’ comfort level should be kept in mind when exercising this option.

In the event that a guest visiting the building has been diagnosed with COVID-19, owners do have an obligation to notify all other tenants and occupants of the building that a person who has entered the building has tested positive for the virus, and what steps are being taken to ensure tenants’ health and well-being. All common areas should be, if possible, closed off for a deep clean and disinfection. Depending on the terms of the lease the tenant signed, owners and property managers may or may not be responsible for the deep clean of the tenant’s space, and that includes any extra precautionary cleaning as well.

Owners, property managers, and even tenants, can no longer sit idly by and hope that COVID-19 doesn’t affect them. It is all of our responsibility to help flatten the curve, and that begins with being proactive about the health of a building. The sooner we flatten the curve, the sooner we can get back to normal.

COVID-19 and Investment Real Estate: Apartments

The COVID-19 Virus has made a giant impact on the health of people around the world. We encourage everyone to be vigilant and follow the guidelines in place to protect oneself. Not to minimize the health effect, these articles will be about COVID-19’s impact on real estate, which is our expertise. The stock and bond market is widely transparent on a minute by minute basis and we hope to provide a transparency into the real estate market. Check back each week for a new look into how COVID-19 is affecting the commercial real estate industry.

In a retrospect, it will be easy to see how the path for COVID-19 was forthcoming, and took some time to hit domestically. But, from the reaction of the stock market, it felt like the impact was overnight. The week that followed was a rollercoaster, but the same cannot be said for the investment real estate market. The reality is that until we see a string of real estate closings we will not be able to pin point the actual market in the investment world. For many apartment owners though, it’s business as usual.

The investment world of commercial real estate has long been a hot market. Nothing speaks that fact truer than apartments. Fueled by historically low vacancy and interest rates, investors have flocked to that asset class, which has driven up the per door price, and driven down the capitalization rates.  In addition, apartments have been seen as an investment class that is protected from some of the concerns in the larger real estate economy. “Everyone needs a place to live,” and, “Amazon cannot take away the need for apartments,” have been phrases of conventional wisdom.

In speaking with investors this past week, these thoughts still prevail. They feel that, in the long run, apartments are one of the safer asset classes out there. Some investors have even made plans in this low interest rate environment, to free up capital for more acquisitions. Others are staying put, waiting to see how the market plays out. 

There are facts that everyone agrees on, though. One is that no one is a seller right now. It is not out of concern that the market is down and investors won’t get their value, but rather that investors do not want to put their money elsewhere. The second is that investors/landlords will need to work through the next few months with their tenants with compassion, with payment plans being one solution, particularly for those tenants with jobs in hard hit industries.

When investors were asked about the impact of the order by the Governor to put off all evictions in the State of New Hampshire, again there was some common ground. Most folks believe that the tenants who will pay are going to pay, and those who will not, won’t. In the end, investors feel the impact of COVID-19 will take a little time to work through the system.

So far folks have not seen changes to their income stream, with some investors noting that they are still getting rental applications. Time will tell, but it appears that the initial reaction from the apartment sector is that the impacts have not been felt.

Are you a landlord? Let us know how the pandemic has been affecting your multifamily/apartment investments in the comments below.

COVID-19 and the Overall Real Estate Market

The COVID-19 Virus has made a giant impact on the health of people around the world. We encourage everyone to be vigilant and follow the guidelines in place to protect oneself. Not to minimize the health effect, these articles will be about COVID-19’s impact on real estate, which is our expertise. The stock and bond market is widely transparent on a minute by minute basis and we hope to provide a transparency into the real estate market.

What at first appeared to be a slow moving pandemic, snapped across our domestic world quickly to start the month of March.  Many of us faced choices on if our businesses would enforce work from home policies, and where our children would be educated and cared for during the school day.  These questions are still playing out and changing on a daily basis. 

The investment markets are in a state of flux. Stocks continue their up and down pace while investors try and get a sense of the next steps in the market. The same rapid movement cannot be said of the real estate market. By nature the real estate cycle is slower. It is a less liquid asset and it takes time to sell and have the market react to external factors. In place leases impact value, and those too take time and have long term. Finally the debt markets impact value, and again, that takes time to work through the system.

At our offices the reaction from users of commercial space have been mixed. Since the week of March 9, 2020 we have seen some folks pull back.  Some of them were expansion tenants, while others were user/buyers with new locations.  For each story of someone delaying plans there is another story of someone moving forward.

•         National users of space, with multiple leases expiring, continue their review to look at the longer picture on relocation choices. They are in the market.
•          Local users, with multiple businesses or divisions, are shifting their focus to those businesses less impacted by recent events that are in need of space. They are still in the market.

These examples may shift overtime, but they do illustrate the types of people who have businesses impacted by COVID-19, but remain in the market to find new lease space.

We will explore more of the investment real estate market over time, but the immediate reaction is, again, mixed. Some investors look at the dip in the stock market and assume that real estate should be at a discount as well, while others see a premium in the asset because of the volatility on Wall Street.  History has shown us that one week is too short of a time to take any meaningful conclusions away, because of the aforementioned speed of the real estate market. 

Certain sectors of the investment market will likely remain strong, such as those properties with apartments, grocers or medical practices. Services that are needed no matter the state of the economy. Additionally, the quality of the income stream is always important, but more so in this past week, as conversations regarding franchisee or franchisors signing of leases is becoming crucial.

This is the first of many articles we plan on distributing to our clients, customers and friends. We are all in this together, and we hope to empower you during this unprecedented time with our collective knowledge.

How The 2020 Session Of Congress Could Impact Commercial Real Estate

It’s the first quarter again, which means a new year and a new session of Congress. Don’t worry, we’ll leave the politicking to the politicians. In this month’s blog we want to take a look at a few issues that will be working their way through the House and Senate at some point on a federal level, and are poised to have an impact on the commercial real estate market.

The first issue we’re going to look at is that of the extension of the National Flood Insurance Program (NFIP). While originally scheduled to lapse the first week of 2020, Congress’ latest budget bill extended the program through September 30^th.  Allowing time for Congress to work toward a long-term reauthorization of the program.

Getting that extension through was huge. If the NFIP lapsed it would have prevented the program from selling new policies or renewing existing ones. This could have caused a major logjam for sales of properties that required flood insurance. The last time Congress allowed the program to lapse was in 2010, and the National Association of Realtors said up to 40,000 property sales were put on hold during the almost a month it took for Congress to put together an extension.

While we tend to think of flood insurance as a need for the areas around the Mississippi, the reality is that there are many commercial buildings in the Granite State that are along rivers, and tidal bodies that require flood insurance to obtain a mortgage.

Another program that was set to lapse this year but got a last minute extension is the Terrorism Risk Insurance Program (TRIP). TRIP was established after 9/11 as a response to the period of disarray in insurance markets that ensued in the aftermath. The program requires certain private insurers to offer coverage against acts of terror and in return the government acts as a backstop in the event the insurance company is required to issue a payout due to a terrorist attack.

If NFIP and TRIP were to have lapsed with no alternative in place, it’s fairly safe to say that stability would have been disrupted in not only the insurance markets, but the real estate and commercial mortgage lending markets as well.

Another topic nationally is marijuana legalization. Starting January 1^st Illinois became the 11^th state to legalize marijuana for recreational use. As more and more states legalize the sale of marijuana, companies and industries that interact with the cannabis industry are finding themselves walking a tightrope between the state and federal government. While New Hampshire has not endorsed recreational marijuana, many of our neighbors have. For those who are interested in being landlord’s to industries in this space this is an important topic to follow.

As a way to protect commercial real estate and other industries as they do business with cannabis companies a bill was introduced called the Secure and Fair Enforcement (SAFE) Banking Act. The bill would protect businesses from federal prosecution for dealing with cannabis related businesses (CBR) that are legal under state law, such as leasing space for a recreational cannabis store or industrial facility for cultivation.

Currently, as marijuana is still illegal on the federal level, any company that does business with a cannabis related business is at risk to be prosecuted. This is along with the fact that most banks won’t do business with cannabis related businesses, which means any transactions done with a CBR are cash-only transactions, which puts employees at risk and opens up opportunities for white-collar crimes.

Unfortunately, though it has the backing of the National Association of Realtors, Credit Union National Association, the Real Estate Roundtable, and other various organizations, the SAFE Banking Act may be doomed. It’s been three months since the bill passed the House, and many Republicans in the Senate, including the chairman of the Senate committee on banking, Mike Crapo, have spoken about their significant concerns with the bill. Concerns that could derail it entirely.

These are just a few of the issues being talked about on Capitol Hill that could have major effects on the commercial real estate industry as a whole and could affect you as an investor or user. What are your thoughts on these issues? Is there a bill we didn’t talk about here that you think could is an important issue for those involved in the commercial real estate sector to be aware of? Let us know in the comments.

As the year goes on make sure to stay tuned to our Facebook, Twitter, and LinkedIn pages for updates on these issues and follow-up blogs on the happenings in Washington and how they might affect the commercial real estate industry.

How Experiential Retail Will Revitalize The Shopping Mall And Other Retail Spaces

Last month two of our brokers, Deana Arden and Judy Niles-Simmons, were featured in an article by NHBR for their work in helping to revitalize the Steeplegate Mall in Concord. This got us reflecting on the ways traditional retail has been changing and, as it continues to migrate online, the ways in which retail properties are either evolving to attract consumers or going extinct.

The Steeplegate Mall is a great example of how brick-and-mortar spaces are changing with the times, as Amazon swallows more and more retail sectors. As retailers like Circuit City, Bon-Ton, and Old Navy move out, Altitude Trampoline Park, Capital City Charter School, ViParty Bounce House, and ZOO Fitness Club move in. A pivot away from being a traditional retail space to, as the article states, a consumer engagement space. A pivot that more and more landlords and retailers are taking as the industry continues to be disrupted.

So how are other shopping centers and strip malls across the country filling the vacant anchor spaces traditionally leased by disappearing retailers, and drawing consumers back in?

One option is indoor virtual reality theme parks.

Legend Heroes Parks, a Singapore-based franchise of indoor virtual reality theme parks, is looking to break into the U.S. market by targeting vacant anchor and sub-anchor spaces at regional malls and strip centers. The parks, which use a combination of technologies, including virtual and augmented reality, to help guests experience a wide range of rides, games and other kinds of entertainment, have the potential to bring millennial's back to the malls and strip centers they’ve ignored in recent years, by offering them something more than just hanging in the food court and browsing the same old stores.

Bringing in businesses, like Legend Heroes Park, aimed at the tech-savvy and fickle millennial generation, can potentially bring those dollars back into the shopping centers they’ve deserted. But what can retail spaces do to attract families?

Fair Oaks Mall in Northern Virginia has found a way to get families through their doors and keep them in their stores longer, and it starts with the holiday season. The mall’s annual Santa’s Flight Academy gives kids an interactive experience set at the North Pole, which culminates in meeting Santa and getting to see their name and photo pop up on a screen showing Santa’s “nice” list. This all takes holiday shopping from a chore done by the parents, to an experience and an event for the whole family.

Avalon, located in Alpharetta, Georgia, expands on this by attracting consumers to its mixed-use shopping center by offering programmed experiences, such as comedy nights, yoga classes, fireworks shows and more. Avalon has built itself around being more than a shopping center. Instead, being a community gathering space focused on not just extending dwell time, but making sure it is time well spent.

It isn’t just the owners of brick-and-mortar retail spaces trying to draw the crowds back to their properties, though. Retail brands are investing in experiences for their shoppers to streamline and enhance the shopping experience from the moment they step through the door.

Lululemon, the yoga-inspired apparel chain, offers yoga classes in its stores as well as relaxation pods where customers can listen to self-guided meditations, presumably as a comedown from that yoga-high. At Whole Foods, customers can take a cooking class and hit the aisles right after to pick-up the ingredients needed to make the dish for their family that night. And, at the House of Vans in London, shoppers can purchase a new pair of hi-tops and immediately try them out at the skate park located below the sales floor.

But experiential retail can be as simple as making the shopping experience more convenient. Like how Nike installed digital lockers at its new store in Los Angeles for customers who wanted to buy their shoes online and pick them up in-store. Or The Home Depot, whose app allows customers to find the exact aisle and bay the product they’re looking for is located in. So they can spend less time wandering and more time working on their projects.

As it becomes easier to buy goods at the push of a button, brick-and-mortar retail needs to invest in new ways to get customers through the door. Experiential retail and consumer engagement spaces are slowly becoming the future of retail, and the best tool to get shoppers away from their screens and back into the stores.

How Proposed Legislation Could Affect Commercial Real Estate In New Hampshire

Do you hear that? The sound of pencils scrawling new bills, Democrats and Republicans bickering, it must be a new legislative session!

And a new legislative session brings with it, well, new legislation. Some of which, if passed, will impact the commercial real estate sector in both positive and negative ways. Let’s take a look at some of the proposed bills that could affect the world of CRE.

But, before we get into the proposed bills and their effects, a little primer on the New Hampshire State Legislature.

New Hampshire, by far, has the largest legislative body in the United States at 400 State Representatives and 24 State Senators for a whopping total of 424 legislators. The next closest state is Pennsylvania with 253 legislators. New Hampshire’s legislative body is bigger than the legislative bodies of Canada, South Korea, and Australia. Yeah, chew on that for a bit.

Done chewing? Let’s continue, then.

An interesting part of New Hampshire’s legislative process, though not unique to the Granite State, is that all proposed bills get a public hearing. At the federal level the Speaker of the House or the President of the Senate has the power to table proposed bills, denying them from going to committee. While the leadership has authority in New Hampshire, every bill, no matter how odd, must get a public hearing. Though, most will inevitably fail.

Let’s move on from this Civics lesson and take a look at some of the proposed bills that could affect New Hampshire’s commercial real estate sector should they become laws.

The first bill we’re going to take a look at is House Bill 667(HB 667) which proposes that any property that has a well with new construction should have that well tested to ensure well water meets quality standards before a certificate of occupancy will be issued.

HB 667 is one of many proposed bills that deal with ground water, but one of the few that are focused on private wells. The bill comes as we continue to learn more about what PFOAs, PFASs and other contaminants mean to us as humans.

Presently, the state of New Hampshire has no authority to regulate a private well. So, for example, if I was selling my office building that had a well, and there were high nitrates in that well, and you were fine with that, we could go through with the sale and not have to worry about any governing body getting involved. Whereas if a public system was found to have high nitrates the city would have the owner shut the system down and cure it.

The way the proposed legislation would be enforced is through new construction upon certificate of occupancy. Meaning, if you were to build a new commercial property and the city came to inspect said property, and found that the well water did not meet state standards, the city would deny you a certificate of occupancy.

The issues with the bill don’t come from what it is trying to do, protect our drinking water, but from how the bill is currently written, as it introduces a whole new standard that didn’t exist before.

The more specific concern for commercial practitioners is that HB 667 is agnostic to property type. For properties zoned for daycares and restaurants it may make sense to have well water regulated. But for properties zoned industrial, which tend to have barely any water consumption, it may be unnecessary.

The next proposed legislation that we are going to look at is House Bill 561(HB 561) which would allow towns to create their own laws and zoning regulations that would prohibit formula businesses in certain zones. For those not familiar with the term, the bill describes a formula business as a food based franchise, like McDonald's or Starbucks.

The concern with HB 561 is that it allows the Planning Board or Zoning Board, whose main goal is the regulation of land use, to regulate a person’s business, branding, vendor chain and so forth.

While the intent behind the bill is to protect local, community-based businesses, what it fails to take into consideration is that a lot of these corporate, formula-based businesses are owned by local business owners who are just franchisees. So, while HB 561 would protect the mom and pop shops that we usually associate with local business, it would hurt non-traditional local business owners as well. For the moment HB 561 has been tabled, but it could be revived in another legislative session.

Access to affordable housing is very important to New Hampshire employers and their employees, and we consider it a commercial real estate issue. There are two bills concerning housing that we’ll look at. One, Senate Bill 15(SB 15), would require that on an annual basis, $5,000,000 in revenue derived from the Real Estate Transfer Tax (RETT) is allocated to the NH affordable housing fund. New Hampshire spends far fewer dollars than our neighboring states on affordable housing programs and has one of the highest costs of living in the country. Anything to bring that cost down and help retain workers is welcome.

The next is Senate Bill 306(SB 306). SB 306 would create a Housing Appeals Board to hear appeals of decisions of municipal land use boards. Currently, if a property owner wanted to appeal a decision made by a land use board they would have to appeal to the Superior Court which can be an expensive and time-consuming process.

SB 306 would create a three-member board made up of a lawyer, an engineer and another member of the public, appointed by the Supreme Court, all of whom would be required to have expertise in land use law or housing development. The board would be required to hear appeals within 90 days of filing and rule within 60 days after hearing the appeal.

This is fantastic for developers and homeowners as what currently can cost thousands of dollars in legal fees and wasted time can, if SB 306 is passed, be reduced to a $250 dollar filing fee and a roughly 180 day turnaround time for appeals. Time, as the old adage goes, is money, and money that could be used to create more housing opportunities for New Hampshire’s workforce. SB 306 is currently tabled in the Senate, so we will have to wait and see when it is brought back-up.

These are just a few of the proposed bills that could affect those in the commercial real estate sector. What are your opinions on the bills we talked about? We’d love to hear your opinions in the comments. And don’t forget to let your State Rep and State Senator know your opinions as well. There is still time to make your voice heard.

Investors Buying Office Space in Bedford NH

Bedford NH - NAI Norwood Group is pleased to announce two recent office sales in the Bedford NH market. 10 Chestnut Drive is a 13,690+/-sf two story office building off the busy Route 101 corridor comprised of a number of small, local businesses. According to the registry  of deeds it sold for $790,000. 116 South River Road Building B was a 7500+/-sf two story, steel framed, brick façade condo that sold in the prestigious Coldstream Office Park at 116 South River Road. According to the registry of deeds it sold for $870,000.

“It is clear that these sales are a testament that a Bedford business address continues to be highly desirable.” Noted Louise Norwood, Principal at the firm. “With so much new development in town, along with the low interest rates, the demand remains high.”

“Both of these assets were sold to investors.” Added Chris Norwood, President of the firm, “With an additional sale of a small condo unit earlier in the summer, this marks our third investment product sale in Bedford in the last 60 days. While the owner occupant market is strong, the proof is here that investors are still seeking sound real estate as diversification to their other investments.”

NAI Norwood Group is an affiliate of NAI Global, the world’s leading managed network of independently owned commercial real estate brokerage firms.  Through this network of 400+ offices and 7,000+ professionals, NAI Norwood Group is able to leverage their 45+ years of dedicated local experience around the world. With our extensive background and strong local contacts, we are able to assist individual corporations in negotiating leases, sales, business brokerage, investments, relocation, site selection and development. For more information please visit www.nainorwoodgroup.com. Or contact one of our offices: 116 South River Road, Bedford, NH 03110, (603) 668-7000 or 28 Deer Street Suite 301, Portsmouth, NH 03801 (603) 431-3001.

NAI Norwood Group Sells Land in Kittery for One Million Dollars per Acre

Kittery ME – NAI Norwood Group is pleased to announce the sale of 1.96+/- acres located at 275 US Route 1 in Kittery, Maine. The site was the former home of Maine’s original outlet center. Greg Whalen of NAI Norwood Group represented the seller, KTP Shops LLC, in the transaction. It closed on July 27, 2017 in the amount of $1,960,000.

The site will be the new home of a Hampton Inn and Suites. The 32,000+ retail building currently residing on the site will soon begin the demolition process. This project has been a long time coming. It went under agreement nearly three years ago and has fought a long, hard battle through Maine’s court system. For full details on the site renovation or the court case, please contact Greg Whalen at 603-431-3001 or gwhalen@nainorwoodgroup.com.

NAI Norwood Group is an affiliate of NAI Global, the world’s leading managed network of independently owned commercial real estate brokerage firms.  Through this network of 355 offices in 55 countries, NAI Norwood Group is able to leverage their 45+ years of dedicated local experience around the world. With our extensive background and strong local contacts, we are able to assist individual corporations in negotiating leases, sales, business brokerage, investments, relocation, site selection and development. For more information please visit www.nainorwoodgroup.com. Or contact one of our offices: 116 South River Road, Bedford, NH 03110, (603) 668-7000 or 28 Deer Street Suite 301, Portsmouth, NH 03801 (603) 431-3001.

JOSEPH MENDOLA OF NAI NORWOOD GROUP SELLS UPTON SELF STORAGE IN UPTON, MA for $4.6M

UPTON MA - NAI Norwood Group is pleased to announce the sale of Upton Self Storage at 226 Milford Street in Upton, MA. Joseph Mendola, Senior Advisor of NAI Norwood Group represented the seller, Upton Self Storage, LLC, and collaborated with the buyer, a Delaware Limited Liability Company, in this transaction. Mr. Mendola is also the Argus Self Storage Sales Network representative of Northern New England. Upton Self Storage, LLC closed this transaction for $4.6 million.

This self-storage facility is a state of the art facility. It has 43,250 SF of rentable square feet and 287 self-storage units. The facility services the Greater Upton-Milford-Hopkinton marketplace.

NAI Norwood Group is an affiliate of NAI Global, the world’s leading managed network of independently owned commercial real estate brokerage firms.  Through this network of 400+ offices and 7000+ professionals, NAI Norwood Group is able to leverage their 48+ years of dedicated local experience around the world. With our extensive background and strong local contacts, we are able to assist individual corporations in negotiating leases, sales, business brokerage, investments, relocation, site selection and development. For more information please visit www.nainorwoodgroup.com. Or contact one of our offices: 116 South River Road, Bedford, NH 03110, (603) 668-7000 or 28 Deer Street Suite 301, Portsmouth, NH 03801 (603) 431-3001.

NAI Norwood Group Takes Home 3 CIBOR Awards

Manchester NH – NHCIBOR held their 3^rd annual awards ceremony on Tuesday, June 20^th to benefit their chairty NHCIBOR Cares. NAI Norwood Group is pleased to announce three award recipients are part of their team. Judy Niles-Simmons and Perry Snow tied with Brian O’Brien for the 2016 Retail Transaction of the Year. Joe Mendola took home the 2016 Investment Transaction of the Year. Congratulations to everyone for their hard work.

Judy Niles-Simmons and Perry Snow have been working on the Center View Plaza project in Manchester, formerly known as Lowe’s. The 100,000+ SF Huse Road building has been subdivided and partially leased. Leases include Chunky’s Cinema and Cowabumga’s.

Brian O’Brien sold the former Walmart on Keller Street last July. The 118,000+ SF building incited a bidding war. Ultimately it was CarMax that bought the site for just over $11M.

Joe Mendola successfully brokered a transaction between Granite Clover Self-Storage and National Storage Affiliates Trust that consisted of a five property portfolio. The transaction was valued at approximately $28.8 million and consists of approximately 235,000 rentable square feet with approximately 1,900 self-storage units.

The mission of NHCIBOR Cares (NHCC) is to help assist various organizations and individuals in need during emergency situations.  Having been in existence for just a few years, NHCC has contributed to over almost two dozen local and statewide causes on behalf of the members who support the NHCC mission.  NHCC also awards a Community Service Award at the NHCIBOR annual dinner.  Past recipients include some of the pillars in our industry:  Judy Niles-Simmons, Michael Reed and Arthur Sullivan.  NHCC Committee membership is open to any Realtor or affiliate of NHCIBOR, and is encouraged. For more information please visit: https://www.nhcibor.com/advocacy/nhciborcares

NAI Norwood Group is an affiliate of NAI Global, the world’s leading managed network of independently owned commercial real estate brokerage firms.  Through this network of 400+ offices and more than 7,000 professionals, NAI Norwood Group is able to leverage their nearly 50 years of dedicated local experience around the world. With our extensive background and strong local contacts, we are able to assist clients in negotiating leases, sales, business brokerage, investments, relocation, site selection and development. For more information please visit www.nainorwoodgroup.com. Or contact one of our offices: 116 South River Road, Bedford, NH 03110, (603) 668-7000 or 28 Deer Street Suite 301, Portsmouth, NH 03801 (603) 431-3001.