With yet another flash lockdown having come and gone for an Australian state, it’s unlikely we’ve seen the last of COVID-19 in our nation. So, what can landlords do to protect their commercial assets during a lockdown?
Commercial property is an easy target for the coronavirus. We’ve so far seen over a dozen individual state lockdowns, including a three-day closure of West Australia and most recently a short lockdown across Queensland. It’s caused business owners to suffer – and landlords to fret.
For landlords, there’s a clear concern when headlines announce a new lockdown. Foot traffic stops, their tenants suffer, and rental income is called into question. Commercial real estate can be complex at the best of times (which is why many leave it to the professionals). But what about when COVID-19 closes the doors of your commercial tenant, even for a few days?
How can you ensure rent continues coming in the door? How can landlords protect their investment from the pandemic?
Here are a few tips on how to manage a commercial property during a lockdown:
1. Monitor the situation
You mightn’t have direct access to the Premier’s office, but you can try to gauge whether or not the lockdown is likely to continue for a long period of time.
For retail landlords, you could do worse than becoming a member of the Large Format Retail Association (LFRA).
The wonderful team at the LFRA, led by Philippa Kelly, are in regular contact with the local and state governments. Throughout multiple lockdowns they were able to indicate to us (and us to our investors) the likelihood of further lockdowns, in addition to answering a few mounting questions, like:
- Which specific industries are impacted by the lockdown and must close?
- Can retailers continue to operate using cashless transaction mechanisms?
- Can takeaway continue for food service operators?
- What are the outcomes of tenants who fail to comply with enforced COVID regulations?
2. Engage with property managers on the ground
With interstate travel a no go during these lockdown periods, the phone is the best option for discovering how your tenants are fairing.
Call your property manager to clarify which tenants may be suffering or are at risk of losing a considerable amount of business over the lockdown period. They are your eyes and ears on the ground.
If your property managers are not on speed dial already, then they should be over a lockdown period.
3. Understand your obligations as landlord
Our blog post COVID-19 impact on commercial leases was the highest ranked result on Google for ‘covid commercial leases’ when the pandemic first hit Australian shores early-2020. That’s because landlords are scrambling to understand their rights during these unprecedented times.
If you’re a landlord, be prepared by understanding your obligations.
Check in with your legal aids if you can and get a feel for what you can and can’t do. For example, if it’s discovered your tenant is operating during the lockdown period when they should be closed, you might be up for a six-figure fine. Reading the latest state government releases (or perhaps a well-penned blog post) could avoid such a terrible result.
4. Determine which tenants might be impacted
If you have your finger on the pulse with your existing tenants, you’ll already have a reasonable idea about which of your occupants will be sweating the news of another lockdown.
To help assess which of your tenants are most vulnerable, look at historical indicators from previous lockdown periods. Think about what happened to your tenant.
- How did that tenant perform during the last lockdown?
- Were they able to adapt? For example, could your retailers rely on online sales and deliveries?
- Are there any remaining arrears from rent-free periods?
- Have they shown recent weaknesses that could make them suffer over even a short lockdown?
- If the lockdown persisted, what’s the likely outcome for this tenant?
Perhaps they’re classed as an essential service and they may fare even better as a result of a COVID-19 lockdown. We know a few of our tenants did.
5. Understand what it means for you as an investor
After following the above points, you’ll have plenty of light shed on what the lockdown means for you as an investor.
You should understand whether or not you’ll have to offer a rent-free period, if there’s a highly unlikely chance the lockdown will cause them to go under, and if your rental income or investor distributions will be impacted. Then it’s time to share this information with all of the parties invested in the asset.
For us, our tenants and our investors come first. We always ensure the occupants in our buildings, warehouses, and stores are looked after. And naturally, our investors are taken care of as a result.
Commercial property might be an easy target for the pandemic. But it doesn’t mean you need to be too.
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