A local firm’s perspective: We’ll get through it togetherhttp://centraldevelopment.com/wp-content/uploads/CREJ-news-generic-1024x597.jpg 1024 597 Central Development Central Development http://centraldevelopment.com/wp-content/uploads/CREJ-news-generic-1024x597.jpg
Like every other industry, Colorado’s real estate and development sector is reeling from the impact of COVID-19. Big openings have been put off. High profile deals have been delayed or cancelled. For many local businesses, reopening isn’t a certainty. Landlords are facing questions from tenants in financial trouble. Buyers are hesitating. Everyone is hoarding cash. Predictability is a thing of the past.
How will Colorado’s real estate and development community react? How much will it overreact?
I’m a local developer and property manager. Colorado is and always will be my focus. My wife Jennifer and I cofounded Central Development in 2005. Our company is responsible for more than 3 million square feet of industrial, medical, retail, hospitality, multifamily and single-family properties across Denver and the Front Range. We, too, are facing challenges we never could have foreseen.
We are lucky to have a stable portfolio and diversified tenant mix. The bulk of it is industrial, medical and multifamily. We’re also lucky to have multiple lines of business. Even when development and construction start to slow, buildings always must be managed and maintained.
We’re lucky, but we’re still worried. What’s my biggest worry? People overreacting. Overreaction breeds doubt, mistrust and negative outcomes. Overreaction won’t help us find solutions or opportunities.
We are figuring out a path forward. We are staying calm, projecting confidence and trying to ensure that emotions aren’t driving our decisions. Just like so many other Colorado developers and property managers, we will survive this. We’ll do it through relationships, working together as a local community and sharing ideas. By sharing how we’re reacting, we’ll help each other avoid overreacting.
Where are we focused? What have our biggest hurdles been? What solutions have we found?
Our biggest concern is doing right by our team and our tenants. In difficult times, how you treat people matters. Tough times challenge existing relationships. Tough times also create opportunities to form and strengthen relationships.
COVID-19 has been hard on our team. One of our team members is on a ventilator. Another has a son at home fighting late-stage cancer. He can’t help fearing he’ll bring coronavirus home to his son.
Operational changes are helping us limit our team’s potential for exposure. Only one person per property at a time. Building engineers work independently on separate properties. Building managers work split shifts so they never see each other in person. We’ve created isolated work environments for team members with higher risk of complications from COVID-19. Leasing offices are closed to the public.
If people are sick, they can’t come into work for at least a week. But they can remain confident their paychecks will keep coming. In support of this commitment, we took advantage of the Small Business Association Payment Protection Program.
Maintenance changes also are helping us reduce risk. We have added hand sanitizer stations at building entrances, and midday cleaning of all common areas. In certain circumstances, we’re offering specialized deep cleaning. We no longer perform nonessential maintenance work in occupied suites.
Our construction sites are 100% mask-required, and we have added hand washing stations. We proactively manage subcontractors to minimize the number of trades in a unit simultaneously.
We are working with tenants who reach out for rent abatement. While the rent must get paid, we’re working out payment arrangements where needed. We’ve provided several tenants with information about government assistance options.
We look at all tenants and buildings on a case-by-case basis. Because our company is small and local, we are able to make decisions and changes quickly.
While we always have provided timely, clear investor communications, we’re more focused than ever on constantly communicating with our investors. Everyone deserves the full story at all times. Even when the news isn’t great.
Some deals in their infancy have stalled or are moving slowly. Fortunately, our in-progress deals still are moving forward. We are being careful with cash management, making distributions judiciously.
We are making sure our investors and tenants know: Our company is not going anywhere.
We’re continuing to attract tenants, leasing units and signing contracts. We recently broke ground on Phase 4 at our Platte 56 townhomes in Littleton, and we continue to be successful with sales. At Encompass Business Park in Centennial, we successfully leased one of our new industrial buildings to Winn-Marion and Mygrant Glass. We also plan to break ground this summer on another 171,000-sf industrial building in the park.
Ultimately, the COVID-19 pandemic is likely to increase demand for industrial space. Broker T.J. Smith, who assists with tenant leasing at Encompass, said, “I’m happy to be an industrial broker right now, versus handling a different asset class. Industrial properties seem to have the brightest outlook as we come out of this into the third or fourth quarter.”
He explained, “What’s transpired through this is that we’re going to see an increase in ecommerce sales, manufacturing companies and companies holding larger inventories. Nationally, it could create almost a billion square feet of demand for ecommerce and inventory supply. If that happens, parks like Encompass will benefit. So yes, these are challenging times. But industrial will come out of this doing better than other asset classes.”
Real estate is a business of risk. Obviously, we have reduced our risk tolerance. We are focused first on stabilizing all in-progress deals. But we absolutely are looking toward the future.
The downturn in equity markets makes it likely that investors, buyers and sellers will continue to seek real estate opportunities. We are making certain that we will be in good position to pursue those opportunities as they arise.
Of course, it’s hard to be thankful for anything about COVID-19. So many families and businesses are struggling. But COVID-19 has presented new opportunities for improving, innovating and understanding how we work.
Development timelines are relaxing. With everyone focused on risk reduction, timelines are getting much more reasonable. This means more time for underwriting and due diligence. In the frothy, fast-moving, pre-COVID-19 market, that time was not always afforded.
We’re finding new ways to showcase our properties. At Platte 56, broker Kathy Donahoe is using Zoom to give virtual tours and host virtual open houses.
This also has been an opportunity to relearn important lessons. For example, COVID-19 has again made it plain that relationships are a critical foundation for success. We are fortunate to have established strong, trusted relationships throughout Colorado. The brokers, lenders, inspectors, permitting bodies, utilities and consultants we work with will continue answering our calls. They will continue working with us to develop a strong future for Colorado.
Another lesson that COVID-19 is helping us to relearn? Local commitment is both valuable and crucial. Our state and local governments are leading us through this crisis. Many local businesses are the ones most strongly committed to ensuring Colorado’s future.
Not all out-of-state developers will cut and run. But some will. For them, their work in Colorado is just another line in a spreadsheet.
For local developers and property managers, the work we do in Colorado is different. This is our home. We see the people involved, and not just the numbers.
Colorado’s real estate and development sector will get through this. We are figuring out solutions. We are committed for the long haul. We’ve got strong relationships, and we’re supporting each other locally. We are committed to doing our part to build a prosperous future for Colorado. We will do it together.