Opinions vary on how COVID-19 might affect the real estate market. While the economic downturn caused by the pandemic is likely to be felt throughout the sector, commercial real estate (CRE) listings and sales volume don’t necessarily reflect this yet.
Joshua Simon, founder and CEO of SimonCRE
We invited Joshua Simon to tell us how he thinks COVID-19 is transforming the commercial real estate industry, what makes the Arizona office market different and more. Joshua is the founder and CEO of SimonCRE, a real estate developer operating in the Phoenix area. Here’s what he had to say.
Q: Could you start by telling us a little bit about your background and why you chose a career in commercial real estate?
Over 16 years ago, I dived headfirst into the commercial real estate industry while I was still in college, first by joining Sandor Development, and then by starting my own full-service firm without any partners, SimonCRE. From an early age, I witnessed the impact that the right development could have on a whole community and immediately wanted to be a part of effecting that positive change across the U.S.
This year marks one decade of SimonCRE serving as a national owner/developer for several Fortune 500 companies, specializing in ground up development, build to suits, and redevelopment across various property types. To date, SimonCRE has completed more than 175 projects across 22 states, totaling more than $358 million in value.
Planned for 2020 alone, SimonCRE has 45+ projects, totaling approximately $200 million in the construction pipeline.
Q: Considering the COVID-19 outbreak, what are your thoughts on the CRE market in the US today in terms of trends and challenges?
Recently, White House economic advisor Kevin Hassett predicted that U.S. unemployment will rise past 20% by June; however, it’s likely to be different from the Great Depression because the country has a better understanding of the current economic slowdown. Either way, the CRE market, like other industries, has not been immune to its effects.
As mentioned, SimonCRE was founded during recessionary times, so we are no stranger to having to navigate through rough waters. However, there is only so much you can control when it comes to a global pandemic. One memorable quote I would correlate with the current state of the CRE market is “tough times don’t last, tough people do” by Robert Schuller, because these challenges will eventually fade and the companies that surmounted them will be even stronger.
To apply this to retail tenants, we are seeing many come up with creative solutions such as curbside pick up, contactless delivery, cashless payment, and special family packs on offer. These methods could potentially change the restaurant experience and could even stay in place post-pandemic.
Other major innovations brought by tenants include Starbucks reopening 85% of its locations with safety precautions such as requiring employees to wear CDC-recommended cloth face coverings, and Gap reopening with masks available in-store for shoppers.
Our business model has shifted in the sense that we continue to focus on essential retail and especially drive-thru and small shop tenants. Fortunately, a good amount of tenants at our nationwide properties are considered essential but we still understand the importance of maintaining a helpful relationship as a landlord. Just one example of how we have been working with our tenants is by granting rent payment abatements on a case-by-case basis, as we are on the same team of wanting to see them succeed.
Q: What differentiates the commercial real estate market in Arizona from other major markets in the United States?
Arizona Governor Doug Ducey recently announced a modification to the stay-at-home order which allows some businesses to gradually reopen, as long as they follow safety regulations. Tenants such as retail stores, restaurants, barbers and salons that are still on shutdown in other states can now resume operations with some precautions. It will be interesting to monitor how this development impacts small businesses that may not be able to remain in business for another month without resuming operations.
Moreover, despite COVID-19, Arizona is seeing builders continue to move forward with new Valley communities that will have hundreds of new homes.
Q: How have you seen the industry evolve in the past years you’ve been involved in it?
I would say the most prominent change in the CRE industry has been the implementation of new technology, as more and more platforms are becoming prevalent in an industry that hasn’t been too quick in the past at adapting to new ways of doing business.
What I believe makes the SimonCRE team unique and more cutting-edge is that it has always been open to technological advances for exploring opportunities. In the past year alone, the team has grown exponentially to over 30 professionals, plus an additional software development team of nine employees to facilitate a custom platform used to run the business.
Q: Where do you see it going in the future?
The CRE industry, like other industries, will continue to adopt more of a tech mindset as tools that can alleviate recurring manual data entry, upgrade underwriting, and directly integrate systems among stakeholders become more widely used.
According to Propmodo, reported impact on day-to-day operations is already evident, as 89 percent of investment sales brokers agreed that technology in the industry has been key to streamlining processes.
Q: Any other insights that you’d like to share?
Fortunately, we can report we’ve been actually experiencing more activity for single-tenant net lease investment deals. While there of course is risk in buying retail and office properties with tenants working to regain financial stability, we’re still seeing clear demand for essential Single Tenant Net Leases (STNLs), such as Dollar General or O’Reilly Auto Parts.
In other property types, you may be seeing more and more owners who have been collecting only a portion of rent as their tenants see reduced sales. So, some advice for buyers now is to consider drawing up an amendment for tenants to abide by CDC guidelines and protect against liability related to COVID-19 in connection with the premises or the tenant’s use. Also, buyers should first review existing loan documents because some lenders require their permission prior to amending leases.
Currently, SimonCRE has about 19 STNL and 3 multi-tenant properties available across multiple U.S. markets.
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