2020 has been a year without parallel in modern history. Not since 1918 has the world faced a health crisis of this magnitude. The coronavirus and COVID-19 have created dramatic and, in many cases, cruel effects on lives worldwide. More than 200,000 Americans have died from COVID-19, and more than 7 million Americans have been sickened by the virus. Our economy has suffered from the virus and the impacts of the efforts to combat it, including various government stay-at-home orders, school closings and the upcoming transit crisis.
Real estate — commercial, retail and residential — has been profoundly impacted by the virus and the efforts to combat it. Landlords, whether commercial, retail or residential, have been suffering loss of rents, loss of tenants and even bankrupt tenants.
Retail spaces, particularly clothing stores, specialty outlets and restaurants of all types and classes have been closing. Cooperative and condominium buildings that depended on retail properties for maintenance payments may have to tighten their belts. Retail spaces may suffer downward valuation pressures.
The commercial market has also been impacted, particularly landlords with smaller start-ups and other businesses that have been able to transition to work-from-home. However, many larger tenants are looking to have more employees in the office more of the time once there is a safe and effective vaccine. Over time, the commercial real estate market should stabilize and prosper.
The housing market is troubled by the unemployment situation. New York Governor Andrew Cuomo has issued a moratorium on certain evictions through January 1, 2021. It is merely a temporary expansion of the Tenant Safe Harbor Act. Tenants who face eviction based on non-payment of rent prior to March 7 may have eviction deferred to January 1. The moratorium does not address the 8,000 cases filed since the pandemic; however, with some 200,000 eviction cases pending in New York City, cases will be delayed.
For cooperative and condominium buildings, COVID-19 has impacted maintenance and tax collections. Resolution of these cases is likely to be delayed for the reasons noted above. This leads to an obvious suggestion: try to resolve these issues by settlement.
In a massive pandemic, there will not be any perfect justice, and there will not be great financial resolutions. We may be in a time when, as Voltaire suggested, the “perfect is the enemy of the good.” Landlords, including cooperative and condominium boards, need to consider whether to look at creative ways to collect maintenance from owners who have lost jobs or suffered other financial setbacks due to the virus.
Some of these owners may suffer from these setbacks for many years. Foreclosures and sales of units to collect back maintenance and taxes may drive down property values for other unit owners. Boards might want to consider making deals with the distressed tenants to collect the back maintenance and taxes, with modest interest, when the units are sold or by stretched-out payment plans. While that may not seem perfectly fair to those owners who are current in their taxes and maintenance, it will save attorney fees, which will impact cash flow in the short term, create certainty for collection and avoid downward pressure on the value of the units in the building. This option needs to be available to boards in difficult times.
There are other pressures on cooperative and condominium buildings similar to the stresses after the 9/11 attacks. Some people are leaving the city, driven out by confinement in apartments during the stay-at-home period and the loss of the state and local tax (SALT) deductions. Whether there will be relief from the latter is a political question. However, we know from the experience that over time, people will return to New York City for convenience and the opportunities.
There are some interesting developments in residential and commercial associated with COVID-19. Virtual tours and on-line marketing of property is becoming more common. This trend should continue and expand over time. The impacts on the brokerage houses may yet be profound.
This column presents a general discussion and is not intended to provide legal advice. Please consult your attorney.