Future of commercial real estate tied to pandemic

Between landlords and tenants, it may be a toss-up on who’s more nervous these days.

The COVID-19 pandemic has made it challenging for many businesses to keep the lights on and for property owners to collect rent. The future of commercial real estate is tied to the long-term impacts of the pandemic and President Donald Trump and opponent Joe Biden have decidedly different strategies.

Before the pandemic, the talk of the town was Detroit’s resurgence. The Dan Gilbert-led crusade to redevelop the city had taken hold with plans for new projects popping up what seemed like every day. Now some of the city’s largest employers, including the Gilbert-owned family of companies including Rocket Companies Inc. (formerly Quicken Loans), has most of its approximately 18,000 downtown staff working from home.

Approximately less than 20 percent of the 125,000 people working in greater downtown Detroit before the pandemic have returned to their workplaces in the city, Eric Larson, CEO of the Downtown Detroit Partnership, told Crain’s.

“Even if the buildings are reopened, the tenants aren’t coming back to work,” said Lynnette Boyle, principal of Detroit-based Beanstalk Real Estate Solutions who has worked in the local industry for more than 25 years. “We’re getting a lot of calls from people that want to sublease their space or are doing short-term rentals. Everyone’s afraid to commit.

“On top of all of that and COVID-19, we have this election, and we don’t know how that’s going to affect the market.”

As far as how federal policy could have an impact on local real estate, Opportunity Zones are a good example. They were established by the Trump administration in 2017 as incentives for developers to do business in “economically-distressed communities” throughout the country. Their usage by big-time developers, including Gilbert, has drawn scrutiny. In general, Trump’s policies — inspired by his roots as a real estate magnate — have favored economic stimulus and growth without the red tape. A Democratic approach might be more focused on the social equity of that growth.

Be it Biden or Trump in the top office, the real estate deals will keep coming, Boyle said.

“I think we’re going to go to a Detroit where a lot of landlords that have been here forever know how to do,” she said.

Ditto with residential real estate, said Frank Tarala, principal broker for Sterling Heights-based Sire Real Estate who’s been in the business 40 years. “Real estate is apolitical,” he said.

Pandemic be damned, home sales in metro Detroit have been on a tear this spring and summer. There literally are not enough houses to sell, Tarala said, and there’s no reason to believe a new president would change that. The historically low federal interest rate — a lever neither party wants to touch, especially during a crisis — has kept the market humming. That’s not to say there isn’t hesitation. Sales have slowed significantly leading up to Election Day as potential buyers put big decisions on pause and watch the polls.

“I always see the market picking up where it left off,” Tarala said. “I would think after this election, things would continue as they have.”

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