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12 APRIL 2021
According to a news release from the Melville, New York-based firm, landlords initially agreed to those deferrals believing the economy would rebound by late 2020. But many negotiations have shifted
to rent abatement as hopes for a V-shaped recovery faded.
“Last year, it seemed as though nearly every retailer in America was asking for rent deferrals,” said Andy Graiser, co-president of A&G, whose clients include Chico’s, Christmas Tree Shops and Ruth’s Chris Steak House. “Now they’re staring at a ‘deferral bubble’ of $40 billion-plus that they’re going to have to pay back, over and above their existing rent.”
The good news? Bankruptcy typically leaves a retailer with
fewer locations, often in stronger markets such as New Jersey,
“and then you’ve got hopefully a healthier tenant that comes out,” Stolz said. For his part, Harding said chain bankruptcies are typically “based upon underlying structural problems with the retailer,” rather than the quality of the real estate.
The list of struggling tenants still includes restaurants and other local operators that continue to rely on support from landlords. In some cases, Jacobs said the future is far from certain.
“We’ve done workouts and reached
agreements, but if the pandemic keeps going, it means that the
new agreements are going to be defaulted upon, too,” Jacobs said. That ultimately leads to the question of the landlord’s own financial obligations, he said.
To that end, owners with higher levels of debt on their properties who “run into these issues (are) going to be talking to the banks and the lenders about workouts,” Jacobs added. “If you’re 10 to 20 percent leveraged, you have enough room to try to survive.”
Those retailers that are left standing will ultimately have more space to choose from, Harding said, meaning
For instance, he said, federal rental assistance and mortgage forbearance have allowed many apartment owners to weather the storm over the past year. That has limited tax appeal volume in an asset class that was relatively healthy before the pandemic, he said, speaking anecdotally.
The office sector, on the other hand, “is a real wildcard.” Lloyd said “the data is just not in yet” with respect to how the workplace will look in a post-COVID world.
“In my personal opinion, so much of what’s going to happen in the office market is going to be driven by: What does the new normal look like? What exactly happens?” he said. “Even with health and safety being taken care of, do we go back to the way we worked before? ... I think it’s evolving and that it’s going to be different, but how different?”
Broadly speaking, Lloyd said valuations at the start of the crisis had been established more than five months earlier — in fall 2019, on the statutory date of Oct. 1
— meaning that, “technically the COVID experience wasn’t going to be directly relevant for the 2020 tax year.” That contributed to an inherent delay in filings in the early stages of the pandemic, he said.
This year, owners in hospitality and retail were far more likely to appeal. Those in the surging industrial sector are on the opposite end of the spectrum, Lloyd added, given its ongoing strength and the additional growth of e-commerce during stay- at-home orders.
it’s up to landlords to help their properties stand out. While some owners may have been especially cautious in managing their expenses last year, 2021 “isn’t the time to cut costs too much” as they look to participate in the recovery, he said.
“In terms of making investment into the space to help make the property attractive — create outdoor seating, curb appeal — those kinds of things still remain important and maybe even more so when retailers have more choices,” Harding said. “So we are doing that and looking for ways to help retailers do more business in our properties as well, which is good for both the landlord and the tenant.” RE
“The market was on fire before COVID and, realistically, anybody who’s looking at it has got to say it certainly has not slowed down as a result of that,” he said. “It
is still extremely active. There’s
an appetite for product up and down the main corridors and even expanding out a little bit beyond. It’s getting to a point where there’s really a paucity of available area.”
To that end, industrial owners whose valuations have been enhanced by the pandemic may
be susceptible to reverse tax appeals by municipalities seeking to increase their assessments. As of early March, however, Lloyd said many towns have held off on taking such action, hoping to gain more clarity after a year of uncertainty.
He added that New Jersey’s tax court is deliberate by design when it comes to setting precedents during an economic downturn. That means many COVID-era cases won’t be resolved until after judges have had a chance to gauge how property owners have fared over the long term.
“The tax assessment system is supposed to move more like an ocean liner than a speedboat,” Lloyd said. “It is designed not to be whipsawed by severe market forces, so ... the court will look for stabilization, and the way they accomplish that is that they’ll look for two to three years of economic performance to judge where the market is for purposes of tax assessment.”
LLOYD: PANDEMIC’S FULL IMPACT ON VALUATIONS STILL UNCLEAR
There was no shortage of property tax appeals ahead of last year’s filing deadline in New Jersey, but it was far from the avalanche that often comes in a time of economic turmoil.
John Lloyd, an attorney with Chiesa Shahinian & Giantomasi PC, said many property owners were simply focused on navigating the COVID-19 crisis that emerged only weeks before the April 1 deadline. Couple that with multiple extensions of
the filing window by state officials — ultimately, to July 1 — which created “a moving target” in the months that followed.
“Everybody was in such a transition
mode in ’20,” said Lloyd, who leads the property taxation group for West Orange-based CSG. “You put that along with the deadline uncertainty — (and) there was a frenzy of activity before the deadline, but not like what you would expect.”
With the recent passage of this year’s deadline, the pandemic’s broader impact on commercial real estate valuations is still far from clear. Lloyd noted that owners of “clearly injured properties” such
as hotels and many types of retail have, understandably, moved
to lower their assessments, but operators in other asset classes are taking a more measured approach.
John R. Lloyd is a member of Chiesa Shahinian & Giantomasi PC in West Orange and the leader of its property taxation group.
Courtesy: CSG