Real Estate Developer Challenges: Planning for the Future
The real estate field is rife with challenges as the COVID-19 pandemic plays out. There is no concrete timeline for when the immediate health and economic crisis will end. As a result, the real estate industry raises numerous unique and novel issues seeking to be solved. Developers planning for the future need to have the proper tools to navigate their real estate developments during these challenging and continually evolving times.
How Real Estate Developers are Navigating COVID-19
The coronavirus pandemic has made life and work quite difficult for everyone; real estate professionals included. With less money being spent, all sectors of the economy are affected, including the residential and commercial real estate sectors.
Despite the circumstances at hand, individuals who develop residential real estate are progressing through the pandemic reasonably well thanks to the country’s red-hot housing market continuing to thrive. The same cannot be said though for the commercial real estate space. As a result of the stay at home mandated orders from state governments, tenants who were unable to work now have a higher rate of defaulting on rent commitments, leading to evictions and an abundance of available real estate zoned for commercial use.
A Tenants Needs Come First
Real estate developers are well aware their tenants are experiencing challenging times, leaving them in a precarious situation on honoring their rent commitments. Furthermore, some tenants scheduled to move into new buildings can now either cancel their deals or renegotiate them. These problems have served as hurdles for real estate owners, managers, and real estate developers.
With the decline in demand for real estate resulting from the health and economic crisis, activity has slowed down for real estate developers. Every challenge has its silver lining. Thankfully, tenants far and wide have been provided with a grace period to pay their rent. Having flexibility in payments proves essential to achieving a mutually beneficial outcome for tenants, real estate owners, managers, and developers.
Is the Appetite for Real Estate Still Strong?
The answer to this question has yet to be determined. However, it appears as though pre-development real estate deals are progressing quite nicely.
Of course, there is certainly the possibility of a decrease in demand to alter the course of real estate projects. Since the temporary halt in construction has ended in states such as New York, real estate developers are now liberated to conclude construction on projects and welcome new tenants.
The current state of real estate and the economy is leading to lengthier periods of underwriting deals. Rather than a 5-year exit, it is now becoming common to add a 7-10 year exit. There is the potential for the days of comparably brief departures to return, yet it will take some time. Furthermore, vacation communities do not welcome visitors at the same frequency as they once did before the pandemic began. There is a chance that some such contracts for tourism-related
properties will terminate.
Stay tuned. The real estate sector will have to prove quite dynamic and flexible to emerge from the pandemic without significant setbacks. As it is often said, “Where there's a will, there's a way” – and real estate developers always find a way to succeed.
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