In comparison to the last several chaotic weeks, this past week has been relatively stable. Work continues on about 95% of our active construction sites across the country. Most municipalities have clarified that construction is an essential business, and we continue to enforce new health and safety procedures. Last week I mentioned potential delays due to reduced crew sizes and the sometimes-slower pace of inspections. Up until this point, we have not seen significant delays due to shortages in materials. However, we have recently been made aware of a handful of large suppliers that are shutting down their North American production lines, which could undoubtedly have significant ramifications in the coming weeks and months. Navigating these challenges effectively will prove critical.
The development industry includes a wide range of entity structures – from private developers to publicly-traded REITs. Unsurprisingly, many of these businesses are facing their own unique set of circumstances and economic pressures, including tenants’ inability or unwillingness to pay their full rent. Many tenants are asking for some form of rent relief. I have anecdotally heard of some creative negotiations that give current relief in exchange for movement on other points within the lease, such as term extensions or removal of termination options. Some development sites look to shake loose as a result of the shift in focus to maintaining existing cash flows. There continue to be opportunities for winners and losers on a deal by deal basis.
The top priority for many this week has been the application process for the Paycheck Protection Program element of the CARES act. Although, in many respects, this has been a moving target, the potential impact that this money could have on the economy should not be underestimated. Many are predicting that the current allocation of funds will be insufficient given the level of demand, and there may be more money approved later on. The scale of the demand for funds from the PPP, as well as the payment (or non-payment) of both rent and loans which were due this week, should provide further insight into our environment next week.