Managing the unexpected

Among the teams of heroes charged with public health and safety during the COVID-19 pandemic, property managers are key, charged with ensuring the safety of their tenants/residents, staff and guests on the property. Nothing surpasses the need for health and safety, and property managers, with their teams and service providers, take that seriously—never more than during this crisis.

The CPMs interviewed here have consistently put health and safety ahead of all else. But they also have a secondary mandate as they struggle to maintain the fiscal stability of the assets in their charge and face the implications of the economic slowdown caused by the virus.

Helen Moise, CPM, CCIM

Part of the issue is that different countries and jurisdictions are attacking the crisis with different plans. “The problem is very fluid right now, and every city is different,” says Helen Moise, CPM, CCIM, and a member of the Arlington City Council in Texas. In the U.S., for example, “Large cities over 500,000 will receive federal assistance that can be directed to rental and mortgage assistance. Arlington, with about 400,000 residents, must rely more heavily on our network of charity organizations and available funds through our housing authority.”

Safety first

Whatever the stance of the municipality, state/province and country in which they operate, managers can’t protect occupants without a healthy staff. “The critical question firms had to address at the onset of the pandemic was whether their employees are safe, followed by whether they’re available to perform critical functions,” says Tenyson Zhou, CPM, executive director and partner at YSS Asset Management Co., Ltd. in Shanghai City, China. “It’s important for me to be able to monitor the situation, provide a safe workplace and offer our employees the support they need.”

Tenyson Zhou, CPM, YSS Asset Management Co., Ltd.

Zhou, who manages residential and office properties, says the outbreak in China occurred during the Chinese New Year, when offices were closed. “So, after discussions with our owners, we took immediate action to control and block access to all the buildings we manage, to prevent people from being infected.” None of the buildings in his portfolio are closed as of this writing.

Meanwhile, in Japan, the government is prohibited by law from closing buildings. But clearly, hotels wouldn’t need a government mandate even if it were available.

Masashi Kawakami, CPM, a sales manager for Massive Sapporo Co., Ltd., manages lodging facilities in Sapporo, Yokohama and Kyushu. “Hotels in cities are seeing occupancy rates lower than 10%, and almost all reservations have been canceled,” he reports. Stay-at-home orders have swelled the occupancies of rental homes. “They’re nearly fully booked due to people evacuating cities. They’re almost all long-term stays, which is a small silver lining during the pandemic.”

Jeffrey S. Lapin, CPM,
Coastal Partners, AMO

The precautions Zhou took for his staff are similar to those practiced by CPMs globally. Gloves and masks have become standard while skeleton crews and remote communications have become the way services are delivered. “Our executive staff, including our property managers, can elect to work remotely, and most of them do,” reports Jeffrey S. Lapin, CPM, vice president of property management for Coastal Partners, AMO, in Rocklin, California. “The corporate office is open and I’m here every day. The engineering folks are exempted from the stay-at-home orders because they’re essential personnel. They’re wearing masks and gloves and we’ve instituted procedures to limit their exposure by not having them work in occupied spaces where we can avoid it. And of course, if they don’t feel well, they don’t come to work. Period.”

Most buildings have been closed to public access, and common-area amenities are either shuttered or cleaned on a ramped-up schedule. “We communicate with residents weekly on the precautions we’re taking,” says Chrystal Skead, CPM, ARM, vice president of IREM Canada and a self-titled multifamily puzzle solver (and partner) at Clear Stone Asset Consulting Inc. in Calgary, Alberta.

She gives best practices to the residents in the 440-unit property she manages—tips such as “not touching elevator buttons with your hands and limiting the number of people in an elevator to two at a time. We have a robust amenities area, and we’ve closed that completely. We’ve asked our janitorial contractor to step up sanitization in the common areas, with special attention to anywhere we have people in 14-day quarantines.”

She adds that she’s discontinued suite inspections and in-suite maintenance except for emergencies, and she’s prepared for vacancy inquiries, though the pandemic has slowed the pace of those. If a prospect voices interest in a suite, “We’re doing virtual tours on our website and via our smartphones.”

Robert Griswold, CPM, CRE,       Griswold Real Estate Management, Inc., AMO

Robert Griswold, CPM, CRE, president of Griswold Real Estate Management, Inc., AMO, in San Diego, also has a plan in place should a prospect call. Griswold’s firm, which manages commercial and residential properties in California and Nevada, uses current tech like online floor plans, but also old-school techniques, such as key-drop baskets and door slots for paperwork. “Otherwise, it would be impossible to show people our apartments,” he says.

The business impact

While the full financial impact of COVID-19 still isn’t clear, the implications for rent revenue and the financial challenges for property managers were apparent from the start. After that initial blow, the impacts became even clearer, and managers began to see differences by market, property type and other factors.

“There are a large number of retail and office tenants negotiating rent payments,” reports Tokyo-based Hidekazu Sakihara, CPM, president of IREM Japan NPO and president and general manager of Owner’s Agent, Inc. “We’re also starting to notice residential tenants falling behind on rent payments.”

Government-subsidized rent relief is available in Japan in the form of residential securement subsidies “provided to those who will have trouble paying rent,” Sakihara explains, adding that these have recently been expanded.

Hidekazu Sakihara, CPM, Owner’s Agent, Inc.

“Previously the program included those who lost income because they were laid off or their workplaces closed,” he says, “but now subsidies will also be provided to others who were unable to avoid a loss in income, as long as they meet a few conditions.” Subsidies, which are provided for up to nine months, vary by region and number of persons in the household. For a single person in the urban center of Tokyo, the subsidy equates to $499 per month but can vary even within the city.

Stateside, “We’re seeing a major impact on hotels, restaurants and retail centers,” says Moise. “We know that some of the businesses that have closed won’t reopen. I know local owners who are already working with tenants by abating rent and restructuring leases.

“Most hope to continue collecting operating expenses during this time while restructuring their mortgages with their lenders. The most successful have been very open with their tenants and started these conversations early.”

Compassion, empathy & rents

“We’re in partnership with our tenants,” says Lapin, whose firm handles office and industrial assets in the U.S. “Some have requested rent relief, and we’re working with them. It’s not just a transactional relationship. Listening and helping is the best approach, and our tenants have been appreciative.”

Angela Aeschliman, CPM, CCIM, LEED AP, The Missner Group

Angela Aeschliman, CPM, CCIM, LEED AP, agrees. “About 70% of our tenants have come to us for guidance on rent relief,” says the IREM Chicago chapter president and senior vice president of property and asset management for The Missner Group.

She explains that The Missner Group has been communicating with tenants from the beginning, and “we led with empathy and compassion and wanted earnestly to know how we could help them. We didn’t just wait for a tenant to become delinquent.”

Nevertheless, her owners need to know who’s going to be able to pay rent. “We gave our tenants an open door to reach out to us, to see what solutions we could work out together,” she says, “but we did need to know if they were applying for any other funding.”

“We encouraged our tenants early on to apply for the various [Coronavirus Aid, Relief and Economic Security (CARES)] Act programs,” says Velda Simpson, CPM, ARM, of Kairos One Realty, a developer/manager of commercial properties in the Atlanta area. “We wanted to make sure tenants were doing all they could during this pandemic. We’re a team and we encouraged them to do their part.”

Simpson shares one way in which she approached her tenants with compassion during those first unpredictable weeks of the crisis. “I sent a personal wellness inquiry email for Easter to each tenant to make sure they and their families were safe. It wasn’t about any violations of rules and regulations or outstanding rent. We wanted them to know we’re here, and we’re praying for them. They were very appreciative.

Velda Simpson, CPM, ARM, Kairos One Realty

“Still, many of them have come to us requesting relief,” she continues. “We’re waiving a late fee but, unfortunately, we aren’t allowed to forgive rental payment because of our financial obligation to the bank.”

Aeschliman adds that this business reality is a key part of Missner’s messaging as well. She underscores the fact that, “We’re a business too and we have mortgages to pay on these properties. We need to figure out how we’re going to manage our cash flow.”

Government relief efforts, while understandable during such a profound crisis, often complicate matters and have conflicting terms. Griswold points to the 120-day moratorium on evictions built into the CARES law, which has been thrown into overdrive in California.

“The Judicial Council of California came out with their own ruling that they will not accept unlawful detainers—evictions—for any reason or in any property type for at least 90 days after the governor has declared the emergency over.” Complicating the issue is the definition of what constitutes an end to the crisis.

There’s also a timing disconnect between eviction moratoriums and owners’ own mortgage responsibilities. As IREM secretary and treasurer Barry Blanton, CPM, recently told GlobeSt.com, the stimulus contains “a mortgage forbearance clause for as long as 90 days, including extensions. But the moratorium on evictions is 120 days. While a landlord waits for rent money, their mortgage payments can come due.”

That disconnect can be devastating. “The bottom line is that nonpayment of a monthly loan for a couple of months will automatically trigger a foreclosure action,” Griswold says. “It can take months for attorneys for the borrower and the lender—at a cost of tens of thousands of dollars—just to do something as simple as restructure the loan to allow a few months of payments to be deferred.”

Chrystal Skead, CPM, ARM, Clear Stone Asset Consulting Inc.

Chrystal Skead says she’s been “pleasantly surprised” by the lack of requests for rent deferrals in her building. “We’ve made arrangements with about 15 people until they receive the emergency relief funds being offered by the Canadian government to people who have either had to close their business or been laid off because of COVID-19. We’re working out payment plans until they get that funding in. But we’ve also had five people break their leases, and two skipped out completely.”

Some of her residents have even asked for rent reductions because the building common-area amenities are shuttered. “But this wasn’t our decision and we want to open them as quickly as possible,” she says. “People are generally understanding when we explain that it’s temporary. We haven’t had that much pushback at this point.”

An issue of cost

Meanwhile managers can try to reduce the impact by minimizing operating costs, but that lowers the burden by only so much. “The operating expenses are trimmed a bit when occupancy is reduced, and that’s helpful,” says Lapin. “But we’re still open.”

“You’re still running the building HVAC,” says Aeschliman, “and still cleaning to a certain level. Even if you have one or two tenants coming into an office suite of 20,000 square feet, you still need to clean the entire space. You can turn down the lights and change your occupancy temperature settings, but you’re really not reducing costs all that much.”

She points to the additional burdens of contractors, such as janitorial, that charge not by the occupancy but by square footage. “And most contracts don’t take into account a pandemic.” Stepped-up sanitation also takes a bite out of any savings, as does extra security, as in Velda Simpson’s case. “It’s a perfect opportunity for crime and vandalism,” she says, stating that some of her properties were hit. “People know the buildings are empty.”

This too shall pass

There will come a time when COVID-19 will fade into ugly memory. But it will take time.

Masashi Kawakami, CPM,
Massive Sapporo Co., Ltd.

“People won’t be able to operate freely until there are measures to prevent the spread of the coronavirus, most notably a vaccine,” says Kawakami.

Moise sees the recovery from her perspective on the Arlington City Council: “This will be a slow process of recovery over a period of months and possibly a couple of years. The top priority will of course be to continue to protect our citizens from this virus. As a city, we anticipate that as we reopen businesses we’ll have to pull back again if we see a rapid escalation in the number of cases. For this reason, we’ll give clear guidance at each step and encourage property managers to take a very active role in managing the safety and response at their assets so we can continue to ease restrictions over time.”

Indeed, safety is job one for all the managers interviewed for this story. “Our primary goal is to keep our people, tenants and buildings safe,” says Lapin. “When it’s time to start opening things up again, and it comes with specific safety recommendations, we’ll follow and enforce those guidelines.”

It will also take time to weigh the lessons learned. “It’s still too early,” says Simpson. “But we know we’ll have to revisit our leases to make sure we have protections in place for ourselves and our tenants. We have a very loyal tenant base, and we want to keep them.”

“Next to safety, my priority will be to follow through with the payment plans we’ve put in place with the residents,” says Skead. “We’ve allowed deferrals, but over time the full payments need to be made. We also need to help our retail tenants to open and flourish again—those that can.”

Key to weathering both the crisis and its aftermath is communication. “I want to make sure the tenants have regular communication from the management team spelling out what we’re doing and how we ramp up opening up the buildings,” says Aeschliman.

“After 9/11,” she recalls, “I heard of many tenants who looked back and said they’d never want to be a tenant with this or that landlord again. When COVID-19 is no longer a crisis, we want them to know we did everything we possibly could.”