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COVID-19s Impact on Leasing: Not All Bad

By: David Liebman, SIOR, JD, James Hochman

Some 13+ months into the pandemic, we have lived through illness, uncertainty, forced adjustments to our companies, and how we do business. With a weakening economy in some areas, there are some positives that we can—and should—take from this experience (but we DON’T want to do this again!). Yes, the force majeure language in our sale contracts and leases has been sharpened and negotiated; and yes, there are some serious lawsuits pending on the interpretation of business interruption insurance. But, the news is not all bad. Here is what we have lived and observed.

Many of us who are less than computer savvy and have relied on admin support for most of our professional careers (your co-authors among them), have learned just how well we can work remotely; how much work we can do with the aid of a laptop and a small printer/scanner. IT specialists surely have had a workout. In contrast, consider the progress most of us have made in how to work remotely, to succeed and, in some cases, thrive. We have also learned much about ourselves, our needs, and what we can live without. Your attorney co-author’s own law firm adjusted our office, currently occupying transition space in order to determine how much room we will need in the long term. Given the rent savings on the transitional space, we lawyers will continue to work from home more than we ever imagined. When we ultimately decide on our next long term lease, the solution will likely be a smaller footprint, lower rent overall, better accommodation for remote access, and maybe a better quality of life with less rigorous commuting.

Here is another example of how the pandemic showed us that working remotely, if needed, can solve leasing deadlocks. A tenant client was facing a lease expiration, budgeting time for build-out and occupancy of its new space. The new landlord had concerns about meeting its tenant improvement (TI) completion and lease commencement date deadlines. Naturally, we wanted the new landlord to reimburse the tenant for any holdover rent expenses, if its target dates weren’t met. I suggested a short term lease extension for the existing lease. The tenant client wanted to be done with his existing space and preferred not to go “hat in hand” asking for favors from his present landlord. The new landlord did not want to risk any holdover rent expense and worried about pandemic-related slowdown on permit approvals. The new landlord’s attorney solved this standoff in the following way. The tenant would vacate its old space at the end of its lease term and move to the new building. If the new space was not ready, the new landlord would store the tenant’s furniture and files at no expense in vacant space it has in the property and then move it—at no cost to the tenant—to the completed space. Rent would be abated two days for each day of delay after the first 31 days. The tenant would simply work remotely, as its employees had done for the past year, to bridge the gap. It was not a huge ask of the tenant, as the tenant was already comfortable with working remotely. Clearly, we have learned new skills and confidence, which we then used in structuring the terms of the new lease.

Remote technology was the saving grace in a large industrial lease completed by your broker co-author. We completed our client’s two rounds of property inspections, then negotiated a final letter of intent and the final lease for a 252,000 square foot warehouse lease by early May 2020. Now came the hard part: coordinating and completing, in a timely manner, the extensive TIs. The pandemic had relegated the municipal staffers to their home offices, so permit approval delays were anticipated. What’s more, a long list of decision-makers were involved in the TI review process. The ultimate solution: weekly virtual meetings of 12-15 individuals representing the landlord, builder, architect, and our client tenant using Microsoft Teams, in which drawings were manipulated on the fly, key stakeholders efficiently resolved matters and the municipality made themselves readily available. Our client acquired beneficial occupancy on time and the project came in on budget.

We have also learned much about ourselves, our needs, and what we can live without.

The pandemic and the requirement to adjust and work remotely has had another impact. A young couple whom I represented in the sale of their Chicago condominium unit was relocating from Chicago to Dallas, without changing jobs. Each worked for a large bank and was highly regarded. Working remotely from Chicago was no different than working remotely from Dallas, at least to two larger employers. One wonders if the office space these banks lease might be reconfigured, or redesigned so employees can simply show up, pick a desk, and just “plug and play?” One would think that this foreshadows smaller footprints and different layouts in future office space. A good result for all concerned: two employers kept model employees despite their desire to relocate to a warmer climate.

Your authors ask the following from our readers. Let us hear from you with your own stories, the “good news,” what we have gained and learned from these past 13+ months. There is a bright side to where we are now. Not to minimize the pain and losses; but let’s think about where we are today. Clearly, there is an upside. As has often been shown, necessity forced us to adjust and learn, because we had to, in order to survive.


Media Contact
Alexis Fermanis SIOR Director of Communications
David Liebman, SIOR, JD
David Liebman, SIOR, JD
PowerPlay Real Estate Partners

David Liebman, SIOR, JD, is the Founder and Managing Broker of PowerPlay Real Estate Partners, a Chicago-based specialty commercial real estate services firm.  A former corporate and real estate attorney, David leverages that experience with 34-plus years of CRE brokerage expertise to exclusively advise and represent industrial and office buyers, tenants and investors in acquisitions, leasing, lease renewals/restructuring, land purchases and build-to-suit transactions.  During his career, David has completed more than 500 transactions, valued at over $800 million.

James Hochman
James Hochman
Schain Banks Kenny & Schwartz

Jim Hochman is a partner at Schain Banks Kenny & Schwartz law firm and freelance writer. Contact him at jhochman@schainbanks.com.