Lenders are Slow Out of the Gate as Central Florida Retail Market Begins Recovery, Says Webinar Panel
Commercial real estate lenders have remained timid as retail businesses in the Central Florida market navigate how to operate successfully during the COVID-19 crisis. As of this writing, Orange County had the 23rd most cases by county in the United States with 36,400 positive coronavirus cases and 378 deaths, according to Johns Hopkins University (JHU).
The metro Orlando county is currently in Phase II of the Sunshine State’s reopening plan, which includes allowing restaurants to bump up capacity from 50 percent in Phase I to now 75 percent; retailers can operate at full capacity; fitness centers can operate at 50 percent capacity; and bars can operate at 50 percent of standing room capacity. Phase II for most of the state’s counties went into effect June 5.
While residents and businesses have begun the process of returning to pre-pandemic shopping norms, Chuck Whittall, president of Unicorp National Developments, said banks are still cautious.
“There is a lot of fear on the credit side of the world,” said Whittall. “We experienced it after 9/11, in 2009 and we are experiencing it again now.”
Orlando-based Unicorp broke ground last month on O-Town West, a $1 billion mixed-use development along Interstate 4 and three miles north of Walt Disney World Resort. The 82-acre project will have 250,000 square feet of retail space, which is 92 percent preleased.
Whittall’s comments came during InterFace Conference Group’s Central Florida Retail Outlook webinar, hosted by Shopping Center Business and Southeast Real Estate Business on Monday, Aug. 31. Other panelists included Ralph Conti, principal at RaCo Real Estate; Cindy Schooler, managing director of SRS Real Estate Partners; Ivy Greaner, chief operating officer of InvenTrust Properties; Kurt Keaton, president of real estate services at Franklin Street; and moderator Beth Azor, founder and owner of Azor Advisory Services.
Lenders are hesitant due to the uncertainty of the retail market as many retailers struggle to find their footing amid slumping sales. Lenders are worried about their borrowers being able to make their mortgage payments, especially if the shopping centers being financed have tenants that are deferring their monthly rent.
Keaton echoed Whittall’s statement about apprehension in the capital markets, adding that the economy is waiting on lenders to open back up for business.
“A lot of the single-tenant deals have continued to move forward out there on the investment sale side,” said Keaton. “The real holdback right now on the grocery-anchored shopping centers is on the lender side. As [lender balance sheets] get figured out and loosen up, that’s going to be an important contingency as we move forward and businesses start to open up, not just in Central Florida, but across the Southeast.”
As Schooler pointed out, several stores and restaurants in Central Florida are operating at 50 percent capacity, making it difficult for businesses, especially those that rely on tourism.
The novel coronavirus has crippled the hospitality and international travel sectors the past few months, hindering Orlando more than most markets as it’s home to Walt Disney World Resort, Universal Studios and SeaWorld.
“When you go from 100 percent to 50 percent [capacity], there’s all kinds of business models that have to be adjusted,” explained Schooler. “Pretty much everybody is open if they choose. It’s a matter of whether they can get to a financial position that makes sense for them to open.”
Safety is the No. 1 priority for Conti and his portfolio of shopping centers and mixed-use projects, including Celebration Pointe in Gainesville. The developer said that if consumers don’t feel safe going to a shopping a center, they won’t shop at brick-and-mortar locations.
“There is a segment of the population that is nervous and maybe don’t feel safe because of COVID-19,” said Conti. “It’s incumbent of the landlords to communicate that this is a safe and clean environment.”
‘COVID discount’ is not coming
Schooler, a tenant representative for national, local and franchise retailers, said that landlords and tenants are not agreeing on the proverbial “COVID discount.” Tenants are attempting to negotiate lower rental rates based off the distress in the market, while landlords are looking to the future and returning to pre-pandemic rental rates.
“I keep saying, ‘The last time I checked, that COVID discount doesn’t exist,’” said Schooler. “This has been a short window of change, so developers don’t get to rewrite their underwriting based on COVID-19.”
Greaner said that landlords are more willing to help tenants that can’t pay rent than in past recessions because it’s not always the tenant’s choice to reopen or remain shut down. She said that Chicago-based InvenTrust is helping tenants within its portfolio in the form of abatements, deferrals or rent percentages.
“This downturn is very different from our last downturn because some tenants can’t reopen or operate at full capacity,” said Greaner. “Some tenants are operating at full capacity and blowing the doors off.”
Keaton tipped his hat to landlords, tenants, lenders and developers for recognizing the challenges and sacrifices each party is going through as they help each other.
“I have noticed a willingness to work together,” says Keaton. “People are now saying, ‘Whatever we need to do, we need to move forward and keep businesses open.’ That has been an overwhelming response I have seen.”
Click here to register and view the complimentary webinar in its entirety.
— Alex Tostado