We will still deliver a great service during these challenging times – believe me I have never seen a team work so hard to keep buildings safe, to reassure occupiers, to get ready for the 25th March and to advise clients on what to do.
We have been flat out, but do hope that you, your family and your colleagues all stay safe and well and are coping with the challenge that is now ever present and real.
Steering nearly 1,000 properties, over 6,000 occupiers, 50 or so clients and almost 350 of our own team through the COVID-19 storm is challenging, even with a bit of grey hair and an outstanding Senior Executive Team, but we are getting there. Years of planning and resilience training, combined with the strength and commitment of the entire team takes you a long way.
My glass is famously neither half full or empty – we are where we are and we need to come together and ride through some very difficult water for a short time. Antibody tests and a workforce that will slowly start to return over the summer are offering the hope that this will be a relatively short-term challenge, and I sense the Government will make some big interventions to support businesses today.
I know that David and the team are providing regular briefing notes and have been doing so for several weeks in the run up to all of this. That will continue – another one will be coming out on Monday and we will repeat every Monday from then on.
This note is designed to be strategic and high level. I have tried to keep it brief, but this is big, so do please do hang in there.
From the coalface end of the real estate sector there are two big things coming down the track. Here are my grey hair thoughts on both:
A — What to do with buildings
The suppliers we use at the buildings we manage are on the whole going way beyond what we expect of them.
They and the MAPP site team are literally keeping the lights on, ensuring that every surface is cleaned and cleaned again, managing the risk and compliance and cheerfully welcoming those occupiers who still have teams working in their offices (many more than you would imagine). This is not ‘a well done us’. It is just the reality.
We are adapting to the changing picture. Service charge expenditure is likely to come in below budget for some cost headings as we consume less, adjust some service scopes and become more frugal over the next quarter or so.
There are two things however that we need to try and avoid at all costs:
1 — Closing buildings
There may be situations where that is appropriate, (for example a Leisure Scheme where all the occupiers have closed) although fully turning off and closing down a building is never really possible. We will still need a skeleton team to maintain and to manage basic levels of risk and compliance, and will need to increase the level of security. There will inevitably be a rise in crime and a threat of public disorder as we go through this crisis.
In almost every other situation however we need to avoid closing buildings. We will adapt and in many cases adjust the services that are being provided. Should we get into proper lockdown scenarios (which will only be for a short period) we will suspend everything we possibly can but may have to build up the security presence.
There are many reasons to not close a building. Top of the list is that occupiers on the whole still need access at the very least to gain access to their comms room for routine maintenance or in an emergency, many have skeleton teams in place and they have a legal right to occupy.
2 — Terminating contracts with Suppliers and the on site team
The real estate industry has thankfully moved on and operates in a much kinder, holistic and more sustainable way than pre-2008, but today I heard of the first opportunistic request for us to make a Building Manager and an on site team redundant and for us to fire the cleaners in what is a perfectly run building. Really?
It cannot be right, however challenging the circumstances to discard someone who is the face of a building, known and trusted by all the occupiers, has been working to keep buildings safe and open and understands how the building runs better than anyone. Redundancy payments, recruitment fees on the other side, the additional security costs that would be required and the chaos generated provide the sound commercial reasons for standing by them. It will end up being more expensive not to. Expect us to push back hard.
And if we fire the cleaners who is going to clean the door handles, the buttons in the lift car and the toilets? If we are not doing that and other basic tasks we are failing to manage risk and exposing ourselves and our clients to untold liability. We are not going to do that. We may well get to a place where we suspend cleaning but we are not there yet.
I know most of you understand that, but reminding some of the less experienced members of your team that reducing the service charge by 25p a sq foot for 12 weeks is not going to make a jot of a difference would be much appreciated.
B — Rents and Service Charge Payments
We are tripling the resource working on credit control ahead of the March Quarter Day.
We are expecting:
- Rents and service charges from PLC’s and larger corporates to largely come in as normal. These account for a relatively small number of the 6,000 or so occupiers across the portfolios we manage, but a proportionally high share of the income.
- A very mixed picture from privately owned SMEs occupying office and industrial space. Some can pay, but will be cautious and mindful of Government advice not to make large swathes of their teams redundant and will use rent monies to pay their people. There will be others who genuinely cannot pay.
- Huge challenges in the Retail, Restaurant, Leisure and Flexible Office sector with the exception of the large supermarkets.
I know that many of you are already engaging with us and I would encourage you to continue to do that.
Most clients are taking a wait and see approach but here are some pragmatic ideas and possible solutions.
Retail, Restaurants and Leisure
Argent have led the way with a rent holiday at Kings Cross. It’s big and courageous but commensurate with their rounded sustainable approach. 50/50 with each party sharing the pain might be something that both parties can sustain for a quarter. We expect many operations to go into administration without significant government intervention in the next few days.
Monthly rents are obvious but will do little to help (the cash is still leaving the business). At the more generous end, but possibly needed and likely to become the norm, there will be rent holidays granted.
Many of our clients have little latitude with their own lenders in terms of concessions. For those that do, we are recommending that you offer to draw down on rent deposits or at best reach agreement for a 6 month pause, with the rent being paid off over the remaining duration of the term.
Maybe this leads to an opportunity and we are ready to take up the reins.
We will not be advising any clients to commence legal proceedings against occupiers who in normal times pay on time.
We will need instructions from you and regular communication will be key.
So that is bad, but we are almost certainly going to need some emergency and significant funding into most service charge accounts. We will be equally frugal with cash as we are with ordering supplies, but without funding from clients we will very quickly grind to a halt, receive winding up petitions and have utilities cut off (the utility companies have been ominously quiet on commercial supplies). Electricity being cut off to a multi let building, with occupiers working remotely, but reliant on power coming into a comms room will happen if the service charge accounts are not funded. The consequences are pretty obvious and stark.
Hang in there.