The Lease You Can Do

By Lydia Bennett, CCIM, Soozi Jones Walker, CCIM, SIOR | Fall 2020

By definition, a market disruption is a situation where a market stops functioning regularly, which usually results in a steep, significant decline. The global COVID-19 pandemic that will define 2020 is a disruption like none other. For commercial real estate professionals, one significant concern is the fundamental relationship between tenants and landlords. As economic instability reverberates across all sectors and in every geographic area, leases will be under strain. Every morning, you can see headlines that reflect a changing industry. E-commerce has been a bright spot in the national response to COVID-19, with major repercussions for real estate. Landlords across sectors are faced with difficult questions resulting from tenants under stress. Is forbearance a way to keep tenants in properties? Are rent deferrals a short-term solution to disruptions in retail, multifamily, hospitality, and other sectors? Pinterest offers one huge example of how quickly things can change in the office market. Back in March, literally hours before the coronavirus led to massive shutdowns across the U.S., the online giant signed a deal for 490,000 sf of office space in San Francisco, adding up to $440 million in total payments over the life of the lease. Flash forward to August, Pinterest decided to pay the landlord $89.5 million to cancel the contract. In this case, the tenant calculated the discounted value of the office space and decided to negotiate with the landlord/owner to reach an agreeable settlement – one that totaled 20 percent of the $440 million in payments.