“In the midst of chaos, there is opportunity.”

— Sun Tzu

No one wishes ill will or hard luck on another in times of crisis, but the reality is that at the end of this viral pandemic, which is impacting the New Jersey/New York metropolitan area especially hard, there will undoubtedly be commercial casualties across the business spectrum, not simply limited to the retail, food and entertainment sectors. The breadth of industries affected will surely increase if the mandatory lock down and quarantine periods extend from weeks to months.

To that end, expect to see a material uptick in business lease terminations, as well as business cessations, over the remainder of 2020, and extending into 2021, which will undoubtedly create unique property acquisition opportunities for properly positioned buyers. And as we have seen in other economically challenging times, such as the 18-month long 2008 Great Recession, there are always willing and able qualified buyers waiting in the wings.

In fact, this trend has already been cited by the Wall Street Journal; in their April 8, 2020 edition, they reported on large property investment portfolios beginning to aggressively scout distressed real estate assets specifically due to COVID-19 impacts, which they consider a 'once in a generation opportunity' to pick up real estate at bargain prices. Early areas of interest fall in the hotel and retail sectors, but we suspect the breadth of opportunities will cross a whole host of realty end-uses. Major players include Blackstone Group, Brookfield Asset Management and Starwood Capital Group, but the buffet is certainly not limited to these whales.

What to do?

For tenants and landlords,

if a lease is going to be terminated, ensure there are no dangling, lease-ending environmental obligations that are overlooked, including, but not necessarily limited to: disposing of any remnant hazardous and non-hazardous materials and wastes, ceasing any environmental permits in place (e.g., air, wastewater, stormwater, etc.) and, for New Jersey sites, compiling mandatory New Jersey Department of Environmental Protection (NJDEP) Industrial Site Recovery Act (ISRA) filings (for certain regulated businesses). Many times, if a tenant is going out of business, from a practical standpoint, these issues are not properly addressed, since the little money left is spent on more pressing items, with the resultant obligations and costs commonly falling onto the lap of the landlord, even if the lease states otherwise. Unfair, but a common reality. If a landlord/tenant situation is heading toward an unhappy conclusion, a review of these environmental obligations sooner, rather than later, is strongly recommended.

For owner/occupied business cessations,

the waste disposal, permit closure and mandatory ISRA filing issues also come into play for certain operations, especially if the property is going to be listed for sale.

For able buyers,

purchasing commercial/industrial or otherwise environmentally impacted realty in trying times, especially all-cash deals (no bank financing), be sure to understand that there may be unfulfilled environmental obligations buried in the wreckage that the seller hasn't fulfilled — ensure your due diligence identifies and quantifies same; otherwise that as-is/where-is bargain, may not be such a bargain in the end.

If you have any lease termination, business cessation or property sale/acquisition questions relating to the above-mentioned environmental matters, and need help determining who is exactly responsible for what…

drop us a line.

We can discuss some general cheat-sheets on each of the scenarios above (i.e., to-do and don't lists for whatever hat you happen to be wearing: tenant, landlord, buyer or seller).

Chaos Begets Opportunity: COVID-19.