COVID-19 is wreaking havoc on almost every industry, and real estate is no exception. Completing a commercial real estate transaction involves several moving parts. Delays in any of them can put everything behind schedule and put the entire deal in jeopardy.
Many of the people you will be working with during your transaction will have delays due to extra precautions they're taking, less staff, and inefficiencies caused by social distancing. Time can kill any deal, but being prepared will help you keep it alive.
Add a COVID-19 clause
The most effective way to protect your deal is to include a clause in the purchase agreement that addresses potential delays due to COVID-19. The clause could call for an extension in the due diligence period if things such as appraisals, inspections, or environmental studies get delayed due to coronavirus.
It's also a good idea to include an extension on the closing date if financing is taking longer than anticipated. Many lenders have temporarily modified their lending requirements to be more conservative during this pandemic, so it's likely that underwriters will be requesting additional information that they may not have before.
Several companies are currently working with reduced staff and are taking extra precautions to protect the safety of their workers. This is very likely to increase the time frame to get certain due diligence items done. Moving quickly on your end will help keep the deal on schedule. Having information ready to give to all of the parties involved will let them proceed with their part as quickly as they can.
The normal time frame you're used to doesn't apply right now. Most people's processes have changed, and everyone is still adjusting to the situation we're all in. You're the only one whose timing you can control, so do your part to keep moving things along.
Be upfront about past due rent
Commercial tenants all over are making reduced rent payments or late payments or are missing payments all together. Even if you're comfortable with the situation, it can be a significant issue to the lender.
Trying to hide the fact that rental income is down, or hoping they won't ask, is most likely going to throw a wrench in your financing. The best thing you can do is be upfront about it and get ahead of it. Either way, you and the lender are going to have to deal with it and figure out the best way to make it work. Waiting until they find it a week before closing might send your deal back to underwriting.
Delays are common with commercial real estate transactions. It's frustrating for everyone when things aren't happening on time, and it can cause the seller to question whether the deal is going to get done. Staying in communication with them throughout the process can ease their mind and make them more likely to work with you on any extensions you might need.
You should let them know right away when there are any delays instead of trying to explain it to them the day your due diligence period is expiring. People appreciate being informed, and that will help you maintain their trust.
The bottom line
To keep your deal alive, you'll probably have to be flexible and able to adapt. Be understanding of everyone else involved taking longer than normal. They're likely experiencing delays themselves on their end. Go into your commercial real estate deal knowing that things might not go as normal, but that there's no reason you can't still get it done.