In 2021, COVID-19 continued to impact commercial real estate transactions in New York City and throughout the United States...
Last year, COVID-19 continued to impact commercial real estate transactions in New York City and throughout the United States. While some sectors quickly rebounded, others continued to struggle. Thankfully, the projected influx of foreclosures and bankruptcies largely never materialized, and the forecast for 2022 is looking up.
Below are some of the commercial real estate developments that we discussed over the past year:
Landlord-tenant disputes: Disputes between landlords and tenants over unpaid rent continued in 2021. Overall, commercial tenants that were prevented from using their leased space due to government-imposed restrictions have had limited success relying on force majeure clauses and impossibility of performance arguments to completely avoid rent obligations. Given improving economic conditions and the uncertainty of how courts will rule, many disputes have been successfully resolved out of court.
Evictions/foreclosures: On May 4, 2021, former New York Gov. Andrew Cuomo signed legislation extending the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020 and the COVID-19 Emergency Protect Our Small Businesses Act. The legislation extended the moratorium on covid-related residential and commercial evictions and foreclosure proceedings for those filing a hardship declaration until August 31, 2021. Upon taking office, Gov.Kathy Hochul signed legislation further extending both lawsthrough January 15, 2022.
Rise in lease assignments: While commercial landlords are often reluctant to consent to a lease assignment, COVID-19 has changed everything. With so many businesses struggling to stay afloat, landlords were often more willing to consider the assignment of a lease to add to the prospect that rent payments continue and buildings remain occupied. In this article, we discussedhow the lease assignment works and how both tenants and landlords can protect their legal rights.
Buyer’s market: Due to impact of the pandemic, it is still largely a buyer’s market in New York City, with prices not yet returning to pre-COVID levels in most areas. While it can be tempting to act quickly to close a deal before prices rise, buyers should be sure to engage in a rigorous due diligence process. As we discussed here, failing to conduct due diligence prior to acquiring a New York City residential or commercial property is one of the biggest mistakes that real estate investors make
Reduced tax assessments: One of the upsides of decreased valuations of NYC commercial properties is reduced tax assessments. Building owners and tenants should expect tax rates to remain relatively flat for the next few years.
What’s Ahead for 2022?
Looking ahead to 2022, the commercial real estate market appears poised to rebound, even in the face of the new Omicron variant. Improved demand for both office and retail space is encouraging, with New York City commercial leasing activity increasing 18% in Q2 2021.
As the commercial real estate market recovers from the pandemic, some changes may be here to stay. As we discussed here, even when the COVID-19 pandemic is over, many employees will not be returning to the office. At least, not full-time. The transition to remote and hybrid work models is forcing many businesses to rethink their use of office space, which will impact both inventory and prices. Businesses that are looking for all types of commercial space are increasingly looking for buildings with modern HVAC systems and touchless technology. It’s important for building owners to take these new trends into account to stay competitive.
If you have questions, please contact us
Given how quickly the market and legal landscape continue to change, we encourage landlords, tenants, and lenders to be proactive in following legal updates. For in-depth guidance, we advise you to contact a member of Scarinci Hollenbeck’s NYC commercial real estate practice group at 201-896-4100.
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