CREJ

May 6-19, 2020 - Page 29 www.crej.com Discover the personal touch, the seamless service, and the expertise of our real estate professionals. Our relationship with Plante Moran goes beyond audit and consulting services. They’re like a business partner, providing valuable advice because they look at issues from a business person’s perspective. They have local presence and knowledge, but they also have strong national experience and are at the table for national policy decisions. We get the best of both worlds.” - President & CEO of a longtime client RJ McArthur | rj.mcarthur@plantemoran.com | 303-740-9400 plantemoran.com Make the mark. “ Law & Accounting W ith remarkable swift- ness, the coronavirus pandemic has thrown Colo- rado’s commercial real estate industry into upheaval. Sec- tors that recently had been vibrant (for example, hospital- ity) and sectors that had not (for example, retail) both came to a screeching halt, shuttering virtually overnight in the wake of local and statewide shelter- in-place orders. And while the long-term consequences of the pandemic likely will not be felt for months, or even years, the immediate outlook – even with economic relief like the Coro- navirus Aid, Relief, and Eco- nomic Security Act – appears grim. With that said, and while there are far more questions than answers at this juncture, history suggests that Colora- do’s real estate industry will make it through the pandemic crisis and resulting recession battered, but unbroken. As proof, look just over a decade back in time to the Great Recession. The implo- sion of the U.S. housing market and the subsequent, years-long economic ripple effect sapped Colorado’s commercial real estate industry of its vitality for an extended time. But the industry, even though it was undeniably changed, ultimate- ly rebounded. While many cir- cumstances were differ- ent – perhaps most notably, the relatively slow decline in the econ- omy during the Great R e c e s s i o n (particularly with respect to job losses) c o m p a r e d to the extraordinary speed with which this latest reces- sion arrived – there are some lessons we can take from the Great Recession and apply to our current situation. n Knowing where you stand is vital. Just as in the Great Recession, often long- shelved legal documents – for example, leases and loan agreements – will prove critical in determining your strategy with respect to both immedi- ate and longer-term rights and obligations. If coronavirus dis- ruption suggests (or dictates) a change in your business opera- tions, it is vital that you review all applicable legal documents (even if you think you know what they say) so that you have an accurate sense of what options exist and what your best course of action might be. It is equally critical that you consider and discuss with qualified legal counsel wheth- er longstanding doctrines under state law might provide additional options, given the unprecedented effects of the pandemic. Knowing where you stand is the first step to knowing where you can go. n Avoid knee-jerk reac- tions . If there’s one thing not to do, it is to make hasty, reactive decisions. During the Great Recession, I witnessed a number of lenders react too swiftly, withholding construc- tion loan disbursements on projects facing delays or turn- ing to immediate collateral recovery before fully exploring all viable workout options. The result often was exhaustive liti- gation and glutted, languish- ing real-estate-owned portfo- lios. I also witnessed a number of commercial landlords make hasty and improvident deci- sions, often cutting bad lease termination deals rather than considering temporary rent abatements, only to see spikes in their vacancy rates that took a significant time to normalize. While acting with exigency is sometimes warranted, in the face of a crisis, it more often compounds the immediate problem and leads to addition- al issues down the road. n Force majeure clauses and business interruption insur- ance coverage will increase in importance. Although they differ agreement to agreement, force majeure clauses, gener- ally speaking, excuse a par- ty’s failure to perform when unforeseen circumstances arise that are beyond that party’s control. In the near term, sel- dom relied on (and rarely liti- gated) force majeure clauses will come to the forefront in disputes between parties like landlords and tenants, and contractors and developers. Similarly, business interruption insurance coverage, frequently called upon in the wake of catastrophic casualty events, will take on new importance. And while many business interruption policies exclude pandemic coverage, challeng- es to the denial of insurance claims remain likely, as par- ties will look to test the limits of pandemic exclusions in the wake of issues such as state and locally enforced manda- tory shutdowns. n Early communication is beneficial. If trouble is on the horizon, early communication often proves helpful. If nothing else, opening channels of com- munication between parties in a business relationship can reduce aggravation, stress and needless friction. During the Great Recession, I witnessed early lines of communication that often led to the devel- opment of creative business solutions, lessening or avoid- ing the need for disputes that must later be decided in the courts or through arbitration. I also observed that, in those cases where parties had early communication, those disputes that did end up in litigation often were resolved earlier and with less expense. At a time of remarkable economic uncer- tainty – when daily market drops can read in the thou- sands – early communication is key. As a final thought, remem- ber that no two recessions are exactly alike. While there are many prognosticators predict- ing the worst, we do not yet know whether we are in for a short-but-painful dip or a more-lengthy period of chal- lenge. Similarly, we do not yet know exactly how consumer habits will change, and how various industries within the commercial real estate indus- try – such as hospitality and retail – will adapt. We do know, however, that diligence, focus and planned decision-making will be more important than ever. s Lessons from the Great Recession: Battered but unbroken Patrick Compton Attorney, real estate and construction litigation, Ballard Spahr