Cadden & Fuller LLP
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How California ranks in the stormy commercial real estate market

The United States and other countries are slowly turning the dial back to normalcy. Restaurants and bars are expanding capacity. Children are returning to schools. Companies are re-opening for workers. Some, anyway.

Still, the pandemic has forever changed how and where we work and shop, and the stakes could not be higher for commercial real estate.

The future of retail malls is murky as more people shift their spending habits online. Offices are unlikely to be the operational hub if remote employees prove to be just as productive and effective at home. Companies adapting to a hybrid workforce may be eager to downsize their overhead, and the most substantial chunk comes from real estate.

Debt is soaring

Analysts are bracing for a tidal wave of commercial lease defaults and vacancies as markets convulse while governments race to vaccinate and protect more people from spreading coronavirus variants. Borrowers and lenders are only beginning to confront the fallout of yearlong business disruptions and social lockdowns.

The Federal Reserve reports U.S. commercial property debt spiked 39% in the third quarter of 2020 to $3.06 trillion from a 10-year low of $2.2 trillion in 2010. Some property owners have the capital or equity to hunker down and repay their debt. Other stressed proprietors may have to cut their losses and toss their buildings into the bargain bin.

Meanwhile, according to the New York Times, the city plans to convert 1 million square feet of prime Manhattan office space into housing to stave off a crash. What about closer to home?

The Golden State is sizzling

Some commercial real estate is sizzling, like southern California’s tight industrial demand. Between February 2020-21 rent increased 9.2% in the Inland Empire and 7.8% in Los Angeles. That is 5.1% higher than the national average. Vacancy rates also are among the lowest in the country.

Whether you are a property owner trying to evict a tenant or a struggling business owner hoping to renegotiate a lease, today’s volatile real estate market requires a keen understanding of trends and remedies. The goal is to avoid litigation, but if you cannot iron out disputes, it is imperative to resolve them as quickly and cost-effectively as possible. An experienced advocate who knows the complex laws and strict deadlines governing commercial real estate can help craft a successful outcome.