No one escaped the challenges of COVID-19. We sat down recently with Angela Aeschliman, CPM®, CCIM, to get a sense of how her firm, the Missner Group, weathered those challenges. Aeschliman is senior VP of Property and Asset Management, and she reports two major approaches that eased much pandemic-driven pain: a close working relationship with her tenants, and the firm’s growing focus on technology. We also asked her to compare the past year in the trenches to the observations made in Emerging Trends in Real Estate 2021, the annual state of the industry study from PwC and the Urban Land Institute. (In Part 1, we did much the same from the multifamily perspective with Barry Blanton, CPM®, IREM’s 2021 president-elect, and founder of Blanton Turner AMO® in Seattle.)
JS: Angela, let's start with how the pandemic impacted office leasing and lease terms, both in length and size.
AA: Our leasing activity has been greatly reduced. We believe that if we had a spec suite (a finished unit available to show) in our office building we could turn that pretty quickly, but creating it takes time and money. We did have a couple of leases we’ve negotiated through the pandemic. But in one case, the tenant’s client merged with another firm, and the tenant wasn’t willing to take the risk of taking more space. We also had a smaller lease where the tenant ended up doing a sublease . . . at a significantly lower rate. These aren’t situations that would have occurred without the pandemic.
I’ve also heard anecdotally of leases expiring and tenants renewing for shorter terms, all because of market uncertainty. We’ve also been hearing about tenants looking for additional satellite space in the hub-and-spoke model. But, again, we haven’t been able to monetize that because we don’t have the spec suite, yet.
JS: Have there been many rent deferral requests? How did you handle them?
AA: At the start of the pandemic, I personally called each of our tenants to find out what was happening with them, and how they were doing. We did have a few who wanted rent deferrals. We made the deferral arrangements with effective payback periods through the last quarter of 2020, and many of those--90%, in fact--did achieve the payback. Others had ongoing issues, such as one that provides lighting for the buildout of office spaces. That work, of course, was non-existent. Some are still waiting for their second go at PPP. There are some lingering tenants still dealing with paybacks, but these are more on the flex industrial side.
JS: Do you agree with the following quote from Emerging Trends? “Pre-pandemic, I don’t think anybody was questioning the future of office. And now I think it’s a legitimate question to be discussing.”
AA: If you read 50 articles, 25 will say the office will come back, 25 will say it won’t, or that it’ll be significantly different. All sectors, including office, are evolving, and it’s an evolution that started before COVID-19 hit. For instance, office parks have already started to incorporate more walkable spaces and amenities. There’s also been some discussion around adding a residential component to those parks. So, the office will evolve, but I don’t think there will be a huge change in how much office space is being used, as much as where. The suburbs might gain from the creation of satellite offices, which will help occupancies there. But larger tenants in the suburbs might also be rethinking their space. Will they renew at the same 30,000 square feet, or go down to 20 and add a satellite office?
JS: Here’s another quote from ET: “During the most recent real estate cycle, the quality of office amenities became a prime tool in the recruitment of talent.” How has the amenities question changed post-pandemic for your tenants?
AA: Tenants still want these amenities, but they’ll evolve as well for safety protocols and enhancements, such as higher-grade filters in the HVAC system, and receiving regular communications about how the buildings are operating from the property management team. How we ensure your office environment is safer and healthier will evolve as an amenity. Indoor air quality, and the wellness of the building will have more importance than ever before to an office user.
JS: ET says that, “Hundreds of proptech firms are focusing on creating systems to gather, organize and use data to reduce costs, identify risks and more proactively operate buildings.” How have your tech capabilities changed and upgraded in the past year?
AA: I completely relate to that. We started rolling out tech products back in 2018 with a work-order platform, insurance tracking for tenants, and a broadcast system, which, during COVID helped a lot because we could broadcast our messaging and any guidance from the CDC to those tenants who were working from home. We could also share new operational protocols to the mass of all tenants across our portfolio.
The next platform we rolled out in late 2018 was an investment-management platform that also helped through COVID because investors could log into their dashboard and see their investor statement, their distributions and K1s, rather than all this being mailed. Then, in 2019, we updated our accounting platform to Yardi, and with that, tenants can pay online. We had a very low adoption rate at first, then COVID hit and we gained about 50% of our tenants who started paying online. We rolled out a vendor-management and invoicing program with Yardi as well, which was critical because, just as with our investor information, the process became instant and accurate. Out of 180 vendors, 170 have adopted it, greatly reducing our overhead and processing time.
JS: And going forward?
AA: There are additional platforms we’re looking at, such as floorwire, which allows us to share architectural and as-built plans across our collaboration groups including property managers, brokers, and construction teams. We’re also currently looking at a platform to help us with the deal process and analysis of acquisition proformas, as well as one to help facilitate the acquisition process by collaborating with brokers and other stakeholders on such issues as environmental concerns, purchase contracts, due diligence, and all that goes with it.
JS: What’s your outlook? Are you an optimist by nature?
AA: I’m an optimist by nature. However, this pandemic is something no one has ever seen before. I’m hopeful we can start to go out and see people soon, and once again have IREM networking events. Also, the winter here is harsh, so I’m also looking forward to spring in the Midwest.
View Part 1.