CRE Challenges Demand New Lease And Development Plans, Published in Law360

In an article published on April 29 in Law360, Segal McCambridge Shareholder and Real Estate/Business Litigation & Transactions Practice Chair Geoffrey Leskie discusses current trends in the commercial real estate space in the wake of the COVID pandemic, including the declining occupancy of commercial, industrial, and office space for developers and landlords. This trend is exemplified by a $1.6 billion plan to redevelop Detroit’s Renaissance Center (Ren Cen), formerly General Motors’ headquarters, into a mixed-use complex similar to Chicago’s Navy Pier.

“This is coupled with what seems to be a growing trend of less-than-ideal commercial leases negotiated in the uncertain aftermath of COVID-era evictions that saw landlords struggle with low occupancy rates, rent concessions to keep tenants operating, and increased litigation expenses and timelines,” writes Leskie. “To address these issues moving forward, a combination of traditional legal and outside-the-box approaches is likely to put commercial landlords in the best position to maintain occupancy and to protect the value and profitability of their commercial real estate.”

Leskie recommends redeveloping or modifying an existing property that has been traditionally used for office space, industry/manufacturing, or for the increasingly rare large retailer. Landlords might also consider new uses or nontraditional tenants that still fall within the current zoning framework. However, if redevelopment or an imaginative shift in occupancy are not viable, landlords can shift their approach in outlining rental rates to link or tie increases in rental rates to other economic metrics like the local Consumer Price Index (CPI) or modify aspects of a commercial lease besides the rental rates since some tenants or prospective tenants may be more sensitive to rental rates.

“However,  stakeholders and their legal counsel who approach the situation creatively, whether that means entirely redeveloping a property for a new use or taking a new approach to traditional contract mechanisms and provisions, are in the best position to promote stability and generate long-term success.”

Read the story in full; click here (subscriber-based).