Over-Communicating, Renegotiating, Looking Ahead 

Commercial real estate lawyers navigate the pandemic era. 

Ed. note: This is the second in a series on the changing practice of law in varied areas. Read the first installment here

It’s a development tinged with irony: Just as attorneys and clients are cut off from their literal conference tables by COVID-era social distancing, pulling up to the figurative table is more important than ever before. 

According to John A. Goldstein, who counsels and advises clients on commercial real estate and finance transactions out of the Chicago office of Greensfelder Hemker & Gale, P.C., lawyers are placing a stronger emphasis on communication.

When loan payments become difficult, Goldstein explained: “We say to clients, ‘Don’t just default.’ We say, ‘You need to talk to the lender. That’s when you’ll save yourself, as long as you communicate.’”

The necessity of discussion pertains to the attorney-client relationship as well. 

“Your client is no longer just Joe who wants to see his building,” Goldstein said. “Now, lawyers need to discuss how a client’s business is going. Is he able to deal with his employees? Is the client having trouble? Do we need to have a dialogue?”

Attorneys must approach their practice with a new sensitivity as the pandemic roils so many aspects of the commercial real estate business.

Work of a Different Nature

One notable difference in the world of CRE nationally has been fewer new commercial loans being made, according to Goldstein.

Statistics from the Federal Reserve bear this out. CRE loans increased 2.6 percent in the third quarter of 2020 compared to the same quarter the previous year. This may seem like good news until one considers that this is the lowest year-to-year increase in at least half a decade, and 2020 didn’t start out that bad: The year-to-year change for the first quarter was 5.6 percent.

In addition, the commercial loan delinquency rate for the third quarter of 2020 was 1.00 percent, seasonally adjusted, for all commercial banks, the highest it’s been since 2015. For CRE attorneys, statistics like this can mean plenty of work, just of a different nature.

“Conversations between borrowers and lenders resulting in modifications and workouts” have ramped up, Goldstein said. “We’re seeing the restructuring of payment terms and the forgiveness of loan covenants on a temporary basis.”

Workouts don’t have to be complicated. 

“A lender might say, ‘You can pay zero for six months and then make it up by paying double,’” Goldstein explained. “Yes, some companies are going under, but the lenders don’t want that either.”

Meanwhile, many parties have moved to take advantage of low interest rates. 

Brian L. Lewis, chair of the real estate, development and finance group for Ryan, Swanson & Cleveland, PLLC, in Seattle, said his firm does a lot of work with national homebuilders. Thanks to the low interest rates, “we’ve been really busy acquiring property.”

Refinancing has also heated up. 

“A small change [in rates] can result in enough of a savings to justify the costs,” Lewis said.

These low rates are expected to persist. The federal funds rate has been sitting at zero to a quarter percentage point. At a press conference following the December 2020 meeting of the Fed, Chairman Jerome Powell said that, “Overall, our interest rate and balance-sheet tools are providing a powerful support for the economy and will continue to do so.”

Alan Nochumson, the founder of Nochumson, P.C., a full-service real estate firm in Philadelphia, said construction loans were hard to come by in the beginning of the pandemic. 

“You could feel that people were holding back. A few clients had to put a gun to their lender’s head,” he said. “Bigger institutions had backed off, but now the loans are happening again.”

“Better Than Eating 100 Percent.” 

In keeping with other areas of CRE practice, leasing has transformed. According to Fed statistics, the delinquency rate for leases in the second quarter of 2020 was 1.54 percent of the portfolios of all commercial banks, seasonally adjusted, the highest it’s been since 2010. The third-quarter rate was 1.46 percent.

Goldstein said that while he continues to represent tenants in the retail and industrial sectors, he’s not working on as many new leases. “I’m seeing a lot of subleasing. I’m also seeing restructuring, temporary rent forgiveness, and rent abatements.”

The goal may be for a tenant to sublet for the whole payment, but these days it’s more common to get something less. 

“At least the tenant makes some of it back,” Goldstein said. “That’s better than eating 100 percent. 

Lewis reported that it didn’t take long into the pandemic for lease reworking to get underway. 

“I think in a lot of cases, companies large and small, affected or not affected, just automatically sent out notices saying, ‘We can’t perform, we need an adjustment on rent.’ A lot of those are legitimate. They are small businesses shut down by local government orders.”

Tenants-in-distress can be found across a broad spectrum of industries. Restaurants, gyms, salons, and retail are the obvious candidates. Others, perhaps, are not so obvious.

“We have a parking garage client — although this is more of an insurance coverage matter — their revenue has plummeted because no one is coming downtown to park.”

The issue with this client involved interruption coverage for the pandemic. 

“When the government has forced you to close and you have contagious disease coverage, you have to show the presence of the disease,” Lewis said.

A tenant might need to make a similar demonstration to invoke a force majeure provision in a lease, a type of clause stating that the fulfillment of terms may be excused if an act of nature like pestilence precludes it. Lewis noted that force majeure clauses generally do not provide relief from payment obligations, however.

“Typically, force majeure excuses some kind of performance obligation,” he said. “For example, if a lease says you have to operate for so many hours a day and you can’t operate because the government has shut you down.”

Nochumson in Philadelphia said he hasn’t seen a precipitous drop-off in new leasing activity. 

“I just drafted a lease for a brewery in West Philadelphia,” he said. “These things take time anyway.” 

His clients are moving ahead, arranging the components of their deals before full-fledged business activity resumes.

An Overriding Pall

No doubt, almost everyone is looking forward to the resolution of the pandemic. 

For Goldstein, it’s not so much because his business has suffered — deals are still happening — but more the “overriding pall over everything because of fear and health concerns.”

When the vaccine is widely distributed and in-person contact is less fraught, “I feel positive that there will be the rebound of all rebounds,” he said.


Elizabeth M. Bennett was a business reporter who moved into legal journalism when she covered the Delaware courts, a beat that inspired her to go to law school. After a few years as a practicing attorney in the Philadelphia region, she decamped to the Pacific Northwest and returned to freelance reporting and editing.