 I'm Keena Nisley. I'm a real estate agent with Keller Williams and Honolulu. This is the life of the land is in its real estate. I want to give you a quick residential market update. So we have an image that we can show you. As you see, we have set record highs in single-family home sales for this month. In September, $880,000 is the median price that the homes have sold for in September, with a record only nine days on market. Kondo's average median price is $445,000. The days on market are also down to $21,000. So we're gonna talk about, yes, residential real estate has just taken off. How does that compare to commercial real estate? So I have Nancy Greckin, a real estate attorney with us, and I also have Will Elliott with Cushman and Wakefield of Cheney Brooks here to give us a little bit of a commercial update. So Will, what are you seeing in the commercial market? First and foremost, thanks for having me on the show. Yes, thank you so much. The commercial world, it's a big challenge. You know, as we all know, it doesn't take a rocket scientist to figure out that a lot of businesses are struggling and finding challenges with local shutdowns and just uncertainty in the market, no tourism and whatnot. So we're in a period of restructuring, reformulating what it's gonna be like to be successful during these times, and there's a lot of opportunities to either evolve or, yeah, it's just uncertain times, definitely. So what are you seeing in the commercial market on Oahu? Has there been activity or are you kind of just at a standstill? We're, you know, just based on the sales perspective, it's difficult to value real estate during these times. The number one method of determining value is based on income, and it's usually in a 12 month window. We've only been in this pandemic here locally, basically since March, so it's not even a full 12 months to determine real estate values. So there's a little bit of a standstill. There have been some transactions that have closed and more properties coming on market, but based on the uncertainties, how lenders are gonna be introduced into the conversation, the state of preforeclosures and any type of forbearance conversations between landlords and their lenders, we're still on the way down. We're not really gonna hit a bottom until sometime next year, and depending on the amount of distress in the market, the motivation to sell will be kind of all over the place in various time frames. So stay tuned. So Nancy, you do a lot of commercial leasing. Yeah. So what are you seeing in the commercial leasing right now and in the last six months? And the thing about the retail restaurant tenants, thanks to the lockdowns we've had, many of these tenants, they've literally been out of business and they can't earn any income. And if you're not earning any income, you can't pay your rent. And if you don't pay your rent, your landlord can't pay the mortgage and can't pay the utilities. And so as a real estate lawyer doing commercial leasing, I've seen precious little leases either to review for tenants or to prepare for landlords. I've been getting calls from my retail and restaurant tenants during the lockdowns asking what should I do about paying my rent? Some landlords have been willing to give the tenant a deal, maybe defer the payment of rent, pay it over time. Other landlords, especially like one of my clients is renting from a big nail in reach in Waikiki and they're just like, no, you got to pay your rent. Well, if you're not in business and you're not earning any income, how are you going to pay your rent? And the thing that's been really quite phenomenal to me is to observe nationally the companies that have filed for bankruptcy, Neiman Marcus, CPK, Sizzler, J Crew. These are big national companies with what was previously probably fairly deep pockets. But they're not earning any income or they're earning very little income because of restrictions on their business. And now we just found out that William Sonoma is leaving Alamoana. And I know I once saw that this was one of their best sores in the whole chain for per square foot sales. They were incredible. They're leaving. And Alamoana, I used to joke they had a negative vacancy rate because if a tenant left, there were plenty of people lined up that wanted the space, not anymore. And on the flip side, on the landlord side of all of this. What's a landlord going to do with a tenant who has gone down or who isn't paying their rent? You're going to addict them? So you can have an empty space? How are you going to fill it up? I think that's a real dilemma that the landlords are facing now on the flip side of all of this. And I think lenders will, I mean, I'd be interested to know what lenders are doing. The lenders and the buyers are all looking at the cap rate. Well, what is the cap rate looking like right now if nobody's paying their rent? You know? So it's industrial, I think continues fairly strong because we've long had something of a shortage of industrial space. And office, we had the lowest office vacancy rate of any state in the country before this happened. And I am sure it's it's going up. I don't know how high it is. But in offices, you've got now a lot of people are working from home. They don't need to be in the office. And there's probably plenty of businesses with offices that are shutting down or cutting back, because everybody's working from home or whatever, maybe trying to sublease to somebody else, lots of luck finding somebody, you know, it's I mean, to me, it's really it's the antithesis of the residential market. And if I had a solution to it, I'd run for president. Yeah, I had that on the list to talk about with the impact of people working at home. Have people given up their office space leases? Are they able to just walk away and say we don't need this space anymore? Well, of course, they can't go dark. But it's probably going to be the case that when leases come up for renewal. A lot of tenants are not going to renew their lease or maybe they'll say I'll renew it only if you cut my space in half, or something like that. Or maybe only if you cut my rent in half, I don't know. I don't know what is happening with that. But I rather suspect we're going to be seeing that because of the working at home phenomenon. So, so will let's go to you about she mentioned cap rate. What, what, what are you normally seen as a cap rate that investors are looking for on the commercial properties when they buy it? Yeah, so it depends on your asset type. You know, there's obviously different types of real estate hotels, office, retail, industrial, multifamily, etc. You know, on the hotel side and an apartment side, you're industrial, you're start historically, we've seen lower rates anywhere between like three to 5%, depending on the location. Retail usually starts around 6%. And office here in our market is a little bit soft. So that starts around six and a half to seven. I'm talking to some investors this morning, their expectations are they want higher cap rates, just based on the simple risk reward equation. So now that being said, it's really going to be dependent on whether or not sellers will sell at those prices. Based on their current situation. So, you know, either one or two things happen, they're able to if you're an owner right now, you're able to ride this out. And if not, then you face the risk of losing your asset to the banks and banks are not in the business of ownership. You know, for every property they take back, they have to withhold anywhere between eight to $12 of loans that they can, you know, originate, which drastically reduces the amount of money that they can make. So there's there's going to be, you know, it's a perfect storm lining up for the next 24 months. You know, when we came out of the great recession, financial crisis in 2008, the commercial mortgage security market just started to take off again. And those notes are usually around a 10 year window. So coming out of 2012 was 13 is when the economy started to come back up. And we're going to start to see a lot of defaults potentially happening. So, you know, if I'm an investor, I'm not looking at anything less than less than 5%. Even if it's, you know, a quality location, it's still there's a lot of unknown factors. And depending on the asset type, I might adjust my expectations. Oh, you talked about the 2008 recession. It was completely different from this because it was circumscribed. It involved only the residential lending market really it was it was circumscribed. Whereas this is it covers everything in the economy worldwide. You know, and so it's a much more gigantic thing that's happening now, you know, and it reverberates throughout the economy. You know, because when you can't pay your rent up hill, then the guy up hill can't pay and the banks are in trouble and and they don't they don't want our Rio. They don't want to foreclose on this thing. If all the tenants aren't paying their rent and all that, you know, where do you go? Yeah. Yeah, no, it's complicated. It's very complicated. And we're starting to see all the mechanisms that that are in pain and suffering. And it's like being on a sinking ship trying to plug every single hole as it comes up. So it's definitely a day to day situation. What can we do now? How how can we create value? With the lack of money flow, the money velocity has gone significantly down. So not only paying rent to your landlords and vendors and property taxes. It's also, you know, general excise tax, when you're not having transactions, we're starting to see a significant decrease in revenue for for the economy is not just here locally, but you know, and your every sales tax state, which is of course, you know, the GT is 50% of the state tax revenues in Hawaii. And because of the lack of tourism and the shutting down of stores and all that, I mean, the local governments are phenomenally strapped for cash. And with no relief, no apparent relief coming from the federal government. It's hard to know the only because state governments are required to balance their budget. Okay. And so what are they going to do? The only thing they can do is hopefully if they issue bonds or something, there's no there's really no way to get money. They can't go into debt like the federal government, you know, so it's hard to know what might happen to public services that can't be financed because of the drastic it's not just GT, but of course, income tax, if you're not working and you're not earning anything, you're not paying any income tax, you know? Yeah. Yeah, so so um, what are we kind of talked about this before we went on there? What are the legal ramifications of, you know, tenants, not being able to pay landlords can't pay the mortgages. There's no real winner. So legally, what, what there's one aspect of landlord tenant, and this is the common law boy, if a tenant defaults and doesn't pay their rent, the landlord has to try to mitigate before they can collect damages from the tenant. The damages are the future rent reduced to present value with some complex, you know, I don't know how they, you know, what kind of interest rate they use to figure it out, but, but the landlord has to try to mitigate in order to collect those damages because the theory is the landlord still has that space to rent. It's not like they've, you know, they've lost the space and they can rent it to somebody else. If a landlord is able to rent the space to another tenant for the same rent that tenant was paying, they have zero damages, except possibly a couple of months of rent reduced to present value. Okay. If they get more rent, they don't have any damages at all. If they can't mitigate, and I don't know, I don't do this stuff. So I don't know how long it is that they have to try to mitigate. Okay, it would seem that in these times, it might be very, very difficult for the landlord to be able to mitigate to find somebody else to rent that space, you know, and so I don't know what's going to happen if we if we're seeing these types of things, these evictions, what the courts are going to do about mitigation or what? And if we I don't know, do we have an eviction moratorium right now? I don't think that we do. We did for a while. I'm not sure we do. Do we? Anybody know? Did it get extended through the first? Did it get extended a bit? Yeah, I don't know. There's no more. There's no moratorium on foreclosure. But like I said, the lender doesn't want the property back. If the tenants aren't paying their rent. So what are they going to do? You know, it's just now, if you have a situation where the loan has been guaranteed, if you have a shielded entity like an LLC, and the loan's been guaranteed by somebody, they have potential liability on their guarantee, you know, and then they go bankrupt. So there's no real winner. It really depends. I mean, there's a couple of things I'd like to bring up on that. Number one, you know, in real estate, it's the highest and best use, right? What's really determining the highest and best use. So, you know, depending on the spaces in the location, there could be a new concept that comes into play or just a whole new industry as well. How do you create space? You know, our market has been very slow to evolve. I lived in Oregon for 10 years, traveled up and down the West Coast from 2008 to 17. So, you know, coming home, it's interesting to see all the trends five to 15 years behind. And so now I think it's a great time to actually reset to get us to a point where, you know, we're actually becoming a market leader in terms of innovation, which is very possible. We obviously need a lot of buy-in from landlords, tenants, lenders, capital sources, customers, etc. And then, yeah, so to me, if I'm a landlord, I'm really looking to see what's the highest and best use and talking to my advisors right away, be proactive. You know, obviously, it's unfortunate with the struggling businesses. But also, if you're a landlord that's had success for the last five or 10 years, you know, this actually might help you with your tax situation. So, you know, really kind of taking more of a scalpel approach, depending on where you're at, there's new, fast-view accounting rules coming out as it relates to any deals done in rent renegotiations, documenting those and filing that with your CPA and accounting staff, really kind of dialing that in, you know, you might actually find yourself in not a bad situation, as it all kind of shakes out. So, you know, it really depends on where you're at, your long-term strategies, if you're buying hold or if you're buying flip or, you know, what your strategy is as a landlord coming into the market. So, yeah, so that does lead in. Are there steps to recovery? I mean, what, what, obviously, I always tell our viewers, we don't have crystal balls. But what would be some steps to recovery that you would see to kind of, you know, help our economy? We're definitely going to see the impact. But what would be some, you know, steps that you would see that we could take? So, we'll let you, we had, yes, we had a good conversation on the phone the other day about what things we would like to see happen. Yeah, absolutely. I think it's, you know, first and foremost, working remotely, as was mentioned earlier, that's, that's the new norm for now. So, you know, we've got phone and internet service, we could do Zoom calls from here in Hawaii to anywhere in the world. So, you know, I'm starting to hear about stories and seeing statistics that Californians are coming in and buying properties site unseen on the residential side. And I think a lot of the ideas you can come here and work remotely and be in the paradise. So, there's that opportunity. And as you begin to scale up, it's, you know, we have some of the lowest office rents substantially lower than the West Coast, you know, 60 bucks a square foot in San Francisco and 30 to 40 in between Oregon and Seattle. We're at anywhere between 12 to 20 here in Hawaii. So, you know, that that will help to shift some some ideas and within corporations as they look to reallocate some of their staff or even be able to to mine talent and use talent across more than just your your geography area, geographical trade radius. So, you know, that can lead itself into Hawaii becoming more of a tech driven economy. We have a lot of talent here locally. In fact, are some of our best and brightest have left. So, now it might be an opportunity to call them back home, find them a good place to live. And if they can make their same money and hopefully somehow reduce their living expenses in one way shape or form, I think there's a way to do it. So, you know, generating more more activity in the technology sector can definitely lead to more ways to drive revenue into our city. And that's something that we've all heard discussed so for so long is to diversify our economy. Because look where we are now because we are tourist dependent. And the tourists can't come in. Look where we are, you know, and so that, you know, diversifying our economy with technology, we're in the middle of the Pacific with between the Far East and the mainland. It makes a lot of sense to try to diversify into high technology industries, you know, because with with all of that we have with all of the technological things that we have now, and we're now we're all living on zoom and we realize, I mean, they're talking about how in the future, business travel might decline significantly because people have come to realize you don't have to fly to New York to have a meeting. You can have a meeting like this on zoom, you know, and then there's some discussion about that that that will impact already the airlines are suffering probably more than any other industry because of nobody's going anywhere because of all of this. And they're talking about how in the future, it may continue like this where we may continue to do this kind of stuff. And this would be a fabulous way for us to diversify our economy. And and I wish I hope there's somebody here who's giving it some thought and trying to figure out a way to accomplish it, you know, to diversify away from tourism. So there's like blue startups, elemental accelerator that are really pushing the innovation. There's co-working spaces that have that offer flexible work places outside of although look what happened to we work. But anyway, yeah, okay. They're actually on the move out there. They've restructured and they hit the bottom and they're now coming back up. Oh, are they? Okay. All right. So let's talk about some of these these buildings. I mean, I you mentioned Alamo on as you walk through there, it's empty. There's a large space down by the Walmart. What with with where the economy is going? What are the options for these landlords with these huge spaces? I mean, just well, I mean, Will, I think you were suggesting reconfiguration and doing something else with it. Okay. But if Nordstrom decides to close at Alamo on what the heck, you know, well, we all know what Alamo on a did after they paid Sears $250 million to go away. Instead of having one anchor tenant, they do have Nordstrom at the far end, but they have all those smaller tenants, they incredibly reconfigured that space, you know, into a whole bunch of smaller tenants, you know. So I mean, reconfiguration is one concept. But then the question is, what do you reconfigure it into? If nothing is doing well, you know, they're doing well. Sorry. I was just going to say we saw it with Macy's in Kailua was reconfigured right to down to earth, couple restaurants. It's good use of space. But what are you going to follow one with? Yeah, so, you know, there's examples of big boxes being converted into medical facilities, specializing in one thing or another, as it relates to more diversification versus like we're going to take this retail box and make it into another retail box. It's like, no, how can we actually reinvest into this space? I mean, you know, just look at the geographical areas of where hospitals are in relation to urgent care clinics and whatnot. So there's there's all these pockets. There's also ideas and transactions being happening right now where they're turning larger big boxes into distribution centers for Amazon. Now Walmart's getting into the mix and whatnot. So, you know, with all in one, it's it's incredibly centrally located. I don't think they'll really have a problem. Finding the highest and best use it really comes down to who's going to sign the leases and how much capital is going to is it going to take that to happen? The benefits of medical is that when you when you sign a dentist office for a lease, for example, the minimum they'll do is the 10 year 10 year lease, they've got to spend an incredible amount of resources to outfit their space hospitals, you know, so you're looking at a long longer term stabilized type of tenant. And then on the capital market side, that's actually a lower cap rate, higher value and more stable asset. So, you know, there's a great opportunity to look into things like that. As we as we, you know, progress through this pandemic. Alright, well, thank you so much. If somebody wanted to get in contact with you, Nancy, because they had some leasing questions. How would they go about doing that? Well, they can Google me because I have a website. It's greckinlaw.com. And so all my info is out there greckinlaw.com g re k i n l a w.com. Alright, and will if I have people out there looking to invest in commercial, because I'd be residential. Um, and how would they get in in contact with you if they were ready to invest in I'm assuming you'll do apartment complexes, businesses, doorfronts. Above all the asset classes we can handle and we're ready ready to get to work. The best how to reach out to you is by email is w elliott.com. That's c h a n e y v r o o k s.com. All right. Well, thank you so much, Nancy. Thank you, Will. I learned a lot. I hope our viewers did too. The life of the land is in its real estate. We'll be back in two weeks and we're going to talk about the short term rental market, which we all know did did take a hit and we're going to look into maybe its recovery and where it's going. So thank you all. Thank you guys for joining me. Thank you think tech Hawaii and I will see you all in a couple weeks.