'We Need Guidance': Office Landlord Asks For Uniform Rules To Bring Back Tenants

As landlords prepare their buildings for people returning to work, one major office owner said there is not enough guidance coming from the government on how to keep buildings safe and clean.

Carr Properties CEO Oliver Carr, whose company has a 4M SF portfolio with another 2.2M SF under construction, said the company is taking steps to prepare buildings for tenants returning, but he would like to see more official guidance.

"Today it is catch-as-catch-can," Carr said on a Bisnow webinar Tuesday morning. "Every owner is coming up with their own plan. Maybe they're talking with people, but we really do need some uniform guidelines."

To come up with his plan, Carr said he has talked to local peers such as JBG Smith on the office side and Edens on the retail side. Carr's portfolio is roughly 96% office and 4% street-level retail. Additionally, one of Carr's biggest investors is Israeli firm Alony Hetz, which also has investments in Europe, giving Carr access to experts in other major cities around the world. 

Carr said he has created a task force in his firm on how to bring tenants back to work, the timeline for which largely depends on when Maryland, D.C. and Virginia lift their stay-at-home orders. 

The protocols the firm is looking at include signs to promote social distancing, installing hand sanitizer stations, requiring masks in buildings, keeping gyms and conference rooms closed, limiting occupancies in elevators and extensive cleaning of common areas.

Carr Properties is also looking at more long-term solutions, such as revamping HVAC systems to improve air quality, installing UV lighting that kills viruses and enabling people to enter buildings and reach their desks without touching anything. 

Carr praised D.C. Mayor Muriel Bowser for last week's launch of ReOpenDC, a series of committees aimed at providing standard guidance on returning the economy to normal. He said issues he is still looking for answers on include whether building managers should take the temperature or provide COVID-19 tests for occupants entering the building, and how it would pay for new safety measures. 

"We would be happy to engage, but we need guidance," Carr said. "Also, it's tough financially to pay for everything. We're going to have to come together and take a thoughtful approach." 

The stay-at-home orders have not stopped Carr's construction projects in the D.C. area, which include a massive Downtown Bethesda mixed-use project and a creative office building near Union Market. But it is also building a major office tower in Boston, where the mayor has halted construction. 

On the active sites, he said the contractors have taken precautions such as installing hand sanitizing stations, keeping fewer people on-site at one time and limiting the number of people who can ride up on a construction lift together. 

"This is creating income for these folks, it's hugely important to their families and to them, and if we can keep building in a safe way, that's really productive for everyone involved," Carr said. 

Carr has also been having conversations with tenants that are struggling financially. He said roughly 98% of the company's office tenants paid rent April 1. He did not disclose the retail rent collection numbers, but he said more of Carr's retail tenants are struggling. For retail tenants unable to pay rent, he said it is allowing them to forgo payments in exchange for adding months on to the end of the lease term. 

He said he hasn't seen final May rent collection numbers for the company's office portfolio, but he expects they will be worse than April.

"We'll see how May goes, but I think every month that the world is in a time of extended lockdown, companies are going to come under more pressure, so I'd anticipate rent collections may weaken a bit," Carr said. 

Leasing has slowed down, but not stopped, he said. Just as Boston Properties said on an earnings call last week, Carr said his company is still moving forward with new leases in today's market. 

He said the company has signed 120K SF of new leases since the pandemic began, most of which had begun prior to the crisis, and it has even more in the pipeline. 

"I was surprised to see this number yesterday, we have 220K SF of real, live, new activity in the portfolio," Carr said. "There are some things happening. It's slower than normal, but it's not entirely dead. So I'll take that as a sign of some green shoots and providing hope."

Going forward, Carr expects to see changes coming to the way companies occupy office space. He said he expects a shift away from tightly packed, open-floor plan office space for health reasons, and he thinks companies will keep about 20% of their employees working remotely.

But coworking providers may be in trouble, Carr said. Carr operates its own flexible office brand, WaveOffice. He expects the flexible workspace model will survive and operators with large enterprise users will make it, but he is not confident about the resilience of traditional coworking providers with smaller companies packed into shared spaces. 

"I'm pretty concerned about coworking, just because the density of use in that business probably doesn't work anymore," Carr said. "I'm worried that a lot of the existing coworking companies don't have the staying power to make it through these times."