The socially-distant workplace. How will Lexington’s offices, stores look post-pandemic?

How to Reopen: In the days and weeks ahead, businesses throughout Kentucky and the U.S. that had been shuttered due to the COVID-19 pandemic will be figuring out how to safely and effectively reopen. They’ll face numerous health, legal, financial and logistical issues. In the coming weeks, Tom Martin, host of Eastern Standard on WEKU, will be talking to local business leaders who can provide guidance for businesses as they navigate these uncharted waters.

How do you go about property management in a pandemic? Retail spaces, offices, industrial structures, investment properties. What challenges are business tenants facing as they attempt to reopen in the midst of an as-yet unchecked coronavirus pandemic? How are retail and office spaces now being re-engineered to account for social distancing while continuing to accommodate the need to get the work done? For insight on these matters and more, Tom Martin, host of Eastern Standard on 88.9 WEKU, posed some questions to Bob Cole, president and principal broker at Coleman Group Property Services in Lexington.

Q: Give us a “nutshell” version of what your business does.

Cole: I am the president of Coleman Group Property Services. We specialize in property management, brokerage, leasing, and consulting services around commercial real estate.

Q: What are some high profile brands of businesses occupying properties that you manage that people might recognize?

Cole: We have worked with groups like Kroger and ACE Hardware, Dollar Tree, you know, companies like that. You know, basically any type of neighborhood shopping center on the retail front. And then on the office front, we have all kinds of national scope tenants in both suburban and the central business districts. Office properties. Everything from U.S. attorneys and the Kentucky League of Cities to some of our suburban assets where we have large regional and even national companies, law firms, engineering firms, things of that nature.

Q: What are your responsibilities as a property manager?

Cole: We are responsible for the day-to-day operations and maintenance of the assets that we manage and lease. And these properties typically are owned by third parties that are either institutions that have invested in our community, private family trusts, things of that nature that have invested in our community. And so, they hire groups like Coleman Group to be responsible for the day-to-day janitorial services, to collect rents, to hire the vendors who maintain our landscaping, HVAC ventilation, all the things associated with keeping a property in tiptop shape and operating in its best capacity.

Q: So, let’s talk “pandemic.” This thing hit us out of the blue. It didn’t come with an instruction manual. And so, what I’d like to do is take a quick look at your world, sector by sector with retail first. What percentage of your retail clients are still operable?

Cole: When the pandemic hit, and we’ll use mid-March as the point where the governor mandated a shelter-in-place policy that made it difficult for a large percentage of retail tenants to continue doing business in a neighborhood shopping center. In the open-air centers and malls, that ended up being about 40 percent of the tenants that could remain in business and actually be considered essential like medical users, some of the hardware stores, dollar stores, things of that nature.

What has been hardest hit are the restaurants, the hair salons, nail salons, the fitness centers, all of those essentially due to the social distancing guidelines not only established by each municipality and by the governor, but also by the CDC. So, to answer your question between, 40 and 50 percent of the shopping centers were essentially shut down at that point in time.

Q: How have the landlords been about this? Have they been willing to work with people?

Cole: Yes. As you said earlier, there was no instruction manual that came with an event like this pandemic. I would like to say that the industry that we work in is well educated. A lot of folks came together and started communicating almost immediately trying to learn from one another on how we would work with our tenants in this scenario. It became clear that there was going to need to be some give and take on both parts, by both parties. In other words, the tenants needed our help and we still had obligations to maintain and take care of the property as the leases dictated to us. Their obligation was to pay rent to us as the lease dictated to them. We all understood that we needed to get to the other side of this thing and no one knew how long it would take. To that end, the bank stepped in. We worked with our tenants, as most reasonable landlords did, to forego rents in some form of deferment whether that be putting the amount that was owed over a greater period of time, spread it over the remaining lease term, put it on the back end of the lease. There were lots of different ways. And each tenant was worked with individually depending on the needs that they might have. We then saw immediately lenders coming to us before we could even go to them and saying, “Hey, we know this is going to happen to you. What do you need from us to help you as the borrower get to the other side?” And so, it was incredibly humbling to me that everyone worked together to survive this. And so, even those tenants that continue to operate in the center, you know, they still needed their property managers to keep the property up to protect them even more so than ever, to do what we could to try to stop the spread of this pandemic and at the same token live up to the responsibilities that our leases dictate.

Q: So, local banks stepped up.

Cole: They did. We saw regional banks and the local banks really coming to the forefront with ideas of how to defer the owner’s mortgage payments for anywhere from 3 to 6 months. In some instances, those were complete forbearance agreements where we didn’t have to make complete principal and interest payments and in some instances where only interest was deferred. But nevertheless, it was enough for us to allow the owner to pass on to the tenants the rent relief that they needed. And as I said, we didn’t know how long this was going to go on. Based on other countries we felt that this is probably a 3- to 4-month cycle. But everybody understood that it is fluid and that we’d be looking at it as we move forward and we’d make decisions that hopefully are in the best interests of all parties.

Q: Restaurants and a lot of other businesses have tried morphing into delivery and curbside pickup. How has that been working for the tenants of properties that you manage?

Cole: The restaurants and some of them immediately jumped on the bandwagon. Bluegrass Hospitality. Many people know that, it’s Malone’s. They’ve done a fantastic job of working through the curbside delivery. I think this is a component that’s not just going to be a pandemic-driven utility, but I think we’re going to see more and more of this because both the consumer and the retailer have learned some of the benefits to this style of operation. So, definitely, they readjusted their business model to impact how they were going to, if you will, continue to operate.

Some businesses had no operating strategy or plan. A fitness center just by its nature could not continue to make any type of adjustment that would help their business, although some have tried going virtual. For the most part, even the restaurants can’t operate essentially a reduced capacity of volume and still turn a profit. It’s very, very hard when a lot of their business comes from the sit down, the liquor sales, things of that nature. The verdict is out on whether that’s going to be a successful model going forward.

Q: Let’s turn to office spaces. I know the vacancy rate had been trending steadily downward beginning in about 2014. What’s it look like now?

Cole: We’ve had a really strong economy specifically in Lexington for the last 2 or 3 years. When you look at the national standards, Lexington has always been well. There are great reports out there that show the vacancy was decreasing in both the central business district downtown as well as the suburban market. There hadn’t been overbuilding. And so, we were starting to see business growth that was absorbing space and it was very positive. 2020 was a record year for most property owners as it related to building occupancy. We all of a sudden saw the brakes completely come on in March with the pandemic. And you know, there’s a lot of discussion about what that looks like going forward with social distancing, with remote work-from-home philosophies, the Zoom meetings that everyone’s doing. Has that changed the office such that it is dead? Is office space no longer going to be a viable commodity?

The indication is that there will be some shift and that you’ll see some of the work-from-home strategies done to benefit the brick and mortar office location. However, we do believe that there is going to be some shifts where we’ll see more absorption in the suburbs than in the central business district, because of a pandemic attacking a highly dense area where there’s a large congregation of people whereas in the suburbs they can shelter a little bit easier. They’re not as exposed to the type of movement that we have in a downtown area. So, we do anticipate a 12- to 24-month period where we’re probably going to have negative absorption, but we do anticipate that growth will occur again. We’re actually starting to get inquires, leasing calls. But the majority of those calls are inquiring about suburban space.

Q: When offices do reopen and there is something of a return, I imagine some people will remain working at home, others will be returning, what do you think those offices are going to look and feel like?

Cole: Social distancing now as we know it is the single best way to stop this pandemic. Wearing the mask, the sanitation, the cleaning that goes into trying to protect workers, that’s extremely important. But I also think that you have to look at what we’ve learned in this pandemic - that working from home is possible and that there are a lot of situations where quite frankly it probably makes sense to have a certain percentage of the workforce working from home especially to prepare in the event that this outbreak continues to spike again. I think to be prudent you need to be prepared to run your organization remotely. Some of the things that we’re talking about as a landlord have a lot to do with making sure that the tenants understand that that remote workforce also has some concerns for the employee. The employee now working from home is distanced from other members of their group. The best work can come from collaboration and is done typically in group settings and in person.

So, as much as it sounds great to think that we’re going to be working remotely on computer I realized that the most important thing that we can do and have done in the pandemic is to protect these employees and we need to think about that going forward from a mental health capacity and just making sure that we give every opportunity for these employees to be their best selves.

Q: In managing a building there’s a lot that goes on there that we just take for granted and don’t really notice. But now wipe down protocols become important, thinking about ingress and egress, stairwells, elevators. How are you approaching those issues?

Cole: We have immediately - not only with the pandemic, but now with the reentry - we have attempted to establish procedures whereby as the employees or the visitors to the space come into the building, we have posted directory signage for them. We’re not policing as much as asking for these invitees and for the tenants to wear their masks. We have placed hand sanitizers on all floors. We have asked that the elevator use be limited to only 2 people per ride. We’ve asked that everyone use the stairwells if at all possible. We have setup standards where onsite maintenance staff are now cleaning the high touch-point areas of the elevators, the bathrooms. So, we’re giving a lot more attention to the janitorial needs of a property. We’re also following CDC guidelines with respect to techniques like when we spray cleaning product onto a surface that we allow it to set for 3 to 4 minutes before wiping. And all of those components really focus on the core and common area where people travel and walk to, in the restrooms and so forth. The interior of the space becomes the responsibility of the tenant. They’re needing to take care of the desks, the phones, the computers, and things of that nature. Again, we’re trying to limit the contact and the people that are going into a space. We’re trying to learn as we go and do what we think is best to combat this pandemic and to stop it in its tracks.

Note: You can listen to Tom Martin’s interview with Bob Cole on this week’s edition of Eastern Standard. The program airs at 11am and 8pm on Thursday and at 6pm on Sunday on 88.9 WEKU and online at esweku.org

This story was originally published June 11, 2020 at 10:10 AM.