CRE and CREF in Ireland: Reflecting on COVID-19

Irish property market

We are entering into this new period of contraction in considerably better shape than before the 2008 global crash - with more liquidity and lower leverage. Many significant Irish estate assets are owned by cash rich international investors and this should help to fund liabilities in the short term. In addition the readiness of lenders to react this time around is of benefit.

Impact of COVID-19 on financing arrangements

Unlike the UK and other jurisdictions, no legislative measures have been introduced in Ireland to deal with commercial real estate loans but for the moment most lenders are agreeable to waivers and payment holidays. In some cases equity releases are being provided to cover short term interest and capital repayments. Amendments to existing deals are being documented by short form amendment agreements. Inevitably however here is a likely to be a requirement for a more comprehensive amendment and restatement of existing facility agreements as the clarity emerges on the longer term impact on cashflow and financial covenants.

Challenged asset classes

The retail sector is facing unprecedented challenges at present and the future of physical shopping will undoubtedly be forever changed following Covid-19. The migration to flagship retail and increased online presence will likely accelerate. To date, landlords are where possible taking a collaborative approach to preserving relationships with tenants who were otherwise thriving prior to the pandemic. Thoughts are now pivoting towards re-opening where permitted and the realistic steps and measures that can be taken to implement ‘safe shopping’. Some assets classes are such as warehousing, distribution centres and data centres may thrive, especially the latter where new working patterns drive internet usage. This is likely to also be financing opportunities for these sectors.

Tenant requests

Given the lack of legislative clarity, Tenant requests for rent and service charge suspensions and deferrals are emerging which need to be carefully documented so as not to inadvertently cause the landlord’s right to forfeit for non-payment of rent or other breaches to be waived and make clear the temporary nature of any such arrangement so as to ensure that it cannot be used against landlords in rent review.

Emerging themes in retail leases

With tenant insolvency on the horizon we are seeing themes emerging (i) calling into question the relevance of longer term retail leases instead shifting towards temporary pop up style arrangements and (ii) temporary changeovers to turnover based rents for the duration of the crisis, being viewed as the lesser of two evils to minimise vacant space and loss of any rent. Pro landlord ‘rip chords’ i.e. rights of termination and/or relocations within a scheme, accompanied by renunciations of any renewal rights under Landlord and Tenant legislation are emerging. Consultation with lenders is a focus especially around obtaining consents and waivers.

Current challenges to progressing a Real Estate deal

Viewings are impossible under lockdown but 3D tours, drones and phones are helping. Site inspections and surveys cannot be carried out and there are delays in completing planning and/or environmental audit with limited access to local registries. Valuations are challenging and it is not clear yet whether parties may rely on ‘desktop’ valuation. ESG may come under greater scrutiny by investors and there may also be a renewed focus on sustainability strategy statements. Non-availability of signatories or where e-signatures are not suitable to execute deeds necessary to transfer interest in land under common seal are posing logistical challenges. Skeletal services at Revenue and the Property Registration Authority and likely backlogs will cause delays.

See our Coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.