Coronavirus in Oklahoma: For commercial real estate, COVID-19 is one thing; the crude oil price collapse is a bigger thing
The '80s are back, and I don't mean big hair and leg warmers, or big cowboy hats and gold nugget rings — because when crude oil crashes hard, real estate can't be far behind.
Home ownership has some built-in speed bumps, as in 90-120 days to default. Then there's the foreclosure process, and because of the coronavirus pandemic foreclosures on federally backed mortgage loans are suspended for now.
The coronavirus and business shutdowns put a hurt on property for lease or sale that won't heal anytime soon, although it will.
The crude oil price collapse — exacerbated by the drastic drop in global consumption — was teed up in November, when U.S production surpassed unfettered domestic demand and the U.S. became a net exporter of oil. OPEC, Russia and other producers agreed to slash production this week, but not before prices went deeply negative for the first time ever.
Now demand is fettered, and commercial property has to just sit there and take it.
"Coronavirus has dramatically slowed activity on both the leasing and investment sales front. People are nervous," said Ford Price, managing partner at Price Edwards & Co., the city's largest local commercial brokerage. "Certain tenants, particularly in the retail, restaurant-bar, fitness and theater categories, are not paying rent and it is unclear how many will actually reopen.
"No one could have planned for this event, so in a matter of weeks everything changed. Owners are seeking loan modifications, but those with securitized debt are having a tough time. Local lenders seem to be playing ball and issuing 90-day reprieves."
The effect of Oklahoma's rolling reopening of businesses, which started Friday, will take time to realize. That's assuming no spike in COVID-19 cases causes everything not deemed essential to be shut down again.
Nobody can predict how long nearly worthless oil will hurt, Price said.
"It is important to point out that even though coronavirus grabs most of the headlines, Oklahoma City is taking another major hit given the commodity pricing in the oil-and-gas sector," he said. "This is the early 1980s again. There are going to be casualties both large and small, and it will impact the local real estate sector in all asset classes.
"The coronavirus crisis will ultimately pass, and as long as the economy is allowed to start reopening in the very near term, businesses should have some ability to start generating revenues for themselves again. But this oil-and-gas problem is going to take a while to resolve itself."
Price was unable to respond by The Oklahoman's print deadline for a story Thursday gauging business response to Gov. Kevin Stitt's plan for slowly reopening the economy. Here are his comments.
• Do you agree with this decision to reopen (some or all) business in Oklahoma at this time?
I do agree with the governor. There are always trade-offs in life. No one is ever safe all the time. ... We cannot continue with this shutdown. It is time to get back to business and avoid the cure being worse than the disease. ... Our local and state leaders have done a good job leading us through this uncertain period, but we are not New York City with subway systems and living on top of each other. Oklahoma City can fit New York City, Boston, and Philadelphia in its 621-square-mile footprint. We practice social distancing pretty much simply by living here.
• How quickly will you attempt to reopen or return to former business practices?
We have been deemed essential so have remained open. I have come to work every day, all day. Many of our staff, other than those over 65, have done the same. We have had no issues. We have taken steps to avoid infections. We are as safe as we can be. We will be calling the remaining staff back to the office in the next week or so.
• What immediate hurdles must be cleared for your business to return?
None. And we will continue to keep our employees as safe as we can, and take every reasonable measure to provide a healthy workplace.
Be safe, y'all.
Email Real Estate Editor Richard Mize at firstname.lastname@example.org.