Welcome to our series called Chamber Conversations: Trusted Advice in Challenging Times. Chamber Conversations are direct, simple conversations between the Frederick County Chamber of Commerce and experts in various industries for the purpose of providing valuable information and insight to our community.
Our guest today is Tony Checchia, owner and broker of VCRE.co, discussing the commercial real estate market and the impact of COVID-19 on that critical component of our industry sector. In this driving tour interview, Tony discusses…
- The dynamic between tenants and landlords amidst COVID-19
- Opportunities within this forced pause
- Frederick’s resilience as a whole, and within the real estate market
Transcription edited for readability:
Rick: Today’s Conversations features one of my favorite people in Frederick County and that is Tony Checchia. Tony is owner and broker of VCRE Commercial Real Estate and has always been my go-to guy for real estate, life in general, and how to connect better with rotations.
What you may not know about Tony is he earned a double major at Mount St. Mary’s University in Economics and Spanish, so his financial projections are always grounded in good education and science. In 2018, he was awarded the Fred Award for broker of the year by the Frederick County Office of Economic Development, a big deal for our local commercial real estate community and frankly within the region.
Tony has been an officer on Frederick County Association of REALTORS® (FCAR), the Frederick County Foundation board, the Tourism board, a member of the Business and Industry Cabinet for Frederick County, served as vice-chair of the City Historic Preservation Commission and most importantly an almost 20-year dedicated history to the Rotary Club of Frederick, including a term as president of this group.
Tony is well known for having brought back to life the Frederick Indoor Sports Center as a dedicated, long term soccer player of Frederick County and also a guy who is passionate about doing good things with business. It is a real pleasure to be with you today, Tony.
Tony: Rick, good morning, it is great to be here with you today. Thank you guys for doing this and thank you for indulging me in a little change of your typical format. I’m going to flip my camera around while we drive and discuss the current state of the real estate market in Frederick.
I’m in Downtown, and generally speaking there is way more activity than you might imagine. When this all started, I did not know what to expect. We at VCRE have remained active, and real estate as an industry has been deemed an essential business. We have been allowed to practice but obviously that’s come with modifications amidst this pandemic.
We’ve gone virtual and employed a lot of different technology; doing a lot of video tours and better qualifying and better vetting interest before actually scheduling appointments to show properties. Generally speaking, the market did not go to sleep, it is very active. Banks have been overwhelmed with the demand for the relief funds so they’ve been a bit distracted, at the least, from looking at new opportunities for lending. However, they are still taking other applications and processing them, it’s just been a slower process than one normally would expect.
We manage about thirty properties and within the first two days, I started getting the emails and phone calls from tenants claiming they wouldn’t be able to afford rent. We immediately forwarded information from our accountant and resources from the Chamber to get those businesses lined up to seek the assistance they needed. Then we started having conversations with the landlords because in many cases, most of the landlord’s properties have mortgages and those mortgages need to be serviced. So there’s a domino effect as you mentioned if you don’t have tenants paying rent, landlords can’t make the mortgage payment, and that’s not to mention all the other expenses one incurs when you own a property.
So we went through that wave and were preparing ourselves for the second wave. The beginning of April was the first wave, as most rent is due at the beginning of any month, so now we’re anticipating another wave here as we approach the end of the month. We have been anxiously awaiting the conversation that the Governor is going to have which will hopefully shed some light on a reopening plan. What I’m hoping for is some logical modification that allow some other businesses to start operating.
A lot of businesses, as it’s obvious to state, are struggling but it’s amazing to me to see how connected all the businesses are. In my lifetime, doing this three decades now in Frederick, I’ve been through the market’s ups and downs. When I first started in real estate interest rates were 18% and today they are below 4%. We came into this pandemic with a super strong economy and one that I think is going to be very resilient provided we can get back on track.
I think more than anything right now what people need to embrace is that the world is not coming to an end and that Frederick is one of the most resilient compliable markets that I’ve ever observed. Looking at it over thirty years, when we’ve had recessions, Frederick fared better than a lot of markets did. I think that has to do a lot with the richness of our county and also where we are in terms of our location. We are the apex of that triangle from D.C. and Baltimore and we benefit from that greatly.
We’ve been counseling our clients, saying not to make a decision right now under duress, in this state of what’s going on it’s the absolute worst time. The Maryland Association of REALTORS®, the National Association of REALTORS®, as well as some local attorneys, have put “COVID clauses” together to simply take a pause, put things on hold or extend contractual timelines until we can get some better sense of where we are going.
Rick: When I first started this, I discussed the need to pivot. It really is a unique time to reevaluate; take a breath and think about what we’re doing and how we can do it differently.
Tony: Well when you look at technology, it’s incredible. I’m marveled about how much more efficient we can be. There’s nothing that beats office interaction but of course, that can be pretty distracting. Real estate, in general, hasn’t taken a hard pause, there are new opportunities that have been created.
When you think back to your word domino effect, the interconnections between all of these businesses and how we all depend upon each other, it can be a bit paralyzing. That’s why I believe now more than ever we need to trust that not only will our economy come back, it will come back stronger.
Yesterday FCAR had a virtual monthly meeting and a local real estate appraiser discussed the market. He said that there is so much pent up demand in terms of the residential market that he anticipates supply to be super low, and the demand to remain high. Due to the demand being so high and interest rates so low, we predict that once people are able to get back to work, the market is going to boom. What we have traditionally is a Spring market, and it will simply shift to a Summer market instead.
So I just pulled up to a property next to the hospital, 605 N Bentz Street. This property was under contract 45 days ago and the buyer had a thirty-day study period. As they neared that end, everything was fine and they were ready to proceed but then their world got turned upside down due to COVID-19. They got hit very hard and had to lay off half their staff, eventually leading to them to terminate the contract. A week later we had three new offers on this property, and then the following day the original buyer’s heard about the phased-in plan for reopening the economy, they called almost immediately to re-engage and resubmit a new offer. They were able to renegotiate the contract with the sellers making additional concessions, giving the buyers a better deal and ultimately gaining about $75,000 of value, with the property being just under 2 million. The parties are slowly moving forward with the transaction and anticipating closing in July.
As I said earlier, an interest in properties didn’t stop. A lot of people’s assumptions are that market values are plummeting, but during our FCAR meeting I asked if people think there will be a COVID adjustment to values and many do not believe that will be the case. It’s been a 2-3 month impact in a very short time frame that has put everything on hold.
Somehow real estate, investors of property and lenders are continuing to move forward. Big factors in this have been the CARE Act, all the different programs provided by the SBA, the City of Frederick stepping up with the micro-grant that the Office of Economic Development put out, the Community Foundation, and all the other organizations that have been phenomenal at stepping up and helping out businesses getting through the cash flow crisis.
Rick: Can you talk a little bit about where you think we need to go from here?
Tony: I mentioned earlier some of the new addendums and clauses that have been generated and in your Conversation with Matt, you discussed force majeure provisions. We’re starting to see discussions revolving around two things:
- A tenant re-leasing from a landlord who has a force majeure that allows suspension of those obligations. There’s going to be legal challenges and some clarity being lent to that language in the future.
- The concept of essential versus nonessential businesses.
If I am a landlord and I have a property that is full of essential businesses, something like this isn’t going to impact me. If I have a property that’s filled with nonessential businesses, that’s obviously disrupting the cash flow to the landlord which will potentially impact the value of the business. The appraisers that I’ve spoken to don’t really anticipate this becoming a factor.
I’m seeing things as a glass-half-full and where I see things going; Frederick and the Frederick market is only going to move forward. Unfortunately, there may be some restaurants and businesses that were perhaps struggling before the pandemic that simply might not make it. Luckily, the infrastructure that those restaurant spaces already have is so valuable, I cannot see any reason why other entrepreneurs won’t backfill those spaces back up. For those businesses that aren’t able to adapt their business models, I pray for them and hope for the best.
Rick: So we are going to be looking to launch a team to figure out how to re-energize our economy and I’m thankful that you have already stepped up to the plate to volunteer to help us with that.
I want to thank you again for the time you took today. You remind us as you drive through Downtown Frederick, what a treasured place we get to live and work in. You are one of the leaders in this community in terms of building economic opportunity and creating success for people so thank you for that. I really look forward to working with you to get things reengaged,
Tony: Thank you and God bless you Rick. Thank you and your entire team for allowing me to be apart of this.
Frederick Chamber Insights is a news outlet of the Frederick County Chamber of Commerce. For more information about membership, programs and initiatives, please visit our website.