Company going to lose millions a month because of elections

 

Got a call from one of my clients today for an emergency meeting regarding capital projects scheduled for the next few weeks (I work as an Accountant for commercial real estate properties). Long story short, our biggest general contractor on the third biggest property just informed us that all of their projects have been delayed indefinitely due to the inability to get supplies needed. Was told there is a “surge in people trying to stock up on supplies needed before the tariffs hit in January” and to “think about it as if it was the toilet paper issue from Covid, but much worse”.

How is this detrimental to my client? Because one of our newest tenants is taking 3 entire floors (spent a ton of money to relocate current tenants and lost tenants by not renewing them in the current space to make room for the new tenant) and their construction project was expected to begin in December and finish in March, with their lease starting in mid January since one of the floors would be “substantially completed” by then for full occupancy and the other floors would be partially complete for them to use for space but not occupy (ie one floor had people working, other two floors are storage would have conference rooms for meeting or maybe a lunch event but no one would be able to occupy the space yet). General contractor told us not to expect any movement on these projects until at least summer 2025 and that the projects would likely take 2-3 times as long because their work force would be thinned out once they are finally able to start on this and other projects so it would take about 12 months now for the entire project. Of course the actual project is going to cost more now as well.

Not only is the project going to cost us more to complete but since the tenant is very likely not expect to move in AT ALL until at least January 2026 the property is expected to lose $31m in rent for the year just for this tenant, several million more in increased expenses just for this tenant, and several million more for smaller tenants that are going to be occupying smaller spaces but are still delayed. Oh, and it’s possible the tenant is going to try and get out of their lease because we don’t know if they can wait a year to move in but it doesn’t seem likely based on what the brokers have told us. We were also advised to stop leasing if we didn’t have any spaces ready for move in with little to no capital project needs.

But that’s it. Just wanted to share what happened and let everyone know it might be more than just food going up. Any general contractors or people in construction can also add more info if they care to

Jobadvisor:

It's indeed a challenging situation that your client is facing due to the ripple effects of global trade policies and supply chain disruptions. Here's a summarized and structured breakdown of the issue, along with potential implications and mitigation strategies:

Issue Summary:

1. Supply Chain Disruption: The general contractor has halted projects due to a surge in demand for supplies in anticipation of tariffs, leading to scarcity and delays.
2. Project Delays: A significant construction project for a new tenant is delayed until at least summer 2025 and will take longer to complete due to workforce issues.
3. Financial Impact: The property faces a loss of \$31 million in rent for the year, increased expenses, and potential lease cancellation by the tenant.

Potential Implications:

1. Revenue Loss: Delays in tenants moving in and potential lease cancellations directly impact the property's cash flow.
2. Increased Costs: Prolonged construction timelines and increased material costs will escalate the project budget.
3. Reputation Risk: Delays and disruptions may harm the property's reputation, making it less attractive to future tenants.
4. Market Uncertainty: The situation may indicate broader market issues, affecting other properties and tenants.

Mitigation Strategies:

1. Communication: Maintain open communication with the affected tenant to manage expectations and explore temporary solutions or concessions.
2. Alternative Suppliers: Work with the general contractor to source alternative suppliers or materials to expedite the project.
3. Phased Occupancy: Negotiate a phased occupancy agreement with the tenant, allowing them to move into completed spaces while construction continues in others.
4. Lease Renegotiation: If necessary, renegotiate the lease terms to accommodate the delays and prevent the tenant from canceling the lease.
5. Risk Assessment: Conduct a thorough risk assessment of the property portfolio to identify and mitigate potential impacts on other tenants and projects.
6. Government Engagement: Engage with local and national government bodies to express concerns about the impact of tariffs and supply chain disruptions on the industry.

Industry Feedback:

General contractors and construction professionals might provide additional insights into:

• The severity and expected duration of supply chain disruptions.
• Alternative materials and suppliers that could be utilized.
• Strategies for managing workforce fluctuations and maintaining project timelines.
• Best practices for communicating and collaborating with property owners and tenants during disruptions.

By sharing information and collaborating on solutions, industry professionals can help mitigate the impacts of these challenges and support the broader commercial real estate market.