REI INK

What to Do While You’re Waiting for the Turnaround

Standard Management Company founder Samuel K. Freshman on the post-pandemic economy Samuel K. Freshman, owner and chairman of private real estate investment and management firm Standard Management Company (SMC) and chairman emeritus of Stanford Professionals in Real Estate (SPIRE), has been in real estate since 1958.  Under Freshman’s leadership, SMC has acquired and managed more than 6,000 apartment units and 5 million square feet of office, retail, mixed-use and industrial space across 12 states and 25 U.S. cities during the past five decades. Freshman looks at it all with a mixture of pragmatism and patience. After spending this past spring working from home, he’d really like to get back to his Los Angeles office. He’s not holding his breath that he’ll get his wish anytime soon,however. “I think this turnaround is going to take longer than people expect,” Freshman said in a recent interview with REI-INK. “It’s going to take some time, and we could see some sectors experience significant crises before it’s over.” REI-INK sat down with Freshman to talk about how the current economic environment is affecting his company’s investments and whether the effects of the COVID-19 pandemic are as unprecedented as many would argue. Q: What kind of timeline do you expect for the economic recovery, or will there be one? A: First thing I would say to you is, “Your guess is as good as mine!” Then I would say, it is going to take longer than people expect right now. Until they actually solve the COVID-19 virus problem, things will remain tough. Unfortunately, efforts to alleviate financial strain on tenants by delaying or prohibiting evictions could stretch the recession farther because landlords will be in crisis as well. For example, there is currently a proposal to reduce rents by 25% in some jurisdictions. While this sounds nice, the reality is that nearly no operators make 25% returns to begin with, so there is nowhere to cut that much. It would immediately put operators under, and every single landlord out there would be asking for relief from that initiative. It would destroy the rental industry. The disaster and the disaster response both must be measured and proportionate or we will stretch the crisis out. Q: In March, many analysts predicted staggering delinquencies on rents. Did those delinquencies manifest this past spring? A: They have not yet [as of June 27, 2020]. We are collecting about 94%, down from 96%. The problem that many policymakers do not understand is that this means we are 6% down each month, which is about half of our net operating income (NOI). The “top dollars” in real estate go to NOI after you maintain the building, pay your taxes and loans, utilities, water treatment, etc. So, if you write down rents by 25% across the board, that eliminates all the NOI and puts the building into duress because no operator is making 25% NOI. Q: What types of assets do you find attractive right now? A: I would not be particularly enthusiastic about Class A assets, and I’m not sure what is going to happen to communities with Class C buildings, either. We are focused in the range between B- and B+, which seems to have held up pretty well so far; we have not yet had any great loss of rentals or ability to pay. There is a lot of risk across the board right now. Some people are starting to move back home; others are doubling up so they can afford rent on an apartment if they lose their job or lose hours at their job. We have not acquired much this year so far becausewe are sort of waiting to see what the trends are going to be. We have talked to people who say they are quite optimistic buying at a 4% CAP rate because they expect to increase rent, but I think rents may decline in the multifamily arena. Q: Is SMC still lending in today’s environment? A: Yes, although maybe not as much as we were. There are always exceptions. We are making loans on properties in Malibu, which is coming back pretty strong because of the beach. After all, they are not making any more of it! I would not necessarily want to do much lending on construction, but if there is an existing property, we will make the loan. We have to become more conservative because we do not really know in what direction we are going. Q: What regions of the country particularly interest you? A: As a practical matter, I prefer to stay invested in places that are no more than 90 minutes from L.A. However, if I lived in the Midwest or Eastern U.S., I would definitely be looking at Florida and Texas. Atlanta, Georgia, seems to be doing well also. We look primarily to invest in Nevada, Arizona, secondary California markets and the states on the West Coast. Q: Does state reopening policy affect your interest in an asset? A: It depends on how the economy in the state is doing. We just look at which states are doing well and which aren’t in order to decide. We don’t necessarily review their policies. Q: Is the current economy and national environment as unprecedented as most people seem to think? A: Unfortunately, the biggest problem is that the two main political parties in the country are at loggerheads. That is making the entire situation harder to resolve on top of the issue that the coronavirus is historically unique. Probably the closest comparison would be the Black Plague in Europe during the 1500s. The most important thing we can do is to get control of this thing or it will become even more serious. It’s very frustrating for me because they have opened my office building back up, but because I am over 65, they don’t want me to come in! As a nation, we need to watch the education system carefully going into the fall to make sure grade

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Regional Spotlight: Las Vegas, Nevada

“Sin City” Real Estate Posts a Summer Surprise When COVID-19 locked down the U.S. in mid-March, analysts understandably warned that economies heavily reliant on tourism and hospitality would suffer the most. With national unemployment spiraling into the double digits and remaining above 13% in June, it seemed likely that Las Vegas, Nevada, would once again secure a spot on the hardest-hit lists for the latest downturn, thanks to its dominant tourist industry. Instead, the city known for wild abandon and encouragement of behaviors that run counter to today’s “physical distancing” seems to be muddling through the pandemic and possibly even poised to bounce back sooner than many other areas of the country. In fact, many local real estate professionals and national economists are calling the current real estate situation in Las Vegas a “late-spring bloom,” thanks to May numbers that indicate higher numbers of properties under contract and at higher prices than for the same period in 2019. “What surprised us [in May] was it was not just entry-level homes we were seeing the demand for, but luxury homes,” said Lesley Deutsch, author of a John Burns Consulting report on the topic. Deutsch speculated Silicon Valley giants’ decisions to permit employees to work from home indefinitely could be playing a role in the market’s momentum. “You can afford more space in markets like Vegas,” Deutsch said. He described an emerging trend of homeowners “trading up on their luxury homes to have more space” and noted that the trend accelerated in May. In early May, Twitter and Square CEO Jack Dorsey and Facebook CEO Mark Zuckerberg announced they would allow employees to continue to work from home “forever.” Further, Facebook began accepting applications for new remote positions. While the social media platforms may opt to adjust salaries to fit the employees’ new locations, the appeal of owning a much larger, more luxurious home in Nevada is likely to outweigh the appeal of renting a small, exponentially more expensive unit in the Silicon Valley area if the commute is no longer a factor. When these high earners started home-hunting after Nevada “reopened,” they created demand for housing in higher price tiers, more so than most other markets are experiencing. Local real estate brokerage owner Ken Lowman said his firm, which focuses on luxury housing in the Las Vegas area, is seeing the strongest interest among buyers looking at properties priced between $800,000 and $1.2 million and homes priced $3 million and higher. He also reported that before the national shutdown, about one-third of his buyers were already coming from California. Today, that number has climbed to more than half. According to Realtor.com’s Housing Market Recovery Index (HMRI), in mid-June, Las Vegas has surpassed the index’s January 2020 baseline of 100 and is in official “recovery mode.” It is one of eight markets, including Seattle and Los Angeles, to have achieved that status. Las Vegas’s presence on the list has many investors feeling surprised and optimistic. “Markets with stronger job creation pre-COVID are proving to have the crucial edge for real estate activity, particularly those with a strong technology sector,” said Javier Vivas, Realtor.com’s director of economic research. He said stable jobs and incomes would “power demand for homes” and ultimately speed recovery in markets on the list. Since Las Vegas exceeded its January baseline in mid-May and has posted index measures between 100 and 105 since that time, the area’s recovery appears to be growingin stability. Multifamily Housing Unpredictable Although single-family real estate in the Las Vegas area may be gaining momentum, multifamily developments are experiencing some expected turbulence. Multi-Housing News (MHN) associate editor Adriana Marinescu observed that the Vegas “multifamily market continued to move at a slow pace through May following a sluggish April. Both landlords and renters waited for normal activity to resume in a city severely hit by furloughs and layoffs since the early days of the coronavirus pandemic” (“Las Vegas Multifamily Wrap-Up,” May 2020). Casinos and hotels have been cautiously reopening their doors up and down the Strip and in outlying areas of town since the beginning of June, but the hospitality sector remains uncertain. Local real estate investor Larry Loik, president of The Real Estate Investor Network, observed that suburban areas around Las Vegas are largely reopened and in full recovery mode despite ongoing unemployment issues in the tourism sector. “Here in Las Vegas, our economy was the hardest-hit in the nation due to tourism being a major factor. Nevada had the largest unemployment of any other state. A lot of this was due to the governor’s rulings,” Loik said. He added that in suburban areas where local economies are supported mainly by Nevada residents, “restaurants, shops, malls, parks, golf courses and more are all packed … and visitor count is going back up.” The contrast between the pace of regional recovery and the Las Vegas tourism recovery is creating some unique opportunities for real estate investors interested in holding assets long-term. The state is currently adding jobs much faster than the national average, which could translate to firmer ground for the local market and rising demand for single-family rental (SFR) housing even if the rental population’s current employment status is less than ideal. “Nearly half of the population in Las Vegas rents, and it is a beautiful city surrounded by nearly 70 parks. It is a highly attractive destination for outdoor activities as well as its more notorious entertainments,” said Marco Santarelli, founder and CEO of Norada Real Estate Investments. Santarelli said the most prevalent building type in Las Vegas is the single-family detached home, making it an attractive market for residents hoping to leave multifamily living situations. As a result of the unusual nature of the Las Vegas recovery, single-family homes in the lower and middle tiers of the market could be good investment options either to rent-and-hold long term or rent in the short term and then sell when the economy more fully recovers. Although multifamily developments are nearly always a safe long-term

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Helping Investors, Connecting Contractors, Building Communities

Home Depot’s Culture of Honesty and Problem-solving Is On Your Side. A little over a decade ago, Home Depot entered a new facet of the real estate industry when it quietly debuted its business-to-business (B2B) service offerings. Called Renovation Services, they target real estate investors, asset managers, banks, mortgage servicers and others involved in larger-scale rehab and renovation efforts. Of course, being Home Depot, the company was not really “new” to the notion of foreclosure and REO renovations, but the concept of putting the full force and resources of the corporate brand behind the practice was unprecedented at the time. Now, nearly 12 years later, the company is still working behind the scenes to help real estate investors and any large-scale property owner scale their operations, scope projects, and, ultimately, build up the communities around those properties. “Being part of the community is a big deal to Home Depot, so supporting the community by being part of renovating and rehabbing homes is also a big deal to us,” said Chris Albano, director of Renovation Services. “That’s why we stay in the business and are dedicated to helping investors contribute to a vibrant economy by updating their investment properties. We are part of a recession-resistant industry. That makes it important to us to be active in every way possible in this space at every point in time.” A Crucial Link the Chain When the company first started the B2B side of its operations, the move was largely to help contractors, real estate agents and major lenders like Wells Fargo find a way to work together successfully and restore the nation’s battered housing inventory. This had proven difficult, despite high levels of interest and investor activity in the foreclosure space, because both banks and investors were cynical and suspicious of each other after spending the better part of the year being demonized in public forums. There was a desperate need for transparency so the “healing process” of restoring vacant and foreclosed homes to basic marketability could begin. “There were not a lot of tools out there in 2008 that would enable people to know where they were in the construction process,” Albano said. “The kind of trust and transparency that apps and other software permit today did not exist then. Renovation Services found itself in a position where we could provide some visibility from all sides to help lenders get the repairs they needed and keep contractors and other real estate professionals in business.” It was a natural extension of what became a series of wildly successful partnerships for Home Depot to begin offering B2B services to real estate investors as well. “Investors and contractors make up the bulk of what we call our ‘Home Depot Pro’ customers. It only made sense to support them and help them build their businesses up as strong as they can,” Albano said. “Put frankly, a vacant house does not buy anything from Home Depot, does not contribute anything to a real estate investor’s portfolio, does not build up a contractor’s business and does not support the community in which it is located. By bringing all of those individual facets of housing and real estate together, Home Depot served and serves as the crucial link in the chain that gets all those factors working together.” Everyone’s in the Loop For Daniel Linenger, national sales manager for Renovation Services, one of the biggest advantages for real estate professionals working with this division of the company is that the brand provides a proven trustworthy track record with a wide range of services across a large geographical area that makes it easier for investors to scale and grow their business. “Where we are particularly able to add value for real estate investors is when a successful investor decides to replicate their investment strategy in another market,” Linenger said. “So many large-scale investors are very hands-on in their core markets but may lack connections in new regions where they would like to explore opportunities to acquire new properties. We partner with these investors to help them expand into new markets without having to hire a new team or figure out who is a good fit for their business when they are not local to the area. They can trust us to tell them the truth about the market and the things they are attempting to do there.” Albano agreed. “At the end of the day, we’re Home Depot and that matters to us. People know we are not going to ‘take the money and run,’ so to speak, because we finish projects. We are in it for the parties involved who support our business and buy our products, not to get paid on labor. We are the total package and we never, ever forget that.” Because Home Depot is a national company, Linenger said sometimes investors feel intimidated by the scale of the company at first and assume they are going to pay a premium for its B2B services. But, Linenger pointed out, Renovation Services is both competitive and affordable, prioritizing the customer relationship over any short-term margin gains. “Culturally, it is not who we are to lose a long-term relationship to make a bigger margin on a short-term project,” Linenger said. “We are focused on maintaining and growing our partnerships through transparency and adding value wherever we can. We are going to finish the project and finish it right.” To that end, Home Depot’s Renovation Services now come with a variety of tools and even field teams to help investors and contractors get their jobs done. For example, the company offers a free tool called RenoWalk, which helps investors create a specific product selection that can be duplicated across markets and sourced at Home Depot stores. “When you use RenoWalk, you can create a budget inclusive of labor that will guide every party working with you to walk around the property in a specific fashion and consider only certain types of products when defining the project,” Albano said.

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Leases, Mortgages and Court Proceedings in the Age of COVID-19

What are your options for seeking relief? American business was functioning rather well before the COVID-19 pandemic. Contracts were predictable to follow, based upon ordinary operations and expectations. COVID-19 changed all that. Overnight, American business had to contend with local and state executive orders to stay at home, engage in social distancing and substantially limit, if not cease, certain business operations. As a result, many companies have experienced a downturn in business. Based on shelter-in-place orders, some have closed and others have resorted to video consultations. Challenging Governmental Orders The decrease in business income has caused some tenants, such as Pier I, to file for Chapter 11 protection. Other businesses sought to challenge the municipal and state executive orders on constitutional grounds. Business owners have yet to successfully challenge Connecticut’s stay-at-home and related executive orders. A recent decision discussing Connecticut’s executive orders held that one restaurant and bar owner did not demonstrate sufficient evidence to support a temporary restraining order to stay enforcement of the orders (Amato v. Elicker, 2020 U.S. District Lexis 87758). Indeed, given the severity of the health crisis, successful challenges in hard-hit states may be few and far between. It is noteworthy that the governor of Wisconsin’s orders were reversed entirely on procedural grounds, due to a failure to follow that state’s rulemaking procedure in an emergency. However, beyond challenging governmental orders, private parties have litigation options. Litigation Options In the Pier I Chapter 11, the debtor, a tenant, sought to delay its rent obligations for a short period of time, by invoking the equitable powers of the bankruptcy court under Section 105. The landlords naturally objected, but the court sided with the debtor, noting the delayed rent payments would still be due, and insurance, utility and related payments would continue to be made by the debtor. It was also interesting the bankruptcy court noted the following:  While landlords may be able to take advantage of the funding recently made available under the Coronavirus Economic Stabilization Act of 2020 (CARES Act), the Debtors are unable to obtain such funding due to certain eligibility and solvency requirements associated with receiving funding under the CARES Act promulgated by the Small Business Administration. Courts will continue to deal with exercising equitable powers to administer bankruptcy and other cases involving leases and other contracts. The doctrines of frustration of purpose, impossibility of performance and force majeure may provide relief to parties who were unable to perform contractual obligations during the COVID-19 pandemic. Black’s Law Dictionary defines force majeure (French for “superior force”) as an event or effect that can be neither anticipated nor controlled. The term is commonly understood to encompass both acts of nature, (e.g., floods and hurricanes) and acts of man (e.g., riots, strikes and wars). Black’s Law Dictionary further defines force majeure clauses as contractual provisions that address circumstances in which contractual performance becomes impossible or impracticable due to events that could not have been foreseen and are not within a party’s control. It is important to note force majeure clauses do not generally provide for termination of an agreement; rather, they generally suspend a party’s obligation to perform under the agreement for the duration of the force majeure event. The rationale behind force majeure clauses is there will always be events that cannot be anticipated and addressed and for which neither party to an agreement is responsible. In such circumstances, it is equitable and reasonable to suspend performance and extend contract deadlines. However, contracts can and usually do include terms as to what qualifies as a force majeure event and what notice requirements must be met to obtain relief from required performance. Finding Resolution Both landlords and tenants should benefit from negotiations to resolve rent, expense and modified space issues. Increases in common operating expenses for cleaning leased space will be required to be compliant with current health requirements. Space may need to be modified to meet distancing guidelines, and some tenants, like restaurants, may need outdoor dining to stay afloat in the COVID-19 world or face closing their doors. A landlord with a rent abatement request from a tenant may be well advised to accommodate such a request. Some employers may be considering reducing existing office space as more employees work from home, so having a tenant vested in a long-term relationship should provide sufficient incentive to negotiate. Of course, there are always disputes that cannot be resolved. Parties wishing to go on the offensive can seek declaratory relief and damages from the courts. Courts faced with leases that lack a force majeure provision will be asked to invoke equity to solve contractual disputes. A landlord anticipating rents to satisfy mortgage obligations may need to exercise litigation rights immediately to avoid a default under a mortgage loan. The short-term federal stimulus programs may have alleviated some of those concerns for the time being. Once the federal stimulus process is exhausted, commercial property owners will see the tenants that remain as long-term business partners. For investors with commercial mortgages that may be in default, many state courts either are not permitting foreclosure judgments to enter or are not currently accessible for court proceedings. The bankruptcy courts appear to have continued their operations. At least one bankruptcy court has approved an auction of property during the COVID-19 pandemic. In that case, which involved a luxury single-family home on waterfront property, the court approved an auction during this pandemic. In its opinion, the Court stated as follows: Perhaps on the sunniest of summer days, when potential buyers would be wearing not just dark-tinted glasses, but rose-colored ones as well, such circumstances may converge to yield a substantially higher sale price. However, absent the presence of such optimal conditions, and given the administrative expense burn rate and the Debtor’s corresponding inability to cover those administrative costs, the stayed state court foreclosure, the major economic disruptions caused by the Covid-19 pandemic, and the logistical and health concerns associated with attempting to re-market and auction a substantially encumbered trophy property

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How Long Will Rates Be So Low?

The recovery is dependent on employment and business growth, so rates will likely remain low for the foreseeable future. On March 15, 2020, in the wake of the coronavirus pandemic, the Federal Reserve cut the Fed funds rate to 0.25%. This reflects the rate at which commercial banks lend reserves to each other overnight, on an uncollateralized basis. The Fed’s goal is to encourage growth and spending. As the pandemic continued, the Fed maintained the target rate on June 10, 2020. Faced with increased unemployment and business closures, it is unlikely the Fed will raise rates during its July 28-29 meeting. Discount Window The Fed also cut the rate of emergency lending at the discount window for banks to 0.25%, and extended the loan terms to 90 days. The discount window plays a crucial role in supporting liquidity and stability of the banking system. It supports the flow of credit to both households and businesses. The discount window is part of the Feds as the “lender of last resort” to financial institutions. Its presence is to support bank’s liquidity needs. Banks generally reserve the option for extreme situations—exercising the right to borrow from the Fed can be an indication of financial distress. Quantitative Easing The Fed continues to make monetary moves to mitigate the economic turmoil caused by the pandemic. Pulling from its tactical bag of tricks, quantitative easing is being employed to purchase longer term government bonds and mortgage-backed securities. Purchasing securities increases domestic money supply and lowers rates by bidding up fixed-income securities. This measure is meant to lower borrowing costs and expands the central bank’s balance sheet. Mortgage Rates Mortgage rates will continue to remain low because of the low 10-year Treasury rate. There is a strong correlation between mortgage interest rates and Treasury yield. Coupled with the Federal Reserve lowering the target for the Fed funds rate to close to zero on March 15, 2020, mortgage rates will continue to remain below historical levels for some time. Average 30-year fixed rates, according to the Freddie Mac Primary Mortgage Market Survey, have been below 3.25% since the third week of May. For the week of July 9, the survey reported a historic low of 3.03% with 0.8 fees and points. Rates in the market have not fallen as much as anticipated, largely due to heavy demand for refinancing. Lenders get higher than typical margins on loans when demand is strong. Mortgage banks and companies are at liberty to set the rates to consumers. Banks and mortgage companies are also tightening credit standards in an attempt to hedge against borrowers losing their jobs and requesting forbearance. According to the Mortgage Banker Association’s Market Composite Index, mortgage applications are up 33% year over year for the week ending July 3, 2020. The Refinance Index is 111% higher than the same period one year prior. The market is largely recovered from the brief COVID-19 induced pause of spring and summer, and the rest of 2020 is on course for strong purchase and refinance activity. Prime Lending Rate In July, the prime lending rate is a low 3.25%, down 2.25% from the same time a year ago. This is reducing the cost to borrow for consumers. Auto loans, credit cards, home equity lines of credit and other short-term loan products are based on this rate. Banks use the prime rate, plus a certain percentage to calculate the loan rate, based on the borrower’s financial stability, credit score and other factors. Automakers chose to embrace the pandemic as a way to boost sales. Zero percent car deals, payment deferrals and incentives emerged in the spring and early summer along with contactless purchases. Although these deals seem attractive, with the economy as unstable as it is, there is the potential for future job loss and auto loan defaults. Lenders allowing 90-day payment deferrals at purchase cause consumers to pay more over the life of the loan. Also, with longer term car loans, borrowers are more likely to be underwater a good portion of the loan term. Auto loan delinquencies hit a nearly 5% past due in fourth quarter 2019, the highest 90 delinquency rate in seven years. Subprime auto lending has been on the rise for a few years. Performance on auto loans improved in the first quarter of 2020 but $7.8 billion in loans received forbearance in April, according to S&P Global Ratings. Car values are tied to supply, and an increase in defaults may further suppress vehicle values, especially in the event of repossession and auctioning of bank-owned vehicles. Banks are tightening credit standards for auto lending. As of May, more than 60% of originations were extended to borrowers with a credit score of 700 or higher. With forbearance policies and unemployment benefits, analysts forecast auto delinquencies may not rise until the third quarter of 2020. S&P placed 33 subprime ABS deals on Credit Watch with negative outlooks in May, an indication of a potential downgrade if delinquency ratings increase. Credit card issuers are offering attractive zero percent introductory offers and balance rate transfers, looking to retain customers and attract new ones. The Fed reported theaverage interest rate on credit cards was 14.52% in May, as opposed to 15.09% in February. In 2019, consumers were confident and using credit. For the final quarter of 2019, credit card debt balances rose to $930 billion. By February, credit card balances exceeded $1 trillion for the first time in almost three years. The economy was strong, and Americans were spending and carrying balances. The pandemic has had a surprising effect on revolving debt. Consumer’s outstanding balances dropped by $24.3 billion in May, leaving $995.6 billion outstanding, according to the Federal Reserve. Sequestered at home, consumers spent less on credit than before the crisis. The Federal Reserve Bank of New York’s survey of consumer expectations released in June reported that consumers were more optimistic about making debt payments than they were in the April survey. So How Low, How Long? The Federal Reserve will

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5G: Revenue Through the Roof

Telecom carriers have deployed 5G networks—could that mean an additional revenue stream for building and land owners? And owners bode well to determine if leasing their land and rooftops will bring them additional income. Every so often a technology comes along that revolutionizes society and the economy. The 5G wireless technology is one of those. And, after a year of what many refer to as the launching and relaunching of 5G wireless technology, we can finally believe the hype. Verizon, T-Mobile and AT&T are just a few of the carriers working to ensure their 5G network preparation maximizes the revolutionary opportunity that exists. What it Means for CRE The owners of commercial real estate buildings and land are consistently looking for additional revenue streams. That’s even more true during the current COVID-19 pandemic. Knowing that average leases range from $1,200-$3,300 monthly, or that an average 10-year advance payment ranges from $144,000 to almost $400,000 of additional revenue for qualified CRE buildings, there is certainly evidence that cell tower ground and rooftop leases will help owners send revenue through the roof. What Exactly Is 5G? 5G is the fifth generation of wireless technology. Most of us are driven and fixated on the need for speed. Whether ordering at a drive-thru, navigating highway traffic or heating food in a microwave, the sooner we can reach our objective, the better. The same is true when it comes to data. Once upon a time, many of us would log on to our computers and select options that would produce the familiar dial tone of a dial-up connection. Our patience would earn us the satisfaction of the dial tone coming to an epic ending as imagery and text crawled slowly down our screens. Telecom providers like AT&T and Verizon have shown speeds past 1 gigabyte per second. That’s up to 100 times speedier than a typical cellular connection and faster than an actual fiber-optic cable going into a home. Global Workplace Analytics recently provided their best estimate that 25%-30% of the workforce will be working from home multiple days a week by the end of 2021. The download capabilities of 5G at an employee’s home will easily outperform the speeds in the office if the employer chooses not to meet or exceed the offerings of 5G in the workplace. Downloading large files fast is certainly a common ground for both work and work-from-home needs. Resilience during the coronavirus pandemic and the ever-accelerating build-out of 5G network, make cell tower real-estate investment trusts an attractive investment too. 5G also differs from previous generations of cellular technology with network latency. Latency is the time it takes a set of data to move between two points. 5G shortens the amount of time it takes to travel. Gamers renting in properties that have 5G will be delighted to avoid high latency, which causes lag and inevitably reveals the delay between the action of the gamers and the real responses within the game. The Benefits of 5G The performance benefits of faster speeds and low latency are as obvious as the choice between a property with 5G connectivity versus one without, but at a comparable rental rate. The not-so-obvious benefits may be surprising. Remote surgery is arguably the most exciting and surprising benefit. Imagine surgeons being able to use surgical robots to perform a procedure in a facility far away. The advanced imaging guides the surgeon. The lag time currently found in 4G would be too great. The ability to help specialists save lives and attend to more patients in critical conditions is what 5G brings to the operating table. Consider the future of self-driving automobiles being developed alongside 5G, using sensors to ping the network and communicate with other vehicles. Ultimately, it helps with collision avoidance because it knows where every car is. Manufacturers can develop more productive and efficient factories. Farmers can sustain ideal conditions for growing and raising food. Smart Cities will use 5G to power the network infrastructure, from the grid to the water supply. Combining technology with services and infrastructure will simplify the lives of residents who are open to becoming early adopters of the “smart city” as a practice, and not just a theory. The Ground Game on Cell Tower Leases Although owners of commercial property generally think of leasing their rooftop with 5G apparatus, the broad reference also relates to ground leases. Cell tower lease rates vary greatly. The rent is derived from myriad factors, including construction limitations, location, network needs, population density, etc. The cell tower lease agreement between the carriers and the landowners allows the tower companies to use the land in exchange for rent in a long-term agreement. Negotiations will take place before the installation, at a renewal date or during a lease buyout discussion. CRE property owners play a part in the solution of some of the challenges 5G is still facing. Pricing and designing systems to use 5G are both major concerns. The challenge of widespread coverage is critical. As networks develop, carriers’ need to lease the property owners’ site is an opportunity for owners to add income. The era of “smart cities” is also the era of “smart leases.” A smart cell tower lease should maximize monthly revenue, and it should also minimize terms that will have a negative impact on future development, financing or disposition of your property in the long term. The time value of money is always a highly weighted consideration. A lease can last 5, 10 or upwards of 30 years. A solid lease is provisioned for flexibility to adapt to changing conditions during the life of the lease. For example, there may be a need to relocate the cell tower or relocate access or utility easements on the property. Or, the lease could address potential changes in the insurance, liability, environmental and other sections of the lease, particularly over 20 or 30 years. The language regarding the ability to assign, sell or transfer the lease is also important. Is the lease

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