Michael Pollack looks at retail struggles of 2020 and what lies ahead
The past year has been a struggle for many industries, but no industry was affected more by the COVID-19 pandemic than the retail industry. To get a better view of what the retail market in the Greater Phoenix market endured during 2020 and what lies ahead for those in the retail sector, AZ Big Media reached out to Michael A. Pollack, founder of one of the largest independently owned and operated commercial real estate investment companies in the state and a veteran of 47 years in this volatile industry. Pollack, president and CEO of Michael A. Pollack Real Estate Investments, provides a glimpse at how he approached the changing demands of his tenants and property users, and how he helped them endure the past year and what he feels will help lead the way to a strong recovery in 2021 and beyond.
AZ Big Media: While perceptions were that 2020 was a down year in the retail sector, what was the reality out in the market during the past year?
Michael A. Pollack: COVID-19 has had an unprecedented impact on CRE, with lockdowns effectively shutting down entire sectors leaving many in unemployment lines across the country. With a volatile political fourth quarter following an extremely upsetting first half of the year caused by the Coronavirus many businesses were caught without a canoe in the downpour of rioting and shutdowns that devastated many family-owned small businesses, and even larger well-established businesses throughout the year.
As our phones rang off the hook in late March and through April with tenant questions, it was obvious the average small business owner had no idea how to apply for PPP loans or what the Cares Act was and how it would provide for them. When keeping your family and employees heathy is priority number one and paying bills while putting food on the table is priority number two, the thought of educating yourself on legal paperwork you do not understand can become a tipping point for many businesses to endure.
Surviving in the real estate business for over 47 years is a large source of pride for me and I am proud to be able to work with my tenants on a one on one basis. A pandemic was not any more part of their business outline than mine. Few businesses have the knowledge and skill set to navigate through a pandemic. The first thing that I did was to hire the services of a 25-year veteran SBA specialist to help my employees assist tenants to navigate through the paperwork necessary to qualify for the PPP loans.
Small businesses that were over leveraged and didn’t have accountants or lawyers on staff to help them decide what loans were most appropriate or how to negotiate the changing requirements for employers had the hardest time and they were very happy that I brought a true veteran in to help them navigate through those choppy waters.
The reality is the pandemic caused almost all CRE to suffer some sort of setback in 2020 from nonpayment’s, lease defaults, and foreclosures as businesses struggled. Without government help in the form of the PPP loans Arizona and the rest of the United States would have seen business failure numbers so much higher. At this point 90% of small businesses have exhausted their PPP funding and are anxiously waiting for government negotiations to approve another coronavirus stimulus bill that will help carry them until a vaccine can be administered throughout all communities and we can get back to some form of normalcy.
AZ Big Media: As we look forward to 2021, what are your thoughts on what direction the retail market is headed in communities where you are active?
Michael A. Pollack: Going forward, the direction of retail must include lessons learned from the past year. Even before the pandemic, many retail stores had tremendous stress from too much debt and had difficulty competing with e-commerce. The Internet started transforming every industry many years ago, and commercial real estate was no exception.
I have been telling tenants for years that they must have an online presence, something the last year has definitely confirmed. The retail industry will be transformed once again as it was following other catastrophes, like the Great Recession of 2009.
Although gyms, movie theaters and nightclubs were closed leaving empty buildings for months, other essential tenants like grocery stores, hardware stores and drug stores remained open throughout the year. More centers should continue to lease based on the experience we’ve learned from current tenants.
As the “Essential Worker ” became the title used throughout the year by government representatives’ businesses shifted strategies and learned to apply new exciting ways to adapt. Restaurants began take-out service and outdoor dining became popular, as well as curbside pickup. I watched as many of my tenants began to explore new concepts that I believe will continue in the future. All retailers have to realize that customer service is a must not an option.
AZ Big Media: What trend or topic is your biggest concern for your company and its properties in 2021?
Michael A. Pollack: There is no quick fix in commercial real estate. There are many puzzle pieces that need to fit into place. The commercial property industry has taken a particularly hard hit from COVID-19 containment efforts, which resulted in thousands of stores, gyms, restaurants, movie theaters and many more closing permanently.
Many American’s have been socially distancing for months, riding out the Coronavirus from their homes and ordering online everything from groceries and necessities to holiday presents.
Some sort of on-line shopping has become necessary for many families. Amazon packages landed on many Arizonan’s doorsteps in 2020 while in store sales dropped drastically out of fear of catching COVID-19.
The turn-around should start as the vaccine makes its way through our communities reaching more people as vaccines become widely available and effective enough to allow businesses to open without restrictions.
What started as a few isolated cases turned into a pandemic that left many families struggling to put food on their tables and coping with the loss of precious loved ones. This year will not be forgotten overnight, and life will not return to pre-Coronavirus levels in a day.
Political leaders must remember that both property owners and tenants alike have been through an extremely difficult year and they need to enact responsible policies so both property owners and their tenants can have a chance to heal and hopefully become even stronger in the future.
AZ Big Media: What trend or topic gives you the most optimism that 2021 will be a strong year in the Phoenix Market?
Michael A. Pollack: The economic recovery is heavily dependent on the government approved vaccines being fully deployed to every community as quickly and safely as possible. With the start of vaccinations in December the promise of recovery is visible on the horizon.
Before the pandemic Phoenix was seeing record growth in the commercial real estate community. The future looks brighter and hopefully we have already seen the darkest days behind us. The view forward definitely looks much better than what we see in our rearview mirrors, but we must not forget the lessons that 2020 has taught us all.
I’m optimistic that our political leaders understand that we need to put dollars into hardworking small business owners’ hands as soon as possible.
AZ Big Media: How vital will it be for retail property owners to be flexible and innovative in the coming years?
Michael A. Pollack: The need for CRE to be flexible has been around for quite some time. At one time we saw power centers with only big box retailers popping up everywhere. That is changing back to neighborhood strip centers, often with a grocery anchor, as big box retailers continue transforming to downsize the physical dimensions of their retail stores as well as the number of stores they have open.
Smaller, more dedicated spaces, urban reuse, and neighborhood shopping has all become very popular again especially with millennial shoppers and the “Shop Local Initiative.
The economic downturn caused by the Coronavirus has expedited changes in retail and the rise of online shopping sites. After vaccines are distributed and fear subsides, shoppers will return to brick and mortar as a way of finding more normalcy in their lives.
Innovation came in many forms in 2020. I commend the business owners that were able to be flexible and change their business strategies to include navigating through the pandemic.
The pandemic has clearly demonstrated that many businesses and property owners that we all believed were internet and Amazon proof unfortunately weren’t pandemic proof.
The pandemic has also demonstrated that many other things like public transportation can be completely ineffective and even a dangerous health risk during a health crisis like the Coronavirus. Another important thing I believe we were all reminded of is to keep an eye on debt levels and continue to build reserve accounts for a rainy day.
In closing some of our elected officials will be judged by history as acting wisely, responsible, not being led just by fear and more importantly understanding that just closing everything down for an indefinite amount of time is not the answer. The pandemic has shown us that the answer is very complex and requires a true balance.
Our political leaders must act responsibly today in order to prepare for the next potential problem and not wait until it hits us like a hurricane and brings the world to a stand-still. Those in the political arena must learn that change is constant and what might have seemed like a great idea 20 or 30 years ago may not be cost effective or the best idea for tomorrow.
I’ve always said preparation should begin before a potential negative event not after the event occurs and nothing proves that saying more than what we have all just been through in 2020.