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Spaulding & Slye Investments (SSI) – COVID-19 Update

2.4.2020

Dear Investors,

We hope you and your families are staying healthy and safe in these interesting times. Please find attached the recent report from JLL Research regarding global real estate implications from COVID-19, and two articles from external sources – focusing on the recent steps being enacted by U.S. Congress to combat its domestic economic impacts, and a detailed look at the effects to property values. SSI continues to adjust as new information becomes available with the changing economic landscape. Our team is meeting virtually on a regular basis to discuss risks in the market, capital, real estate in general and how it has or may impact the portfolio. Our initial focus is on the current portfolio and pipeline – where the risks are and how to prioritize our actions. We are actively evaluating and assessing opportunities that may present during this transformative period, in addition to remaining engaged in three prospective investment opportunities identified earlier in the year. We expect to have more clarity on these pursuits and an updated timeline in late April.

  1. Existing Portfolio Risks – There is potential tenant, leasing, construction and debt risk on select properties. For loans, we are looking at all our loan covenants to see where there may be issues and calculating the amount of carry we have should a large tenant default or leasing is delayed. For construction projects, we will keep pushing forward as allowed. However, if individual states or the federal government order a shutdown, we risk a potential delay in materials and progress. If that happens, we will work with our contractors to minimize disruption – order long lead items, keep design moving, be prepared to mobilize or re-mobilize as soon as we are allowed.
  2. 2020 Distributions – At this time and due to the uncertainty regarding the COVID-19 economic impacts and recovery timeline, we are not recommending any distributions in 2020. For our operating assets, this is due to projected upcoming leasing costs or creating reserves for potential unforeseen vacancy.

We are not currently experiencing any construction delays or loan maturity/compliance concerns but remain proactive in our approach with our operating teams, tenants and lenders. As you can imagine, we are spending a lot of time responding to immediate needs in our portfolio and assessing risk. Below is a quick summary of what we are doing on all assets in our portfolio.

At each property :

  • We are monitoring the situation at the buildings and as an initial response we have increased cleaning, provided hand sanitizers, as appropriate, and we are responding city by city/county by county, as shelter in place and lockdowns occur. 
  • We have requested for tenants to notify us of the staffing in each suite during this period, that allows us to better assess operations needed at the buildings.
  • As states/counties/cities begin to shut down non-essential businesses, we are assessing building staff and services to determine what is essential and what services can or should be reduced. To date, all states that have shut down have deemed building engineers and janitorial staff as essential and we are operating on reduced hours and with reduced staff. We are monitoring individual markets to determine the appropriate response.
  • We are monitoring operating costs to determine if increased cleaning or security (where applicable) will cause a variance to budget. To date, it is anticipated that these additional costs will be offset by reduced building operations.
  • We are logging any rent relief requests and we will address them after April rent collections. 

We have developed a response plan to potential and confirmed COVID-19 cases :

  • When/if a Tenant reports COVID-19 exposure or confirmed case, we are sending a notice to all tenants to alert them of the situation and the last date that the employee occupied the building. We have reviewed these notices with legal counsel.
  • Upon notice, we will respond with a deep cleaning of the tenant space impacted, as well as the building’s common areas. 

We will continue providing updates as appropriate, but please do not hesitate to reach out with any questions.

Take care,

The Spaulding & Slye Investments Team