• Tenant-landlord dynamics are likely to change. In the short term, tenants may seek dispensation, moratoriums or discounts to their payment obligations, on the grounds of force majeure or otherwise. In the medium term, there will be an expectation from developers to increase spend on social wellness and hygiene infrastructure.

• The forced experiment of remote working may become a norm for certain businesses and have an impact on the flexi-working policies of all businesses, one way or another. As a result, tenants may reassess their space utilisation requirements, and developers, their ability to offer IT infrastructure, which can enable seamless connectivity for their tenants.

• In the short term, business plans and projections will have to account for the slowdown in construction activity on account of the lockdown[1], as well as the cascading impact of migrant labour, supply chain management, availability of raw materials and depleted cash reserves. As a last resort, SEBI may have to intervene to temporarily relax compliance with asset holding conditions (i.e. minimum 80% of total asset value to be invested in completed and income generating assets).

• The RBI moratorium on loan repayments (by REITs, as well as by service providers integral to the ongoing operations of the REIT) will be a welcome placebo to the draft that distributable cash flows of the REIT will experience in the short to medium term. There could also be potential restructuring of security packages in the event there is an overall reduction in valuation of mortgaged assets.

• Uncertainties in periodical cash flows will have a direct bearing on the M&A activity of real estate developers, including REITs. At the same time, availability of distressed assets for sale as a direct consequence of the economic slowdown precipitated by COVID-19 (a similar trend was noticed during the 2007-08 recession) may provide REITs a cost-effective strategy to grow.

• REITs looking to raise funds from the market may have to rethink their timing, and presentation of financial information, at a time when December 19 financials will be stale, and March 2020 may be read out of context on account of the impact of COVID-19. Even if there is an extension of the financial year to enable reporting[2], presenting comparative financial data of potentially ‘un-comparative’ financial periods will be a challenge.

• Forecasters have predicted that business outlook post COVID-19 for asset classes such as hospitals, warehouses, data centres and communication towers appear positive. In the Indian context, given that some of these assets may fall in the grey area between ‘real estate’ and ‘infrastructure’, regulatory clarity and intervention will be required in order to make these assets REIT-eligible, should the developers prefer that route.

• Developers may also consider unbundling/ comingling of asset classes in order to create verticals that maximise valuation benefit and certainty, before considering a REIT listing. For instance, retail and hospitality assets may be separated from the commercial portfolio completely, as part of pre-REIT restructuring.

• The regulator may consider relaxing the NDCF framework on account of the pandemic, to enable changes to handle future contingencies of a similar scale. Additionally, SEBI may also have to consider relaxing the unitholder meeting requirements in line with the changes already brought about by the MCA for shareholder meetings.

• A negative economic outlook, austerity measures and reduced consumer spending may have an impact on upcoming, promising[3] asset classes such as co-living spaces. Similarly, plug and play features of co-working spaces may end up being counter-productive in light of the increased emphasis on public hygiene and safety in the aftermath of the pandemic.

[1] Gross absorption is already projected to be lower than 2019 levels, and the total supply as of March 2020 increasing by only 1% y-o-y, after developers shifted their focus to completing pre-existing commitments (Source: Economic Times, ‘Leasing of Commercial Real Estate Slows Down’, April 6, 2020)

[2] Currently, the relaxation is only in the form of extension to the filing period

[3] According to Cushman and Wakefield, India’s co-living market is expected to double by 2025 to USD 13.92 billion across top 30 cities