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Feature Story: Your healthcare tenants want rent relief. Now what?

Winstead webinar explores some legal implications of COVID-19 on HRE

By John B. Mugford

Sure, everyone involved in healthcare real estate (HRE) these days is trying to gauge how much of an effect the COVID-19 pandemic and economic crisis is having on the sector.

Although well-leased HRE facilities and medical office buildings (MOBs) emerged largely unscathed from the Great Recession, they are feeling a deeper and much more immediate negative impact this time. In large part, that’s because elective surgeries and procedures are among the “nonessential” services that have been shut down, eliminating the primary revenue sources for most specialty medical groups. Not surprisingly, with little or no money coming in, many of those medical tenants are asking their landlords for rent relief.

“Conventional wisdom says that the healthcare real estate industry is generally recession resistant,” said Andy Dow, an attorney, shareholder and head of the Healthcare Real Estate Practice with Dallas-based law firm Winstead PC. “While that’s historically been the case, the conventional wisdom didn’t account for a recession caused solely by a public health crisis. While the long-term effects of the COVID-19 pandemic on the healthcare real estate market remain to be seen, the short-term effects … are already being felt throughout the industry.”

Mr. Dow, who is also member of the HREI Editorial Advisory Board, was part of an April 17 webinar hosted by Winstead titled “A Look at Some Legal Implications of COVID-19 on Healthcare Real Estate.” The session was designed to educate listeners, many of whom were perhaps HRE facility owners, about the myriad of legal issues concerning landlord-tenant relationships, including the growing number of rent relief requests from tenants during the coronavirus crisis.

Mr. Dow was joined in the discussion by three other attorneys focused on HRE: Corrine Smith, the moderator, and Kevin Wood, both shareholders with Winstead; and Goran Musinovic, an attorney and VP with Knoxville, Tenn.-based Realty Trust Group (RTG), a full-service HRE firm that provides management services for 13 million square feet of healthcare facilities.

Noting that healthcare facilities have “ become the battleground in the fight against the virus,” Mr. Musinovic noted that RTG’s property managers and lease negotiators, “who are on the ground standing shoulder to shoulder with our wonderful healthcare providers in battling this pandemic,” soon began to report requests for rent concessions as the shutdowns of nonessential services as most governors issued executive orders requiring the closure on nonessential businesses.

Mr. Dow said, “The (rent relief) requests that we’re seeing are all across the board – some of them reasonable, some of them unreasonable.” The most common request Winstead’s landlord-clients are seeing, he said, is

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