Klein Enterprises’ COVID-19 hurdles reflect industry’s challenges

Klein Enterprises purchased Market at Opitz Crossing for $29.25 million. (Photo courtesy of Klein Enterprises)

Klein Enterprises purchased Market at Opitz Crossing for $29.25 million in 2017. (Photo courtesy of Klein Enterprises)

Daniel Klein, president of Klein Enterprises, said the family-owned firm’s diverse portfolio provides some protection against the economic crisis created by the COVID-19 pandemic, but they’re not immune.

Klein’s challenges offer an insight into the challenges confronting companies spanning a cross section of commercial real estate firms in Maryland as they attempt to stay afloat amid the coronavirus outbreak.

“I think if there’s ever a case to be made for a diversified portfolio … it’s right now,” Klein said.

Services provided by Baltimore-based Klein  include real estate development, management and brokerage. Property types in the firm’s portfolio range from office to self-storage.

While that diversity helps during the crisis, the business still faces significant strains. Klein said he tries to keep the situation facing his team in perspective.

“We have a lot of business pressure, but we’re not doctors and nurses,” he said.

Still, across Klein Enterprises’ 400 property commercial portfolio about 45% of tenants have sought rent relief. As many as 50 tenants have not paid rent at all, and the firm is trying to identify and resolve those issues.

In keeping with wider trends, the the hardest hit of Klein’s tenants are retailers. A recent report found retail sales plummeted 8.7% nationally in March. Retailers in Maryland are no different.

“This is crushing our economy, and that’s not being dramatic,” Cailey Locklair, president of the Maryland Retailers Association, said in a recent interview.

Klein announced Friday that it has leased space to two retail clients, CJ Car Audio and Kidz Jungle World, at Deer Park Center in Randallstown.

Those deals, however, were in the pipeline prior to the COVID-19 outbreak, which forced Gov. Larry Hogan to issue orders closing businesses deemed unessential.

The market for retailers seeking space isn’t completely dead, Klein said; there are “surprisingly” some tenants in the market considering spaces. Yet those businesses are looking several months in advance of actually signing a deal.

“We do not have a high volume of new leasing activity, but some does exist,” Klein said.

While no sector is thriving under these conditions, the asset type suffering the least, he said, is currently multifamily. Rent collections at Klein properties in April reached about 90%.

The relative success of their multifamily properties, Klein said, is largely attributable to the fact their portfolio consists of higher-end Class A offerings.

As a result, renters at Klein properties tend not to be retail and restaurant employees, who make up a sizable portion of the more than 300,000 Maryland residents who filed for unemployment in recent weeks.

The Class A apartment market’s ability to remain in relatively good shape is not expected to continue indefinitely if the economy remain shut down. Interest in apartments has already dropped substantially, Klein said. So far the amount of people looking at the firm’s properties decreased by 70% compared to the the same time last year.

Klein Enterprises also plans next month to deliver The Woodberry, a 283-unit Class A apartment building with 7,500 square feet of retail near Loyola University’s athletic complex.

“But I don’t know who comes out and rents apartments next month,” he said.

Klein Enterprises also started construction on one project in northern New Jersey, he said, and expect to close a construction loan on another development soon.

“We’re moving ahead with the perspective of that we only know what we know today, and we don’t know what’s coming tomorrow,” Klein said.

Despite the uncertainty the firm hasn’t let employees go due to the COVID-19 shutdown. The company doesn’t “view our people as commodities” who can be let go and rehired in a few months after the outbreak passes, Klein said.

Once the crisis ebbs, Klein said, he’s not anticipating business returning to something approaching normal for some time. He’s not even sure what normal will look like, given there’s not much in the way of data and models showing how economies respond to disease-induced shutdowns.

“Traditional economic theory gets thrown out the window in a pandemic like this,” he said.

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