A construction project often involves many moving pieces, including supplies, equipment, various contractors and their employees, negotiations with the city over zoning regulations, and more. Even under normal circumstances, it can be challenging to ensure that you are upholding all of the details of your construction contract, and it may be impossible during an unprecedented event like the COVID-19 pandemic. At a time like this, it is important to review your contracts to determine whether they include a force majeure clause that can provide relief.

How the COVID-19 Pandemic Affects Construction Projects

COVID-19 and its effects may make it difficult or impossible to fulfill your obligations as a construction contractor for several possible reasons, including:

• Supply shortages: The pandemic may have interrupted the production or distribution of building and construction materials that are necessary to complete a project.
• Project delays: Stay-at-home or shelter-in-place orders in the first few months of the pandemic may have delayed the start of a construction project.
• Self-isolation of employees: Employees isolating or quarantining for their own safety or because they have tested positive for the virus may lead to labor shortages that slow the progress of a project.
• Social distancing precautions: In order to maintain safe social distancing at worksites,  you may need to make adjustments to complete your project with smaller work crews.
• Cash flow issues: The economic impact of COVID-19 may have led to the cancellation of some projects or difficulty in acquiring new ones. Resulting losses in income may make it harder to complete current projects.

Pursuing Relief Through a Force Majeure Clause

If you are struggling with any of these issues, you may be able to seek relief from your contractual obligations if your contract includes a force majeure clause, which can account for the possibility of unpredictable and uncontrollable acts of nature or people. The COVID-19 pandemic may qualify as one of these acts, but it can depend on the language in your contract. For example, you may be more likely to obtain relief if the contract specifically lists pandemics in the force majeure clause. You will also likely need to demonstrate that your inability to fulfill the contract is specifically due to the pandemic. Depending on the language in your contract, you may be able to receive an extension on the project, additional compensation for increased expenses, or total release from your contractual obligations.

In the business of commercial real estate, it can often be beneficial to purchase a property that has already been developed, rather than starting a new development project from scratch. Perhaps a developed property is located in the perfect place for your purposes, and you may even find that you can adapt existing structures to your needs. However, chances are that you will need to make some changes, either through a renovation or a complete redevelopment, and if so, you should be aware of zoning regulations that may impact your project.

Zoning Regulations in an Illinois Commercial Real Estate Renovation

You may find that you can adapt a new property to meet your needs by renovating structures that have already been built. A renovation may help you save time that you would need to spend on demolition, construction, and rezoning, but in most cases, you will still need to pay attention to zoning regulations in the local municipality that affect the development. For example, you may need to ensure that your renovation complies with local health, safety, and energy efficiency standards. You will also likely need to ensure that the property is authorized for use as the kind of business that will be operated there.

Planning for Zoning Regulations in Your Redevelopment

Unlike a renovation, a redevelopment often requires you to demolish existing structures and initiate a new construction project. Because you are planning to implement more drastic changes, you may be more likely to encounter zoning challenges. You will need to look into the zoning regulations at the time the property was originally developed, as well as any changes in the subsequent years.

Due diligence is a critical step in the acquisition of a property, especially for those dealing in commercial real estate. Done effectively, the process can protect you from lengthy project delays, zoning issues, and other negative consequences. In contrast, failures in your due diligence process may lead to extreme financial loss and an overall poor return on investment. Learn how to avoid mistakes and oversights in your due diligence with these crucial facts.

You Need to Spend Time at the Property 

Far too often, investors rely on the “experts” to handle the due diligence process. They hire an inspector but do not attend the inspection, contact someone to value the property but are not present during the valuation process, and rely on reports to tell them whether the building is up to code. Sadly, this is a massive mistake.

Savvy investors know the best protection against extreme financial loss is a diverse investment portfolio. Yet, many overlook the commercial real estate (CRE) sector. Perhaps it is because they fear the large, upfront investment, big risk, and long-term return on their investment. More likely, however, an investor may hesitate or even avoid the CRE market because they do not fully understand the benefits or the necessary steps for breaking in to this type of market.

Why Commercial Real Estate?

The first issue to address is the “why” behind commercial real estate. Certainly, there are other types of investments with lower risks. Yet, it is the high risk and large investment amount that make CRE properties so appealing. They offer a steady and stable return. Real estate is also considered a tangible asset, which investors can use as collateral on other investments.

If you have toyed with the idea of commercial real estate investing, now is the time to take the plunge! Despite the previous concerns over an economic downturn, the market is expected to continue its growth. In fact, investors are likely to see some of the biggest gains in history over the next several years. Of course, that begs to question, where do you start? Also, what sector is most suited for a new investor like yourself, and how can you give yourself the best chance at success? Continue reading to learn the answers to these questions.

Examining the Different CRE Sectors

Commercial real estate is divided into categories known as sectors. Each has its own set of challenges, ROI opportunity, and nuances.