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Jon Reno LaBudde: New leases hindered by ‘Covid cold feet’

Bill DeYoung

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The New Normal

Six months ago, when businesses began to shutter with the spread of Covid-19, it was almost inconceivable that the pandemic and its restrictions and limitations would last this long. Yet here we are, with no guarantees of a return to “normal” any time soon. In this series, the Catalyst talks with leaders in business, the arts and government about those six long months, about sacrifices they’ve made, and continue to make in order to survive, and about the future and how it looks to them. This is The New Normal.

Commercial real estate developer Jon Reno LaBudde is a St. Pete native who’s spent a lifetime investing in his hometown. When he’s not arranging top-dollar sales or leasing everything from storefronts to business towers, he is actively involved in businesses of his own, including the venerable Reno Beach Surf Shop, and The Big Catch at Salt Creek, itself modeled after The Big Catch, LaBudde’s longtime and well-remembered downtown restaurant.

 

Six commercial real estate months under Covid. What does that look like to you?

A big niche of commercial real estate is leasing. When Covid really hit in March, I had two deals that were hot on the plate. We’d gone through six months of lease negotiation, we were at the signing table, and they both backed out. Because of Covid. I usually get 57 leasing calls a day, and that went down to three days. But then something weird happened. About six or seven weeks into it, my phone started ringing again, and it was for leasing. If you’re leasing you’re expanding, you’re upsizing, you’re relocating, you’re starting a new business – the same way with people buying a business. I’ve had tons of activity, tons of showings … and nobody has pulled the trigger. I’ve had maybe four lease executions in four months.

 

What you’re saying is that nobody wants to go into a new place now.

Right. But it’s the weirdest thing. They call me all the time. They’re almost there. Yesterday I had somebody almost there, but then their agent called me and said “They’re getting Covid cold feet. Now they don’t want to expand.”

I have a strong opinion: Large offices sent everybody home, and now everybody’s claiming that their employees are being productive. Well, I’m a pessimist when it comes to that. I’ve got employees that work off-premises, and I saw productivity fall off. I think people will see, at some point, that yeah, they’re going to have to go back to the office, because you’ve got to intermingle and interact. And they’re not going to be productive at home.

 

Compare early March to right now.

Early March was on fire. Commercial real estate has been lofting at the top for years now. And I’m not an economist, but I can usually do six to eight months’ predictions … January was good, and I was peaking again in March when Covid hit. But … there’s a flip side to this. Acquisitions is still happening, mainly because it’s Economics 101: Supply and demand. We don’t have any supply. The demand is probably normal, but the supply is sub-par. In March, a lot of the supply was grossly overpriced. We thought Covid might be a blessing, and it would tell sellers “Hey lower your prices a little bit.”

Next, a lot of my investors called me, looking for the fire sale. The distress sale. In March. But commercial real estate doesn’t trickle down immediately. It’s a one- or two-year process. They were calling me for the deals. I said “There’s no deals. We’re only two or three weeks into Covid.”

At this time, there are still no deals because of inventory. There’s more demand than supply. But I will say that people are more negotiable because of Covid, as sellers and as landlords.

 

That surprises me. I would imagine that people are trying to unload properties.

There’s very few mom and pops out there, so mom and pops are going to be the first ones to fall. But you’d be surprised. I know a property owners you’d call mom and pop, but jeez, they’ve got 10 buildings. And then the other stuff is owned by net worth people, big capital groups, or equity groups as we call them, so they’re not going to react immediately. Most of these guys have the bandwidth; maybe a year down; they’ve got to make their investors happy. But they don’t have a sense of urgency, so they don’t just give things away.

 

As a lessor, are you losing money? Are your tenants paying you?

A lot of people who are credible want to stay credible, so they’re paying their rent. And in the places where I lease my businesses, I’m paying my rent. Because the alternative was really not good. A furlough doesn’t do me any good. So what – you give me two, three months’ furlough, and now I owe you $15,000, instead of $4,000 a month. A furlough is just a bait-and-switch game, if you ask me.

 

If this goes on for another six months, aren’t things going to change?

Oh heck yeah. Take my surf shop – we were closed during March and April, the two busiest months, ‘cause it’s Spring Break and Easter. That’s 30 percent of my sales. My point is, some of us got some PPP money, some of us got some SBA, but if they shut us down again and the government doesn’t … I can’t think of anything more unfair than to be ordered to shut down, but to still have to pay Duke, AllState, all my bills, with no income? I don’t get it.

 

You’re a partner in the Big Catch at Salt Creek. How’s that going?

We’ve been banging it. Eighty percent of our stuff was already outside. There’s still a limited amount of diners going out – I just talked to somebody who’s 30-something, and they haven’t been to a restaurant yet. So there are still a lot of people who are strict. So now your dining pool is, let’s say, half of what it was. And that part of the dining pool, they’re only going to outside places. So my place has reaped huge benefits. And we’ve basically enlarged the outside, so give or take we’re open one hundred percent.

 

Another of your investments is Jannus Live. No shows. No income. That’s gotta hurt.

Yes, that’s gotta hurt. It does hurt. And when I talk to the primary owner, my friend and business partner, I say “Well, what’s the outlook?” And the outlook is not good. We deal with Live Nation, and they’re not producing any shows. I don’t know if venues are really doing 50 percent shows – how do you do that in a concert venue? You can 50-percent them, but you can’t space them all out.

So we’re at the mercy of the government, but also at the mercy of big companies like Live Nation until they get back in gear.

 

Can you say, in any sense of the word, that you’re optimistic?

Yes. I’m kind of like “boots on the ground,” I’m on the streets, interacting with my clients, interacting with other business people …I see more people going out. I see more people in my store. I’m predicting something I haven’t seen, but I just kinda see a little curve happening. People are getting a little bit tired of this.

 

What’s next for you?

I’m going to totally contradict myself. I personally just bought a business today, and I’m buying another business next week. They’re pretty good businesses, but the current owner has been passive. Both of these businesses have value add, and both of them have survived Covid.

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