Today, I received an urgent call from a client regarding capital projects set for the upcoming weeks. As an accountant in commercial real estate, I discovered that our primary general contractor for a major property informed us of indefinite delays in all projects due to a supply shortage. Apparently, there is a rush to stockpile materials before tariffs take effect in January, reminiscent of the toilet paper crisis during COVID, but on a larger scale.
This situation endangers my client significantly. They are preparing for a new tenant on three floors who has already invested heavily in relocating existing tenants and has lost others for this new arrangement. The construction, originally planned to begin in December and finish by March, was set to ensure one floor was ready by mid-January for partial occupancy. Yet, the general contractor now states there will be no progress until summer 2025, extending the project timeline significantly and inflating costs.
The financial implications are daunting: an estimated loss of $31 million in rent for the year due to this tenant alone, with additional expenses and potential lost revenue from smaller tenants also experiencing delays. Moreover, there is concern that the new tenant may seek to exit their lease since they might not be able to wait another year to occupy. Furthermore, we’ve been advised to halt new leasing unless spaces are ready and have minimal project demands. This situation underscores the far-reaching impacts of supply chain issues beyond just rising food costs.