The COVID-19 pandemic is having a tremendous impact on retail real estate. And unfortunately, much of it is extraordinarily negative.
Many of the “non-essential” businesses that have been forced to close by the order of state and local governments are retail operation situated in community and neighborhood shopping centers.
And with tenants earning little to no income, landlords are understandably worried. This anxiety has led many landlords to respond to their tenants’ situations in a range of far-flung extremes.
Some landlords have issued blanket offers of rent deferment, abatement, and even outright “rent forgiveness,” among other assorted preemptive concessions. Whether or not their tenants’ circumstances warrant such markdowns.
While other landlords have taken a “hardline” approach, insisting “the rent is due!” Regardless of the tenant’s capacity to pay that rent.
The reality is, each tenant’s circumstances are unique. And as such, each tenant should be treated accordingly.
Here are some quick examples demonstrating the variations from tenant-to-tenant…
Quick Serve Restaurants
Many quick-serve restaurants (QSRs) are largely take-out based to begin with. And with dine-out options more limited than ever, as most typical “sit-down” restaurants are closed, QSRs are seeing well above average sales.
Thus, a QSR claiming: “We can’t afford to pay rent,” is a disingenuous claim. And more than likely, this claim is an attempt to take advantage of the current circumstance to cut or outright avoid a measure of their operating costs while this corornavirus crisis persists.
Major National (And Sometimes International) Tenants
Similarly, major national (and sometimes international) tenants that claim that can’t pay rent after a two-week shutdown are being insincere.
These are massive, in some cases multi-national, corporations. The notion that they do not have the cash reserves to cover their liabilities during a six-to-eight-week closure rings completely false.
Also similar to QSRs, many of these tenants are still operating…
- Restaurants (major national chains) continue to provide take-out and delivery services – and many are doing an incredibly brisk trade
- Soft goods sellers (clothes, shoes, sporting goods, etc…) are still doing online sales – and again many of these businesses have seen a tremendous uptick in internet sales since the “Safer At Home” order has left nearly the entire population home-bound
- Insurance agencies + tax preparation can be processed online – and many of these operations have made this transition
These are just a few examples, but they paint a clear picture of how many businesses are still operating, despite the “non-essential” closure order and the overal impact of the coronavirus crisis.
Independent, Mom + Pop Service-Based Business
On the other end of the spectrum, we have independent, mom & pop businesses that provide a specific service… Nail salons, hair salons and barber shops, bakeries and cafes, tailoring and alterations, and dental clinics, along with many others operations that have been forced closed and are unable to otherwise serve their customers.
These tenants are facing unique challenges… As smaller, independent operations, they don’t necessarily have major cash reserves. And if they are unable to generate income, it seriously curtails their ability to sustain their businesses.
For these tenants, it’s not just a matter of paying rent. They’re struggling to cover their operational expenses as whole. And the reality is, some will not survive this forced closure. Particularly if the shutdown persists for much longer.
As such, pleas for rent deferments, abatements, and other financial concession from these sorts of tenants are entirely credible. And if landlords hope to retain these tenants, entertaining some type of financial compromise is prudent.
Evaluate Each Tenant Individually
The larger point is simple: Each tenant should be considered on an individual basis. Mostly because taking a blanket approach is unlikely to serve a landlord’s best interest.
Rather, the more effective method it to consider:
- The business types
- Their current ability to operate
- Their level of capitalization
- The likelihood the business will recover once the shutdown is lifted
And use these considerations to formulate an appropriate response to any tenant requests for financial concessions.
Need Help Managing Tenant Rent Concession Requests?
We understand this is a difficult situation. And it’s seemingly impossible to determine the best course of action.
If you’re a retail landlord struggling on this front, CBM is here to help!
Get in touch with Rick Rivera, CBM President, for a free consultation: 310.231.5201 or email@example.com