The news is about to get ugly with stories about fights over commercial rents defaulting. As stores are closing across the United States, struggling retailers are skipping rent and asking for concessions. Landlords are demanding payments and seemed to be trapped in the middle as they are in talks with lenders.
Getting the economy going is on everyone’s mind and there is no easy answer. It is going to be a delicate balance between timing and safety. Some mall owners and retail landlords said that they have collected less than 15% of what they are owed. More than $20 billion in rent payments are coming due in May, so the situation is expected to get worse.
Landlords are talking to tenants about rent deferment, which would allow tenants to make reduced payments now so long as they pay the balance at some point. Business are answering with a host of options, including rent cuts, even after stores are open again.
Landlords seem to be really caught in the middle. They are facing their own debt defaults and are complaining that large corporations are using the crisis to skip out on rent. Other landlords say they are not responsible for bailing out tenants and that the federal government or insurance companies should cover the costs instead.
Many landlords are focused on working out deals with lenders to stave off their own defaults. Banks and insurance companies are negotiating deals on a case-by-case basis, but borrowers in commercial mortgage-backed securities have fewer options. About 9% of U.S. CMBS retail property loan borrowers have been late on April payments so far, according to preliminary analysis of remittance by data firm Trepp.
One report said that companies including AT&T Inc., T-Mobile USA Inc. and J.C. Penney have paid for April. Ross Stores Inc. and fitness chain Solidcore, are among those standing firm on requests for rent abatements and asking for additional concessions. Williams-Sonoma Inc. is another chain that has stopped paying rent, according to reports.
“We’re not going to be bullied by the landlords during this time,” said Anne Mahlum, Solidcore’s founder and chief executive officer said. “We have some leverage here. What are they going to do, say get out and then have vacancy for months on end?”
Experts, including Jackson Hsieh, CEO of retail landlord Spirit Realty Capital Inc., says that not paying is likely to backfire. The firm, which owns more than 1,700 properties, has seen requests for rent relief since the crisis started. But several of those tenants ended up paying.
One agreed to pay after getting loans from the government’s relief package, while another did so after being asked to provide financial information. A discount retailer and a company in the auto industry paid after Spirit refused to consider their rent deferral requests.
“If a tenant just says I’m not going to pay, fine, I’ll default you, I’m going to go to the courts, and you have 30 days to pay or quit,” Hsieh said. “I don’t want to be negative, but we own the building.”
This is an issue that is in the early stages, not only locally, but around the world. While we blog about real estate and eminent domain issues, we hope that you are staying safe.