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Hi all-
I figured I would get ahead of the curve - wondering if anyone has begun moves for rent relief in the form of a lesser amount or deferred rent for those landlords who are not budging.
Is anyone out there operating in a large mall operator? simon, westfield, brookstone etc? what are your experiences negotiating with these REITs?
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
44,570 posts, read 81,147,605 times
Reputation: 57793
I'm in commercial/industrial real estate and we have had several requests from restaurants that are now temporarily closed due to the governor's orders. There are also some industrial tenants hurting. Our April rent billings go out Friday, and until then our legal, finance, and executive people are trying to figure out what we can do. There is no lease language addressing a pandemic. At most I would expect some kind of immediate relief but to be paid back over time when the economy recovers. Some are not going to make it, and will end up in default.
Do you like banging your head on a brick wall? I ran a small manufacturing business for over 25 years and dealt with several management companies and landlords. Let’s just say none were overly sympathetic to the issues I faced when the economy took a bad turn in 1991, 2001, and 2008.
It's interesting that personal finance professionals recommend having 6-12 months of living expenses saved in an emergency fund in the event of loss of income but major businesses are on the brink of going out of business with just 2 weeks of lost revenue.
It's interesting that personal finance professionals recommend having 6-12 months of living expenses saved in an emergency fund in the event of loss of income but major businesses are on the brink of going out of business with just 2 weeks of lost revenue.
Most small businesses do have a cash reserve, it’s called the owner. There were several lean times where my workers were getting paid and I wasn’t. One thanksgiving I had to sit there as the wife of an employee harangued me about not handing out free turkeys (we literally couldn’t afford it). Her husband was a rather gifted engineer and had earned far more salary than I did that year but he didn’t know it.
I will definitely let our property management company know we can't pay in April. Our business has dropped 90%. Our customers are schools and until they're back and things calm down, they're not buying.
We're in a large shopping center owned by an out of state company.
I am a CRE lender, whole loan, full hold portfolio lender. I am second generation, grew up in this business on the life insurance side of the business, started on that side and made the shift over to large bank side about 10 years ago. In total, about $5b of deals across the US and Canada. I’ve been it myself for nearly 20 years, and watched it around my kitchen table for 45 years. Here are my thoughts...
Force Majeure. We all need to understand what this means because that is exactly what this is, for the first time in our distant economic history.
The industry missed “pandemic” in defining it, but by all accounts it captures the very essence of the concept.
Know this - every retail owner in the country with a mortgage is asking their lender for relief right now (as are the hotel owners now too). Your landlord knows you can’t afford to stay open if you have to pay the rent while the government is urging you to close and/or urging the population to avoid your business right now.
An excellent example of this concept that speaks to exactly what is going on - Amazon HQ2... the language in delivering HQ2 and ramping up those promised jobs for the tax incentives contains language for excusable delays and/or cancellations based around the Forced Majeure legal concept - to include but not limited to - US Government intervention.
What your landlord can do for you will likely be defined by what the lender can do for him. Just as you depend on me to come buy something from your store - he is dependent on me too to provide you with the resources to pay his rent. This can’t happen if (1) I could be killed by doing so and/or, (2) the legal authorities have prevented me from doing so for reasons beyond either my or your control.
The bailout dollars need to be focused on the money centers - the banks. BUT it is different this time around, as we are now many years into Dodd/Frank+ regulation and the infrastructure is NOT over leveraged like it was 12 years ago. There is cushion in the system for temporary hits that was not there when 2008 hit (a truly man made event). Also - the system is NOT tied together as tightly as it was back then, thanks to stopping the cross default derivatives garbage that allowed a $1b institution to take down a $1t institution.
Hang in there guys - and use the force Majeure concept to support your need to delay rent for a few months. Trust me, the industry is racing to figure this out - and it’s all pointing to this concept in some form. Also - know your landlord does not want to lose you..
We over built it in 1991.
We over bet it in 1999.
We over leveraged it in 2008.
None of those concepts from the last 30 years are present here today..
I am a CRE lender, whole loan, full hold portfolio lender. I am second generation, grew up in this business on the life insurance side of the business, started on that side and made the shift over to large bank side about 10 years ago. In total, about $5b of deals across the US and Canada. I’ve been it myself for nearly 20 years, and watched it around my kitchen table for 45 years. Here are my thoughts...
[…]
Also - know your landlord does not want to lose you...
You bring a unique perspective to the discussion — thanks. The CRE “landlord” is typically shielded from their tenants by a management company, in my experience typically made up of failed real estate agents and a few incompetent clerical workers. This management company rarely shows any concern for tenants until a rent payment is late.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
44,570 posts, read 81,147,605 times
Reputation: 57793
Our lease Force Majeure clause specifies the qualifying conditions, and in this case the only one that could possibly be interpreted as applicable is "act of God." That, I suppose, would have to be determined in court. So far our legal team is not suggesting that.
Though we require many kinds of insurance, we don't require business interruption insurance, which could have helped some businesses.
I am a CRE lender, whole loan, full hold portfolio lender. I am second generation, grew up in this business on the life insurance side of the business, started on that side and made the shift over to large bank side about 10 years ago. In total, about $5b of deals across the US and Canada. I’ve been it myself for nearly 20 years, and watched it around my kitchen table for 45 years. Here are my thoughts...
Force Majeure. We all need to understand what this means because that is exactly what this is, for the first time in our distant economic history.
The industry missed “pandemic” in defining it, but by all accounts it captures the very essence of the concept.
Know this - every retail owner in the country with a mortgage is asking their lender for relief right now (as are the hotel owners now too). Your landlord knows you can’t afford to stay open if you have to pay the rent while the government is urging you to close and/or urging the population to avoid your business right now.
An excellent example of this concept that speaks to exactly what is going on - Amazon HQ2... the language in delivering HQ2 and ramping up those promised jobs for the tax incentives contains language for excusable delays and/or cancellations based around the Forced Majeure legal concept - to include but not limited to - US Government intervention.
What your landlord can do for you will likely be defined by what the lender can do for him. Just as you depend on me to come buy something from your store - he is dependent on me too to provide you with the resources to pay his rent. This can’t happen if (1) I could be killed by doing so and/or, (2) the legal authorities have prevented me from doing so for reasons beyond either my or your control.
The bailout dollars need to be focused on the money centers - the banks. BUT it is different this time around, as we are now many years into Dodd/Frank+ regulation and the infrastructure is NOT over leveraged like it was 12 years ago. There is cushion in the system for temporary hits that was not there when 2008 hit (a truly man made event). Also - the system is NOT tied together as tightly as it was back then, thanks to stopping the cross default derivatives garbage that allowed a $1b institution to take down a $1t institution.
Hang in there guys - and use the force Majeure concept to support your need to delay rent for a few months. Trust me, the industry is racing to figure this out - and it’s all pointing to this concept in some form. Also - know your landlord does not want to lose you..
We over built it in 1991.
We over bet it in 1999.
We over leveraged it in 2008.
None of those concepts from the last 30 years are present here today..
This is a really intelligent and cogent explanation. Thanks.
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