^^ below an excerpt from the previous post's article, a lot more at link, long article - interview
https://www.eater.com/2020/8/17/2137...rants-covid-19
EATER
What It’s Like to Negotiate With Landlords Right Now
Hospitality lawyer Jasmine Moy visits Eater’s Digest this week
by Amanda Kludt@kludt Aug 17, 2020,
AK: A common question I’ve been getting is, why would a landlord rather have a vacant space than have a tenant that’s paying a discounted rate? So I know that these people have mortgages if they are mom-and-pop landlords. At first I thought it might be tax breaks, but then I see that’s not necessarily the case, especially in many cities. So what is the motivation there?
JM: It is a direct relation that the rent has to the value of the property. And when I talk about the value of the property, I’m not even talking about the assessed value of the property, I’m talking about the value of the property to the bank and the security that the bank sees in that building or in the space, because the kind of money a bank will lend to you, is directly related to how much income you can see from the property, and by income on the property, all you’re talking about is rent.
So the minute you lower the rent, you lower the ability to borrow money or to get any kind of liquidity from a bank. And so people are very reluctant to do that. So they would rather, versus lowering the value of their building and reducing the rent, they would rather leave it empty. And I’m not a tax attorney, but I do know that there are various write-offs and things you can take if you’re taking a loss on any given year, so there’s no financial incentive to lower the rent on any space, they don’t take a hit. The hit is to them in terms of what they have access to as far as money goes, capital goes.
So, yeah. Until we tax people, until we disincentivize people, or find a way to disincentivize them from leaving a premises open...I talked to a developer who said he could leave a space open for like 6 years before he’d actually start to lose money.
AK: Oh wow.
DG: Oh my god.
JM: Which is a really long time, which is why you walk in the West Village and everything’s empty, it’s because they can.
AK: Unless there’s actually a vacancy tax, like in San Francisco, people are just going to keep doing this. They will let their tenants walk, rather than lower the rent for them.
JM: Yeah. Unless, and again, this goes back to what we talked about as far as a landlord being a partner, sometimes landlords need somebody in there, food and beverage in particular, because maybe they’re developing something in a neighborhood that’s a little bit of a dead zone that doesn’t have a coffee shop within half a mile, that doesn’t have X, Y, or Z. Those partnerships are bound to be better partnerships because they need you a little bit. So to the extent that you’re in a neighborhood that has a ton of walk by where a landlord doesn’t really care what is in their space. Yeah. They’re not going to give a **** and they’ll leave it open. They’ll let you go, they’ll leave it open.
The people who I think are more incentivized to work out a deal are the people who need you for whatever reason, because they’ve got this mixed-use property because they need a grocery there, they need a coffee shop there, they need a restaurant there. So I do think those sorts of projects are probably going to be more attractive to people moving forward, because the landlord actually has a vested interest in your success.
DG: So just in terms of the deals you’re seeing, that makes sense that the larger corporate landlords would be much more interested, or would be entirely uninterested, in renegotiating a contract, because the last thing they would want to do is have a lower rent on paper, because they can’t borrow against it.
JM: Uh-huh (affirmative).
DG: That’s so interesting.
AK: And the mom-and-pops too.
DG: Right. Right, right. So if they do cut restaurants or cut anyone a deal and say, “We’ll allow you to skip rent for the winter.” Does that not leave any kind of paper trail for them and the banks wouldn’t see that in terms of in their borrowing practices?
JM: So what happens is the base rent on paper is the base rent.
DG: Okay.
JM: So in all of these amendments that you’re drafting, you’re talking about a base rent, but then maybe discounts.
DG: Gotcha.
JM: So the base rent is the base rent. Nobody is lowering the base rent, they’re sort of adding verbiage to give discounts in the same way in any lease that you sign, you have a free rent period. So you have a base rent, but the rent is abated, which means you just don’t pay it for a certain period. So what all of these amendments are, are like amendments at the base rent, but with percentage abatement. Percentages of the rent abated so that the base rent stays the same, it’s not being altered. And when you give that to the bank, while the bank understands that for the next 6 months there’s some differential there, they know that after that period, the base rent is the base rent and that’s what they’ll be able to see.
And banks are giving forbearances on mortgages and things like that, for the most part, so these landlords, by a large, are not having to pay mortgage during periods in which they’re not collecting rent. But every landlord has a different cashflow situation. And listen, some landlords don’t have mortgages on their properties and some lands are just being greedy.
AK: Wow.
JM: Some of them are just... I have a client who had just built, of, The Banty Rooster, Delores Tronco, had opened The Banty Rooster in the Village, put a lot of money into that space and made it beautiful, and I think her landlord was completely, they have no mortgage on the property, her landlord was completely unwilling to make a deal with her, because I think she’s looking at it and saying, “Oh, you just added millions of dollars worth of improvements, and so I’m going to be able to sell this I’m not going to have to drop the rent because someone’s going to get all of this stuff.”
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