With many commercial property tenants in hard financial straits as a result of economic collapse from coronavirus pandemic, landlords are willing to offer discounts on rent payments, extend payment terms, extend or shorten agreement rent, permanently reducing rent and even forgiving payments previously due, according to property advisers, property managers and solicitors.
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By giving up the times after negotiations, landlords hope to avoid the spread of tenants with pandemics, keep properties alive and rent payments flow, while avoiding the hassles. more potential losses from evictions and more vacancies in their shopping centers and malls. They fear triggering rental arrangements that begin when major sellers leave an acre or a certain number of tenants of a particular property, cutting rents to those who remain.
“As a result of the pandemic, people are concerned about empty stores and worry about traffic in their malls,” said Saul Burian, managing director at investment bank Houlihan Lokey Inc. “Some are even concerned about hitting thresholds for vacancies that could have another impact either on other tenants, or on their debt. “
Landlords who feel they can’t quickly replace tenants are the smallest reducer in negotiations, said Beth Azor, founder and owner of commercial property advisory and investment firm Azor Advisory Services Inc., which owns six and governing shopping malls in South Florida.
Real estate partners A&G Real Estate Partners said it saved its clients around $ 1.7 billion through lease negotiations in the first nine months of 2020, reducing rents on 9,550 leases and getting an end on 950 leases for 58 retailers, restaurants, education users, office tenants. and fitness and entertainment workers.
A&G won discounts from 77% of landlords of these lease agreements, compared to its average of 50% in previous years, according to the company, which advised a number of sellers who broke up in 2020. including former owner Ann Taylor Ascena Retail Group Inc., and Men’s Wearhouse and Jos. A. Parent bank Tailored Brands Inc.
When Francesca’s Holdings Corp., another A&G client, filed for bankruptcy protection in December, the retail chain, which sells clothing, jewelry, jewelry and gifts, cost nearly $ 37 million. who canceled in lease duties after striking contracts with some landlords, according to court papers. .
“Landlords have become more rational. Their lenders have become more rational. So we can get rental discounts, “said Andy Graiser, co – president of A&G.
Vacancies have been steadily rising and are expected to rise significantly. The average retail rate of pandemic was around 4.5% and is projected to end at 5.3% to 5.5% but is expected to rise to between 5.8% and 6.2% by the end of 2021, according to data from property analyzes. CoStar Group Inc.
Prior to the pandemic, average retail rents were growing at more than 2% per year, according to CoStar.
CoStar now expects rents to decline anywhere from 1% to 3% year over year in 2021.
“Landlords will do what is in the best interests of the landlord,” said Mohsin Meghji, managing director of corporate consultancy M-III Partners LP. “But landlords have never been and are not going to sort out rent reductions. bring forth the goodness of their hearts. “
In April, as Covid-19 lockout took hold, the number of rental tenants currently rented fell to 54% from 91% in March, according to data from real estate business intelligence company Datex Property Solutions . The proportion of sellers who paid the rent bounced back over the summer and ended at over 85% in November.
The highest number of major retailers – more than 60 – were filed for bankruptcy in the U.S. in 2020. Top retailers announced plans to close more than 12,200 stores last year, according to CoStar. These closures will empty approximately 159 million square feet of retail space, out of approximately 11 billion square feet of nationally available, CoStar said.
“What’s happening in the market is definitely going to lead to a total downturn in real estate across the country,” said Matthew Bordwin, principal and managing director at Keen-Summit Capital Partners LLC’s property breakout.
Keen-Summit has attracted dozens of new clients since March and represented the Studio Movie Grill theater chain, Krystal burger chain and Italian restaurant chain Il Mulino in their recordings recorded last year, Mr. Keen-Summit said. Bordwin. About 60% of the company’s work was reducing rents and the other 40% was ending rents, delivering a success rate of about 80%, he said.
“There is so much pain in the market,” said Mr Bordwin. “Every business I speak to is now looking at their property traces to see how they can reduce costs. The… landlords are getting calls from so many people that they can’t help everyone. “
Katharine Battaia Clark, a Dallas-based partner of law firm Thompson Coburn LLP, told a panel of the American Bankruptcy Institute last month that she had used “very aggressive bargaining tactics” with customers. counseling hired on behalf of broken tenants. ABI is a non-profit organization. focus on research and education related to bankruptcy issues.
The tenants’ stance is “accept our terms or take a walk, refuse to accept you and then you will be an unsafe creditor and good luck to you, and you will have an empty space,” she said.
Rent delays, discounts, unpaid bills and vacancies can be a problem for the finances of landlords, lenders and investors. Midsize owners of publicly registered premises VAT & Associates Properties Inc. and Pennsylvania Real Estate Investment Trustfiled for bankruptcy in November after a massive loss of tenants.
Mall owner Simon Property Group Inc. said leasehold revenue decreased nearly 16% to $ 3.27 billion for the first nine months of 2020 as a result of rent discounts, higher provisions for non- visible and rent based on lower sales.
“After all, the landlord still has to pay his lender and maintain the upside,” said Mark Sigal, Datex ‘s chief executive. man to write. “
But despite getting a rent break last year, some tenants are finding they can’t stay normal with the ongoing pandemic and Covid-19 vaccination efforts. getting in trouble. Some now want their landlords to look again at the previous agreement.
Winning a second round of discounts is harder, Mr Bordwin said at Keen-Summit.
“Outside of a breakout situation, the landlords are working as hard as they can to keep the line. In some cases, I think they are harming them. They are going to make tenants go into bankruptcy, “he said.
This story was published from a wire group group with no text changes.