Surviving the great recession of 2008-2012 was a difficult challenge for many commercial real estate companies and Covid-19 has become a reminder of those tough times. Non-essential businesses have been forced to close their doors for an undetermined amount of time and are struggling to manage their expenses, including lease payments.
Navigating the shut down is even more challenging as every state and municipality is responsible for determining how they are going to reopen businesses resulting in inconsistencies across the nation. While some localities are determined to “soft open” in May, others expect to “restart the economy” in June. Many businesses, such as large event venues, do not expect to be fully open until September or later.
To help businesses stay afloat, many commercial real estate companies are providing tenants rent abatement or deferral options if needed. Rent abatement is full or partially “free” rent. Rent deferral is required to be “paid back” according to agreed-upon terms.
We recently called dozens of retail shopping center companies, who collectively manage and own tens of thousands of locations, to determine how they are navigating this difficult time. We specifically wanted to understand how much (if any) rent abatement was being offered to their tenants. We asked commercial real estate managers:
- What percentage of your tenants are you granting rent abatements to?
- On average, how long is the allowance?
- When do you think your tenant’s businesses will open back up?
While answers varied, there were several similarities across responses. First, most property managers were avoiding preemptively offering rent relief, instead waiting to be asked about abatements. For those being asked for rental assistance, most granted some type of abatement for April and May. Many of the companies we spoke with were more inclined to grant abatement to smaller companies rather than large. If the business is open and considered an “essential” business, most did not extend abatements to those stores or offices.
Percentage of Tenants Granted Abatements
On average, the businesses surveyed were granting about 30 percent of their tenants full or partial abatements. A few surveyed were not offering abatements at all, but suspected they would need to reconsider if businesses are still closed in June. Others offered deferments to be paid back in 2021 or spread out across the remaining portion of the lease.
How Long Abatements are Granted
Most abatements include the months of April and May. Companies may consider extending abatements into June if businesses are not allowed to reopen.
Predicted Startup Dates
Nearly all companies were planning on tenant’s businesses reopening in May. Many are hoping for mid-May or Mother’s Day. However, they acknowledged this may not happen and stores could be closed until June or later.
How Specific Companies are Managing Rent Abatement and Deferrals
Some property managers have put in place policies specifically relate to COVID-19 shutdowns. Waterstone Properties Group, which manages over 300 business leases across the U.S., set up a help desk specifically for supporting tenants with Coronavirus-related business challenges. They are offering abatements and deferrals, and are helping tenants apply for CARES Act Loans. Merlone Geier Partners, which invests in and manages over 28 million square feet, offered rent abatement to smaller tenants, and report that about 45 percent have accepted abatement agreements.
Cafaro Company, located in Niles, Ohio, is experiencing a higher than average volume (50 percent) of tenants requesting abatements. They granted May and June rent abatements, but they suspect some will not be able to recover until July. Some tenants have already gone under. Phillips Edison & Company, which manages over 32 million square feet, decided to grant abatements (for up to two months) to all businesses that asked for it.
Valuerock Realty Partners chose not to offer abatement but rather deferments. Sterling Reality Organization is also starting with deferrals with a 12-month payback option. The Mega Group did not offer abatements for April but is considering them for May and June, but not for large tenants or to businesses still open.
Some groups, such as Yale Realty Services Corporation, continues to collect rents because landlords are still expected to pay mortgages, insurance and taxes and are not “protected” during this crisis. Some say they may reconsider collecting full rents, if the crises continues beyond May.
Wondering what the “reopening” of the economy may look like? Read our recent analysis What does the “Opening Up” process look like after the Coronavirus? Are you looking for potential tenants to bring into your space once the Coronavirus restrictions lift? Let Retailsphere help you identify brands that are surviving and thriving in today’s new economy. Schedule a no-obligation demo today.