Leasing Archives | Page 4 of 7

Sep 13 No Comments

How Covid-19 Is Changing Leasing Agreements For Businesses

Author: Admin

Categories: Commercial News,Leasing,Retail,Trends

Experts say changes are on the horizon to the decades-old language in retail and restaurant leases as a result of the Covid-19 pandemic.

New leases are being written with substantial changes, particularly in regard to provisions that provide relief for tenants that are unable to fulfill their contract obligations because of circumstances out of their control, such as a natural disaster or pandemic.

Steven Silverman, a shareholder at Miami-based Kluger, Kaplan, Silverman, Katzen & Levine PL, who deals in lease negotiations, said the language in these provisions is often broad, and landlords did not interpret them to apply to shutdowns caused by a pandemic.

As a result, many new leases signed over the last few months include more specific language, Jaime Sturgis of Fort Lauderdale-based Native Realty said.

“Moving forward, there’s going to be a little more clarity,” he said. “[The provision] is broad by design, so I think moving forward more clarity and more specific language addressing these types of situations.”

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Sep 09 No Comments

14 Big Factors Driving CRE Trends This Year And Beyond

Author: Admin

Categories: Commercial News,Development,Healthcare,Leasing,Multifamily,Offices,Retail,Shopping Centers,Trends

The Covid-19 pandemic has created an unprecedented challenge for the real estate industry.

Commercial real estate professionals have had to navigate new obstacles like virtual showings, finding buyers during an economic downturn and perhaps most significantly, the shift away from centralized offices toward full-time remote work.

The current climate and circumstances will continue to impact real estate trends in the months and years to come, and if you’re in the industry, it’s important to be prepared for what’s ahead. To help, Forbes asked 14 members of Forbes Real Estate Council for their insights.

Below the members identified the biggest factors driving commercial real estate trends this year and beyond.

1. Utility Management For Remote Work

One factor is the ability of some companies to effectively and responsibly manage critical business initiatives while telecommuting. Companies are evaluating the health, safety and necessity of their employees working remotely versus maintaining the continuity of a central office location which may have redundant electrical power, data connectivity and other security measures necessary to maintain sales and operations. – Josh Gopan, Simone Development Companies

2. The Need For Office Space In The Home

While everyone has always needed a place to live, people’s homes now have added value. With many people shifting their workplaces from offices to their homes, their dwelling also has increased in importance. Conversely, this has had a detrimental effect on office space across the country. – Matt Picheny, MJP Property Group

3. Smart Amenities

The adoption of technology will drive smart amenities from the “nice-to-have” column to the “need-to-have” column as restrictions are put in place by local, regional and state governments. Adoption was already trending up pre-Covid-19, but should continue to see a strong increase over the next 12 to 24 months. – Marshall Friday, ADT Security Services

4. Newly Available Subleases

Large, established institutions, like Twitter, Facebook, etc. have put work from home requirements in place that are minimizing their physical space requirements. Combined with businesses negatively affected by Covid-19, there is a large volume of subleases hitting the market. Younger companies that are doing well are looking for flexible space and terms, so subleasing might be the top CRE trend. – Matt Weirich, Realync

5. Less Demand For Commercial Office Space

The outlook of office space is uncertain, but possibly very dark. Businesses had to adjust quickly to a virtual workforce. Many of those businesses will find that they can operate just as well without the overhead costs associated with owning or leasing a physical office. – Chris Bounds, reHacking / Bounds Realty Group by eXp Realty

6. Uncertainty Around Retail Business Operations

One of the key factors driving commercial real estate trends since Covid-19 is the uncertainty surrounding which type of businesses will be able to operate during the pandemic and how that drives the values of those assets. Businesses in strip malls, like nail salons and hair salons, have previously been immune from fluctuations in the economy, but are now at the peril of intermittent shutdowns. – Todd Sulzinger, Blue Elm Investments

7. Property Maintenance As A Priority

Covid-19 has pushed property maintenance to the forefront. Consumers are more concerned about disinfecting than ever, and well-maintained locations—including everything from sanitization to spotless floors and regular, visible cleaning to fresh landscaping—instill confidence. Facilities maintenance is an area companies will need to increase investment in as it becomes integral to brand experience. – Marc Shiffman, SMS Assist

8. High Demand For Essential Businesses

In the net lease world, investors are focusing on quality and stability, both for guarantor and real estate fundamentals. We’re seeing very high demand and capital being reallocated to essential businesses like grocery stores, dollar stores, auto parts and service centers, pharmacies, medical companies and quality guarantors in fast food. Stable cash flow with quality tenants paying rent wins in a high-risk market. – Kyle McCollum, Trinity Real Estate Investment Services

9. Short-Term Market Performance

Covid-19 prompted many investors to spend more time tracking short-term market performance. From an investment perspective, our strategy and analysis begins by evaluating which sectors experienced stability in the last 20 weeks. Multifamily, self-storage, healthcare, NNN retail and office performers are well-documented, however, we must consider how each asset will also perform in the long run. – Keith Lampi, Inland Private Capital Corporation

10. Increased Importance Of Rental Property Amenities

With many people sheltering in place, office properties are relatively empty and time spent at home has never been higher. This makes multifamily amenities increasingly important. The trend of renters seeking well-appointed properties is not new, but in the wake of Covid-19, the value of on-site dining options, co-working lounges, fitness centers and other amenities has never been greater. – Salvador Garcia, MAS Development Group

11. The Internet’s Impact On Land Value

Technology and digital connectivity have disrupted many industries and real estate is not immune. We have been forced to realize that such advances may alter our approach to land use and the built environment. There will be increasing discussion about the effect of the internet on the value of land generally, although we are in the very early stages. – Eliot Bencuya, Streitwise

12. Changes In How Office Space Will Be Used

When demand returns for office, the largest part of the workforce will be hybrid workers that come to the workplace two to three days a week. This is down from four to five days per week meaning a 20 to 30% decrease in demand for office, retail, hospitality, etc. This will dramatically shift how these assets are used and valued. We will see the productization of the office from a couple of products to several. – Jacob Bates, CommonGrounds Workplace

13. Industry Adaptability And Resilience

This trend is truly remarkable as it has shown how resilient the industry is. The market has made huge progress in creating work-from-home environments with management companies investment firms and doing the best they can through the use of many tech support programs. It’s been remarkable to see this trend take life while showing the industry stays strong (thanks to interest rates being low). – Heidi Burkhart, Dane Real Estate

14. Capital Reallocation

As we’ve seen in past downturns, there is a massive reallocation of capital for investment to commercial sectors deemed safer with cash flows that are perceived to be more durable. Look for pricing to tighten and competition to increase in multifamily, industrial, self-storage and medical sectors while loosening in retail, office and hospitality. – Max Comess, Hodges Ward Elliott, LLC.

Source: Forbes

Sep 07 No Comments

To Fill Vacant Stores, Lincoln Road Seeks Pop-Up Businesses

Author: Admin

Categories: Commercial News,Leasing,Miami Beach,Retail,Trends

Cultural institutions and new retail shops may find temporary homes on Lincoln Road this winter, as the Lincoln Road Business Improvement District is hoping to bring in a series of pop-ups to boost business and fill vacancies.

The improvement district’s executive committee has unanimously voted to support and promote pop-ups during the upcoming season.

“We’re looking to work with local cultural organizations that may want a space on Lincoln Road during the holidays,” Timothy Schmand, the committee’s executive director, told Miami Today last week. Additionally, he said, the committee would like to work with retailers, including clicks-to-bricks stores that operate primarily online and want to try out a physical space.

According to Mr. Schmand, site occupancy on Lincoln Road is currently around 74%.

“We have empty storefronts,” improvement district Vice President Lyle Stern told the committee Aug. 20, “(and) I think we have to use the opportunity right now to fill every single vacancy we can on Lincoln Road this year.”

“We as a group,” he continued, “should encourage all of our owners to make (vacancies) available for appropriate – and we’ll have to define appropriate – vendors to come to Lincoln Road and occupy this space subject to some conditions.”

The committee would have to discuss these conditions, Mr. Stern said, which could include requiring a security deposit or insurance policy.

“I think it’s a great idea,” said Mindy McIlroy, committee treasurer and president of real estate firm Terranova. “Terranova has done a lot of work on this already – we have been actively soliciting for fashion boutiques for our vacancies to fill our spaces from October through January. Just to your point, we want to have a very active holiday shopping season.”

Retailers in the fashion industry, she added, may have a lot of inventory as few people shopped for spring and summer styles this year.

Indeed, Terranova’s founder and Chairman Stephen Bittel told Miami Today that the corporation plans to target local and regional retailers and is already communicating with two possible short-term tenants: a plant store and a vintage boutique.

To boost business and bring people back to the street, he continued, Terranova is willing to be “uniquely flexible” when it comes to rent. At the height of business, Mr. Bittel said, rental rates were in the $300s per square foot per month. Now, he said, these rents are in the $200s, and for short-term rentals his company is talking to some tenants about making rent “the cost of occupancy plus a percentage of sales.”

“All the owners are very focused on pushing occupancy and filling up our storefronts to provide the best opportunities for our guests,” he said, “and that strategy means we need to get those windows full. We are (willing) to sacrifice some near-term revenue to enhance the overall experience so that we can return to the strength that the street previously had.”

Mel Schlesser, a member of the committee, said the improvement district would need to be mindful of the City of Miami Beach’s policies. “If we don’t have significant support from the city to allow these pop-ups to move forward expeditiously,” he said, “we’re going to be wasting our time.”

However, Ms. McIlroy noted that policies already address this concern. “There is a pop-up program in place already that the city has initiated,” she said, “75% of what you just spoke about is already completed.”

The pop-up process, Mr. Schmand said at the committee meeting, “is a far more expedited process than the traditional process.” “I used it successfully a couple of times,” he said.

Steve Gombinski, the committee’s president, said that while Lincoln Road’s vacancies during Covid are not a unique problem, the improvement district could hopefully offer a unique solution.

“We want to help the community,” he said. “We want to welcome everybody. We want art galleries, we want retail (and) other pop-ups. (We could) find out if there are restaurant spaces available where innovative chefs could come in for a short period of time.”

The committee, Mr. Gombinski continued, should ask landlords what type of tenants they’re looking for and put together an inventory that would allow them to easily match interested tenants with open spaces.

The district wants to know the “wants, needs and desires,” of possible tenants, Mr. Schmand told Miami Today, so that it can come to an agreement that is beneficial for everybody.

Lincoln Road is not alone in seeking opportunities to increase business and promote cultural institutions as the year continues. Last week, Miami Today reported that Coral Gables city commissioners unanimously approved the installation of four new murals on Miracle Mile with the goal of stimulating the economy.

Source: Miami Today

Sep 05 No Comments

How One South Florida Landlord Made Forbearance Decisions

Author: Admin

Categories: Commercial News,Leasing,Retail,Shopping Centers

In March and April, Claudio Mekler, the owner of five retail centers in South Florida, was busy. As COVID-19 was forcing his tenants to close their businesses, he was focused on working out forbearance deals with them.

“When making the decisions on forbearance, we analyzed each case and made one-on-one decisions based on real data,” said Mekler, CEO and founder of Sunrise-based Miami Manager. “We negotiated agreements that benefited the tenant, our investors and our lenders.”

That strategy mitigated the immediate need for rent relief. Mekler took a personalized approach to each situation. For instance, if a tenant paid six months in advance, he would reduce the rent by 50 percent. He let a tenant who was halfway through construction of a new store defer rent payments in April and May so they would only have to pay the common area maintenance, or CAM, fees during that time.

“Another tenant paid us 50 percent of the rent plus the CAM in April, May and June,” Mekler said. “In July, the business was to begin paying full rent again. Then in January, February and March 2021, that tenant will pay full rent plus installments of the deferred rent.”

As Mekler has worked through agreements with current tenants, he is still approached by companies interested in leasing space in the shopping centers that he owns, manages and leases in Miami-Dade, Broward and Palm Beach counties.

TO READ THE REMAINDER OF THE STORY, CLICK THE “DBR” LINK BELOW

Source: DBR

Aug 10 No Comments

Miami Beach’s Lincoln Road Finds 3 New Uses For Vacant Space Due To Pandemic

Author: Admin

Categories: Commercial News,Leasing,Miami Beach,Retail

Refusing to sit idle, the Lincoln Road Business Improvement District (BID) and the brokerage community in Miami Beach have created alternate uses for vacant retail space, empty parking garages, and the open-air pedestrian promenade – through arts, culture, and fitness activations – to safely attract consumers and drive traffic to stores and restaurants in the open-air dining and shopping district.

From Boutique to Ballet: the Lincoln Road BID and The Comras Company, one of South Florida’s leading retail leasing/development companies, have transformed a 5,344 square foot former BCBG boutique into a popup residence for the Miami City Ballet to practice their pirouettes and plies before the public. Mannequins have since been replaced by the ballet’s principal dancers, attracting a new type of “window-shopper” interested in safely enjoying the ballet amid the pandemic, while cultural institutions remain closed.

From Garage to Gym: With many parking lots sitting empty, the Lincoln Road BID has converted the iconic Herzog & de Meuron-designed garage at the 1111 building into an expansive 25,000 square foot fitness studio. Although the iconic building can accommodate 550 people in its open-air space, the complimentary bootcamp and yoga classes are limited to 70 participants to ensure social distancing practices are maintained – the floors are also pre-marked with squares spaced 10 feet apart.

From Street to Symphony: Home to the world-renowned New World Symphony, which remains closed due to COVID-19, the Lincoln Road District has tapped into its talented tenant, employing musicians from the symphony to entertain pedestrians, diners, and shoppers from golf carts, driven up and down the Road. The roving musicians are in constant motion to ensure crowds don’t gather, and provide consumers with the arts and cultural experiences they’ve come to love from Lincoln Road at a time when the symphony can’t perform for large audiences and social distancing remains critical.

Jul 31 No Comments

The Hidden Dangers In Medical Lease Concessions

Author: Admin

Categories: Healthcare,Leasing

As medical offices struggle to keep their doors open during COVID-19, they’re often going to their landlords to request relief.

While medical office landlords might be inclined to provide this relief rather than seeing their tenants go out of business, Allison Nelson, co-deputy chair of Akerman’s real estate group, says laws specific to the healthcare sector could open landlords up to compliance issues. The main threat is violating The Stark Law and the Anti-Kickback Statute, which is a set of federal laws that prohibit physician self-referral.

These laws may be applicable when a physician or healthcare practitioner or an immediate family member of a physician is leasing or subleasing from another healthcare provider or hospital. Making things even thornier is that there could also be state corollaries to these laws.

“The [medical office] lease has to be at fair market value, and the parties can’t give concessions to each other or remuneration outside the contract,” Nelson says. “So that’s where you could get into issues with giving rent relief, which could inadvertently be considered a kickback in exchange for referrals of patients between the parties.”

In these situations, Nelson advises landlords to get their attorney involved to determine if Sark law or the Anti-Kickback Statute governs a leasing arrangement. They should also determine if the lease or sublease provides a provision that allows for a concession.

But there are situations where Nelson thinks rent relief may be acceptable. “If the healthcare system just closes down its entire medical office building and bars a tenant from use of the space, that’s probably a pretty easy example of an instance in which a rent concession is allowed,” Nelson says. “The tenant was denied access, and the whole building was shut down.”

The Anti-Kickback Statute is generally an intent-based law, according to Nelson. So if the landlord creates a policy for all tenants, that could help establish that there was no intent.

“Under The Anti-Kickback Statute, there has to be an intent to induce referrals,” Nelson says. “So if they are creating consistent policy across the board, it’s going to help mitigate that intent to induce referrals.”

Government agencies have moved to provide relief. The Centers for Medicare & Medicaid Services offered blank waivers for arrangements governed by the Stark law if related to a COVID-19 purpose. The Office of Inspector General also issued guidance that it wouldn’t prosecute or enforce agreements subject The Anti-Kickback Statute. “Hospitals and healthcare systems are looking to those blanket waivers now to give them some means for providing written concessions or other types of relief to their tenants,” Nelson says.

Nelson advises her medical office clients to create a protocol for dealing with rent relief requests.

“Maybe the tenant has to prove that they sought loans under the Paycheck Protection Program or that not getting this relief will cause an economic hardship for them that could put them out of business,” Nelson says. “That’s important with these blanket waivers. They have to be related to a COVID-19 purpose.”

Nelson says that purpose could include a lease at a below fair market value rate so a physician could treat COVID-19 patients at a hospital. “Some argue it could include rent relief to ensure medical practices stay open to serve the community,” she says.

Source: GlobeSt.

Jul 20 No Comments

How Retail Leases Will Change In A Post-COVID World

Author: Admin

Categories: Commercial News,Leasing,Retail,Shopping Centers,Trends

In the post-COVID world, retail leases will need to change and adapt. Several provisions will need to be changed and added to account for the possibility of a pandemic and the mandated shuttering of businesses. This includes adjustments to force majeure and insurance provisions as well as use of common areas, common area caps, alterations, and rules and regulations, all of which should be adjusted to reflect the new market.

“These modifications will likely put landlords in a better position to respond and react to the new normal that will exist until a vaccine is developed and widely distributed,” Dan Villalpando, a partner at Cox, Castle & Nicholson, tells GlobeSt.com.

In regards to the common areas, most leases are currently too broad to account for usage and social distancing. This is one of the first areas that will need to be addressed in leases.

“Landlords should make sure that the language in the Control of Common Area provision found in most leases is broad enough for landlords to respond and adapt to pandemics and similar emergencies, such as by installing items to improve health and safety conditions and making other, perhaps currently unforeseeable, changes to the common area to comply with recommendations or requirements of the Center for Disease Control and Prevention, World Health Organization, or state or local authorities,” says Villalpando.

In some instances, common areas may need to be converted into dining and retail spaces to accommodate social distancing guidelines, and landlords will need to comply.

“As a result of physical distancing and store-capacity requirements, tenants may need the right to use portions of the common area (like sidewalks) for customers to form lines outside the stores,” says Villalpando. “A landlord should not decline a request by a tenant to use the common area for queuing. Nevertheless, a landlord can condition such use upon tenant fulfilling certain prerequisites, such as giving the landlord prior written notice of such intent and the expected duration, peak times, and specific area the tenant wants to use. Additionally, landlords may want to specifically require that the tenant cleans up the area used for queuing on a daily basis.”

In addition, these changes to common areas do not apply to increase caps, according to Villalpando.

“In leases where a landlord provides a tenant with a cap on increases in common area costs, such cap does not typically apply to uncontrollable costs,” he says. “Following COVID-19, landlords should consider expanding the list of “uncontrollable” costs. For example, costs associated with a pandemic and the related health or safety measures the landlord takes, for example the installation of hand sanitizing stations, upgrades to automatic doors, use of more personnel to administer cleaning and to make sure guests comply with social distancing requirements, should be deemed uncontrollable and not be subject to any cap.”

In addition, landlords should also take the into account the cost structure, particularly during a pandemic.

“If it turns out that the “base year” for setting the “floor” for common area costs occurs during a year when the common areas are used less because of a pandemic or related outbreak, the landlord should consider including a “gross up” concept to bring the “floor” up to a number that is more reflective of what common area costs would have been but for the pandemic,” says Villalpando.

Villalpando also suggests that landlords can modify the cap during the lowest period.

“Another alternative would be to modify the cumulative versus non-cumulative nature of the cap for any period during which common area costs are artificially low,” he says. “Basically, with a cumulative cap, when the common area costs for a particular year exceed the cap, the landlord can apply any unused portions of the cap from previous years to make up the difference.”

Source: GlobeSt.

Jul 14 No Comments

Will The Pandemic Kill Demand For Micro Units?

Author: Admin

Categories: Commercial News,Development,Leasing,Multifamily,Trends,Wynwood

For the past five-plus years, micro-units have been an intriguing subplot in the grand saga of commercial real estate. As demand for housing has boomed, especially in rent-burdened cities like New York and San Francisco, developers gambled that tenants would tolerate tiny units — some as small as 220 SF — for the chance to access cool neighborhoods at affordable rents. Now, though, some real estate experts wonder whether the coronavirus will kill, or at least cripple, the concept.

“Prior to COVID, there was a big surge in the urban areas, urban core, everyone wanting to live in micro-units, and now it looks like everyone wants to move to the suburbs, buy homes, get out of apartments,” FM Capital Principal Aaron Kurlansky said during a Bisnow South Florida webinar last month.

Social distancing is the antithesis of the tight-knit living style that micro-units and their cousin, co-living, promote. With bars and restaurants shuttered and remote work gaining more acceptance, renters may see fewer reasons to remain in city centers, where most micro-unit properties are.

Integra Investments principal Victor Ballestas said his company was considering developing micro-unit projects in the Wynwood and North Beach areas of Miami.

“You sort of have to go towards the micro-market in order to make the numbers work, because the overall rent was pretty high,” he said. But in the wake of the coronavirus, “those are the ones that we’ve probably pulled back the quickest.”

“We always had a little heartburn over the micro-unit model,” he continued. “And then [we] started hearing through the grapevine also that people that are moving into micro-units are, you know, moving out after the year. It’s pretty much like 100% turnover rate, which obviously impacts performance significantly.”

That prompted him to focus on multifamily deals on larger parcels instead, he said. Allen Morris Co. CEO Allen Morris, who also spoke on the webinar, said he shared Ballestas’ concerns.

“People do sometimes tend to move out after a year. They say, ‘Great, look how much money I’m saving!’ and then they say, ‘I can’t stand it! Get me out!’ So, it becomes like student housing — they all move out at the end of the year.”

Kurlansky said the small apartment complexes his company owns in South Beach and Miami Beach have underperformed compared to the larger units farther from downtown in his portfolio, which he attributed to unit size.

“People are in, then they’re out,” he said. “As we’ve played in the student housing space, as someone from my office told me, it’s like convincing your wife every year that she loves you. You go from 100 to zero to back to 100, so it’s an exhaustive process, and, you know, micro-units, it seems to me, are going to follow that kind of trend where you’re just kind of [going to] be in constant lease-up.”

Source: Bisnow

Jun 10 No Comments

Apartments With Ground Floor Retail Take A Hit On Rent Collections

Author: Admin

Categories: Commercial News,Leasing,Multifamily,Retail

COVID-19 precipitated shutdowns have crippled the retail sector and those troubles have been well-documented.

And the businesses that rent spaces on the ground floors of apartment buildings are generally not big stores or national chains and have had even more trouble meeting their obligations in recent months. As a result, multifamily owners have had to be forgiving in negotiating concessions with their retail tenants, even as rents from apartment tenants have generally held up better than expected.

“We know that small retail businesses have been hit very hard based on payroll figures,” says Kevin Cody, market analytics senior consultant for CoStar, based in Boston. “Their distress from the pandemic was likely amplified due to them having small cash buffers.”

The vast majority—over 80 percent—of the retail space located in apartment buildings can be found in urban areas, according to CoStar. In recent years, these areas were performing well due to strong demographic growth, employment growth, and high levels of tourism, says Cody.

That strong performance stopped with the spread of the coronavirus in early 2020.

“Retail assets in dense, urban areas have been heavily impacted by the current period,” says Cody. “People are working from home at a high rate and tourism has greatly diminished.”

Not surprisingly, the retail tenants that have held up the best for apartment owners in recent months are those that were deemed essential. Drugstores, convenience stores, restaurants equipped to do takeout business are among tenants that been able to continue operating amid the vary levels of shutdowns throughout the country.

From the landlord side, apartment owners have largely been willing to work with their retail tenants on an as-needed basis.

“We have heard that owners of retail space are offering rent deferrals or relief to some tenants that have been impacted by the virus,” says Cody.

“There [usually] isn’t a public balance sheet or strong capitalization,” adds Todd Siegel, senior vice president, CBRE, based in Chicago. “The solution to mutual success requires an individualized and bespoke approach.”

Fortunately, apartment properties generally don’t rely much on the income from small retail tenants.

“On a pure, net operating income basis, it shouldn’t skew the balance sheet to warrant a default,” says Siegel. “Mixed-use retail in general doesn’t drive the overall value [of an apartment property].”

The managers of apartment properties are also not yet desperate to squeeze money where ever they can get it. That’s because the income from apartment rents has remained strong, so far.

“I would expect apartment owners to have a greater ability to offer rent deferral or relief for their retail tenants, due to the greater rate at which they have been able to collect rent from apartment renters,” says Cody.

As for down the line, while they will need to implement social distancing measures until a vaccine or reliable treatment becomes available, multifamily owners will continue to include ground-level tenants.

“Mixed-use was a strategy we really liked heading into the pandemic,” says Cody. “In the long-term we still believe in it… we expect urban areas to come back, but in the near to medium term, retail will experience reduced spending and foot traffic. We expect migration to slow; there has been a shift to working-from-home, which will sustain to some extent; and tourism has slowed, which will take time to recover.”

Source: NREI

Jun 08 No Comments

These Big Retailers Stiffed Their Landlords In May

Author: Admin

Categories: Commercial News,Leasing,Retail,Shopping Centers

About 40 percent of national retail chains once again skimped on their rent in May, according to the latest monthly report on collection rates.

Among those are 24 Hour Fitness, AMC Theaters and Pier One, all of which have either announced potential bankruptcy or plans to liquidate assets.

Overall, national retailers paid 60.1 percent of rent, a small increase from April’s 56.7 percent collection rent, according to a report from the data firm Datex Property Solutions. Total collections – from both national and local retailers – checked in at 58.56 percent in May, up from 54 percent in April, according to the data.

However, an increase in collections may not be a silver lining. Many retailers have negotiated rent relief with their landlords, which could make the numbers seem higher than they actually are, according to Datex CEO Mark Sigal.

At the end of May 2019, national retail chains were able to pay 96 percent of their rent. Even just two months ago, that figure was at 94 percent.

The plummet in rent collections is largely a consequence of the coronavirus pandemic, which has shuttered stores, in some cases permanently.

Fifteen companies, out of the 131 companies included, have not paid a dime of rent last month. Bed Bath & Beyond, H & M, Century City, AMC Theaters, Regal Cinemas, The Gap and Party City are among those. Seven others have paid very little, including Barnes & Noble and DSW Shoe Warehouse. On Wednesday, The Real Deal first reported that Simon Property Group sued The Gap for $66 million for withholding rent in April, May and June.

“A lot of the growth has been around more lifestyle oriented retail, the kind of retail where there’s a goodness to being present,” Sigal said. “With social distancing, the retailers that most build around that, folks like gyms and yoga studios or movie theaters — the types of operators where people are in the same space and close quarters — are the ones that have been most existentially impacted.”

The report counts major chains as those that have a minimum gross monthly rent of $250,000 or lease 10 or more locations. It is based on verified collections from Datex’s portfolio of clients that report payment information from thousands of U.S. properties.

However, not all companies are on their landlord’s naughty list this month. Unsurprisingly, grocery stores like Giant and Aldi have paid almost all their rent.

Between competitors, companies’ collections differed greatly. PetSmart, according to Datex, paid 89 percent of its collective bill, while Petco paid 42 percent. Hobby Lobby similarly paid 99 percent, while Michael’s trailed behind at 39 percent, per the data.

In part, this may be due to different franchisees or unsuccessful expansions in different areas, according to Sigal.

“This is a tsunami that is unanticipated,” Sigal said. “Within that, you may have heard of this quote, ‘bad companies are destroyed by crises; good companies survive them; great companies are improved by them.’ Retail is that story”

The restaurant sector experienced similar contrasts. McDonalds and Taco Bell, for example, paid the majority of their bills, while Jamba Juice and Five Guys paid less than half of theirs.

Source: The Real Deal

“Moving forward, there’s going to be a little more clarity,” he said. “[The provision] is broad by design, so I think moving forward more clarity and more specific language addressing these types of situations.”

1. Utility Management For Remote Work

2. The Need For Office Space In The Home

3. Smart Amenities

4. Newly Available Subleases

5. Less Demand For Commercial Office Space

6. Uncertainty Around Retail Business Operations

7. Property Maintenance As A Priority

8. High Demand For Essential Businesses

9. Short-Term Market Performance

10. Increased Importance Of Rental Property Amenities

11. The Internet’s Impact On Land Value

12. Changes In How Office Space Will Be Used

13. Industry Adaptability And Resilience

14. Capital Reallocation

“When making the decisions on forbearance, we analyzed each case and made one-on-one decisions based on real data,” said Mekler, CEO and founder of Sunrise-based Miami Manager. “We negotiated agreements that benefited the tenant, our investors and our lenders.”

“Another tenant paid us 50 percent of the rent plus the CAM in April, May and June,” Mekler said. “In July, the business was to begin paying full rent again. Then in January, February and March 2021, that tenant will pay full rent plus installments of the deferred rent.”

“Under The Anti-Kickback Statute, there has to be an intent to induce referrals,” Nelson says. “So if they are creating consistent policy across the board, it’s going to help mitigate that intent to induce referrals.”

“These modifications will likely put landlords in a better position to respond and react to the new normal that will exist until a vaccine is developed and widely distributed,” Dan Villalpando, a partner at Cox, Castle & Nicholson, tells GlobeSt.com.

“You sort of have to go towards the micro-market in order to make the numbers work, because the overall rent was pretty high,” he said. But in the wake of the coronavirus, “those are the ones that we’ve probably pulled back the quickest.”

“People do sometimes tend to move out after a year. They say, ‘Great, look how much money I’m saving!’ and then they say, ‘I can’t stand it! Get me out!’ So, it becomes like student housing — they all move out at the end of the year.”

“We know that small retail businesses have been hit very hard based on payroll figures,” says Kevin Cody, market analytics senior consultant for CoStar, based in Boston. “Their distress from the pandemic was likely amplified due to them having small cash buffers.”

“Retail assets in dense, urban areas have been heavily impacted by the current period,” says Cody. “People are working from home at a high rate and tourism has greatly diminished.”

“We have heard that owners of retail space are offering rent deferrals or relief to some tenants that have been impacted by the virus,” says Cody.

“There [usually] isn’t a public balance sheet or strong capitalization,” adds Todd Siegel, senior vice president, CBRE, based in Chicago. “The solution to mutual success requires an individualized and bespoke approach.”

“On a pure, net operating income basis, it shouldn’t skew the balance sheet to warrant a default,” says Siegel. “Mixed-use retail in general doesn’t drive the overall value [of an apartment property].”

“I would expect apartment owners to have a greater ability to offer rent deferral or relief for their retail tenants, due to the greater rate at which they have been able to collect rent from apartment renters,” says Cody.

“This is a tsunami that is unanticipated,” Sigal said. “Within that, you may have heard of this quote, ‘bad companies are destroyed by crises; good companies survive them; great companies are improved by them.’ Retail is that story”

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