Commercial Landlords are facing unprecedented government rules, as well as tenants who can’t operate — and therefore generate income to pay their rent.
Commercial properties should categorize their tenants. First are those not allowed to operate. These are primarily retailers in small centers and malls. While there have been some recent openings, only curbside pickup is allowed; and, even when regulated, small groups are allowed, their business will be reduced. Some restaurants have been generating business with their curbside pickup and delivery programs, but even the most successful have greatly reduced business with less employees and a challenge to pay rent. Malls and retail centers were already being challenged by Amazon and other providers of goods to homes. This crisis only makes more challenges for retailers.
Another category are office tenants, both those essential, or now being allowed to reopen with health guidelines. During this crisis, many businesses, including larger companies, have had their staff work remotely. It is important to note that even before COVID 19 office workers and self-employed professionals were working at least part time from home. If companies can ensure their remote employees’ performance, it should be expected that they will continue to have more employees work remotely due to the significant cost savings from less office space leasing. This could result in the significant decrease in the need for commercial official space.
Commercial landlords can take several steps as this crisis continues. Work with your tenants, considering any local ordinances, to make lease amendments which can work for both you and the tenant. This can include deferring rent to later in the lease term and getting an extension to the lease term. If your tenant received a PPP loan, up to 25% of that forgivable loan can go to rent, and you should work with your tenants on that program. For the longer term, you need to brace for the potential of tenants not renewing, or decreasing their space, as they find it cost effective for more employees to work remotely. You may have to provide new incentives and amenities that make a business understand the value of having their employees together, albeit safely.
John Shaffery is one of the founding partners of Poole Shaffery & Koegle LLP. headquarters are located at 25350 Magic Mountain Parkway, Second Floor, in Santa Clarita. You can reach the firm by calling (661) 290-2991 and more information can be found at www.pooleshaffery.com.