Retail landlords are stretched thin with this unprecedented influx of rent relief requests, and are reaching out to retail real estate specialty consultants who provide a methodology and process to support evaluating and processing them."
MANDEVILLE, La. (PRWEB) March 31, 2020
As most retail stores remain closed throughout much of the United States under government “shelter in place” orders to stem the spread of the novel coronavirus disease, COVID-19, retail landlords are receiving numerous requests for rent relief, announced The Lamy Group, an international financial management consulting firm specializing in retail and commercial real estate for more than 30 years. The firm reports receiving a record number of requests for guidance in recent days.
“Retail landlords are stretched thin with this unprecedented influx of rent relief requests, and are reaching out to retail real estate specialty consultants who provide a methodology and process to support evaluating and processing them. Landlords realize steps must be taken now to proactively work with their tenant partners, but also be mindful of the impacts of reducing the revenues needed for mortgage and utility payments, along with security and ongoing maintenance expenses,” said Kenneth S. Lamy, founder, president and CEO of The Lamy Group.
As the first week of April approaches, rents are due for the first time during the crisis.
“This will begin a critical test for landlords and retail tenants alike. In many cases, the monthly minimum rent is directly transferred from the tenants’ bank accounts to landlords automatically, which will give early indication for how tenants are responding,” Lamy continued. “It is anybody’s guess as to how many rents will be paid in full and on time, because tenants are receiving little to no revenue from reduced operating hours or establishments entirely shuttered. Our landlord clients are starting to address requests to abate or defer rent, given that tenants are struggling to fulfill their obligations.”
The Lamy Group has evaluated rent relief for retail landlords for decades, but this is the largest number of tenant requests Lamy has seen coming in such a short period, even including the 2008 economic downturn. The situation will deteriorate further if stores and restaurants remain closed through much of April, greatly affecting their ability to pay their April and May rents. “We are carefully studying for lingering effects arising from this new reality, how they may present themselves and additional impacts they may present going forward,” Lamy said.
Many retail and restaurant tenants believe that rents are automatically forgiven for the periods in which shopping center owners closed the shopping center at will, or when government entities require nonessential stores to close temporarily or restaurants to reduce service to takeout and delivery. However, most lease provisions generally do not relieve a tenant of rent obligations merely because the store was compelled to close. Nearly every retail lease has a provision called force majeure (also known as an act of God or unanticipated event clause), which allows for some contractual nonmonetary obligations to be excused if an event such as hurricane damage or, in this case, government restrictions make it impossible for the landlord and tenant to perform their respective obligations under the lease. In most cases, force majeure provisions do not necessarily address rent relief.
Howard F. Kline, a Nevada- and Southern California-based broker and lawyer who specializes in retail leases, suggested that consideration of rent relief is often a business decision. “Why should landlords and retail tenants consider rent relief even when there is no legal obligation for the landlord to provide rent relief?” Kline asked.
“Determining which retail tenants should receive assistance should be based on solid data that demonstrate the store’s financial health prior to the crisis and how the crisis is affecting the tenant’s dwindling cash reserves to pay rent,” Lamy observed. “Knowing what other assistance may be available from government sources can help landlords determine the appropriate relief: rent forgiveness, abatement or deferment of rent until a specified future date within the tenant’s lease term after the tenant has recovered from the current crisis.”
Before acting precipitously, landlords should analyze the overall financial situation of each retail tenant in the specific location covered by the lease, Lamy said. This will reveal whether the retail tenant was already in financial distress, in which case relief will only forestall the tenant’s ability to remain in business. The Lamy Group’s proven retail methodology provides its landlord clients with a financial process to discover, analyze and confirm a retail tenant’s status in order to make an informed, fair decision. For stores that are part of a larger chain, the methodology and financial process is applied to the parent company.
The Lamy Group’s retail-focused team of accountants, consultants and financial analysts prepare a report of an individual retail tenant’s financial health and viability, typically within 36 hours. The firm’s analysis includes specific key performance indicators that help a landlord assess a retail tenants’ ability to survive after it reopens.
That analysis is just one criterion that the landlord should consider in deciding whether to offer assistance, and how much assistance to give, said Jack Nugent, director of Meridian Realty Consultants, an Conshohocken, Pennsylvania-based lease administration firm.
“While it is easy to point to COVID-19 as the reason for the request — we have no sales — and assume that relief should be a blanket condition, the retail tenant’s recovery cannot and should not be exclusively the landlord’s burden,” Nugent said. “The Lamy Group’s retail methodology and retail financial process determine how the retail tenant was performing before the crisis. The landlord should also determine what other steps the retail tenant is taking to right its course. If the retail tenant is requesting a 20% reduction in rent, has the tenant also asked its other suppliers and vendors to take a similar 20% reduction? In the case of a franchise, has the tenant negotiated with its franchisor for a reduction in royalty and advertising fees? No doubt it is beneficial to both landlord and tenant that the tenant continues to be a productive part of the shopping center, but it is not exclusively the landlord’s responsibility.”
Nor is the landlord the only source of outside assistance, observed Rudolph E. Milian, a veteran retail real estate executive, investor in shopping centers and president of Woodcliff Realty Advisors, a New Jersey-based consortium of industry consultants.
“Was the store operational during the crisis? Did it close voluntarily by order of a corporate parent, the landlord, the municipality or a statewide mandate as we saw in California, Illinois, New Jersey, New York and Pennsylvania?” Milian said.
In March, 13 states closed all nonessential businesses and prohibited all gatherings, Milian observed. In that case, retailers should look to local, state and federal government stimulus packages and review their business interruption insurance coverage provision to determine if there is an exclusion for damage caused by a virus or disease outbreak.
“In the coming weeks, landlords will face a tsunami of requests, far too many to absorb in-house,” Lamy said. “Our Lamy Disaster Preparedness Plan is live, allowing our team to operate from their homes throughout the country. Leveraging the tools and technology we already had in place, we are completing existing projects and taking on new projects electronically. Our business service model gives us the bandwidth to provide our expertise and handle the volume of requests that are already coming in and will continue to do so in coming weeks and months. At a time of great financial and personal stress, we can be a resource to help landlords make critical decisions quickly and begin the process of financial recovery.”
About The Lamy Group
The Lamy Group is a Mandeville, Louisiana-based international financial management consulting firm of certified public accountants, MBAs and other professionals. Founder, President and CEO Kenneth S. Lamy, CRRP, CRX is an instructor and volunteer for the International Council of Shopping Centers (ICSC) for more than 30 years. The Lamy Group specializes in customized financial retail sales, compliance and specialty examinations (tenant sales audits/revenue share/data verification) programs, ancillary revenue audits, retail property and sales analytics, restaurant consulting, including lease consulting and related compliance programs for clients. Clients include owners, developers, managers, publicly-traded real estate investment trusts (REITS), realty advisors and institutional investors throughout North America, the Caribbean and Mexico.