If retail landlords didn't have enough problems already

David Goldsmith

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This could also wreak havoc with some Coop's financials.

Retailers tell landlords they could stop paying rent soon
Commercial property owners still have to make mortgage payments

Restaurants and other retailers that have seen business screech to a halt because of coronavirus shutdowns are warning their landlords that they may soon stop sending rent checks.

Sandwich chain Subway sent a “force majeure” letter to landlords earlier this week saying that it may cut off rent payments if franchisees have to curtail business as government entities order them to shut down or significantly pull back services.

“In the event this pandemic compels the Subway restaurant owner to narrow the scope of its operation (e.g., take-out or drive-thru service only) or to close entirely,” the letter read, Subway reserves its right to “abatement or postponement of rental payments.” Subway did not respond to a request for comment.

Several landlords told The Real Deal they’ve received similar letters from tenants.

Retailers are seeking relief after the city plunges into a virtual shutdown.

The government’s heavy-handed actions began Sunday, when Mayor Bill de Blasio ordered the city’s tens of thousands of restaurants and bars to limit their services to delivery and takeout, effective Tuesday morning — a deadline the governor quickly changed to Monday night. Gov. Andrew Cuomo on Wednesday began curtailing the percentage of employees who can show up for work, ultimately ordering all non-essential workers to stay home, effective Sunday.

Retailers such as Apple and Nike had already decided to close stores until later this month.

The near shutdown of the city puts landlords in a tough spot as they still have to make mortgage payments. However, the state’s top judge over the weekend ordered an indefinite suspension of evictions, including of commercial tenants.

On Thursday, Cuomo announced a 90-day suspension of mortgage payments for homeowners who can prove hardship caused by Covid-19, but the order does not apply to commercial landlords.

“Landlords are sort of in the middle,” said Rosenberg & Estis attorney Eric Orenstein, who explained that owners’ agreements with their lenders sometimes limit the flexibility they can give to struggling tenants. “They want to help their tenants who want to pay the rent, but they also have an obligation to pay their lenders.”

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NYC storefronts begin boarding up as virus empties streets
Biz advocates urge stores to keep up appearances

New York’s once-bustling shopping districts are starting to look like they’re bracing for a hurricane. Retailers are boarding up storefronts now that the virus pandemic has emptied the city’s streets.

Large sheets of plywood barricade the entrances to Sephora locations throughout the city. In Soho, the windows to the Louis Vuitton store on Greene Street have been covered by boards painted with the luxury brand’s signature yellow.

Storefronts started going dark early last week after Mayor Bill de Blasio ordered the city’s bars and restaurants closed, with the exception of offering takeout services. Gov. Andrew Cuomo in the following days began curtailing the number of employees who could go to work, culminating in the virtual shutdown of the city over the weekend.

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U.S. Retailers Plan to Stop Paying Rent to Offset Virus

Major U.S. retail and restaurant chains, including Mattress Firm and Subway, are telling landlords they will withhold or slash rent in the coming months after closing stores to slow the coronavirus, according to people familiar with the situation.
In a brewing fight, chains are calling for rent reductions through lease amendments and other measures starting in April, said the people, who asked not to be named because the discussions are private.

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"About 50,000 retail stores have closed in response to the coronavirus pandemic. About $20 billion in retail property loans is coming due on April 1, and it’s unclear how much of that debt will be paid and how that could impact both retailers and landlords."

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Restaurants Fear Going From “Closed” to “Space for Lease” By July
Chefs and restaurateurs are relying increasingly on the kindness of landlords as gaps in the government stimulus plan become more obvious.

Caffe Dante West Village was supposed to be one of New York’s major spring 2020 openings. It was an outpost of Dante, the Greenwich Village hangout that had been crowned the Best Bar in the World in 2019 by the Tales of the Cocktail Foundation. Its owner, Linden Pride, had spent 18 months and more than $1.6 million building the 74-seat restaurant in anticipation of welcoming its first paying guests on March 16.

But when Andrew Cuomo requested density control measures on March 15, Pride realized a formal opening was out of the question. He immediately sent an email to his landlord, William Gottlieb Real Estate, asking to negotiate the terms of his rent.

Simply put, he didn’t have enough money to pay it—for March or April. “We put everything of our savings into the buildout of the new restaurant,” Pride says. “We got to the starting line with enough money in the bank to pay the first week’s payroll and suppliers.”

Worse, he says, the new restaurant doesn’t qualify for stimulus money from the federal government’s $2 trillion package, because it has no history of payroll.

After some back-and-forth between Pride and Gottlieb representatives, on April 7 the landlord served a notice of default. If Pride doesn’t pay past-due rent and fees by April 14 (the technical term is “curing the default”), the landlord can initiate legal action. In a worst-case scenario, once the 90-day moratorium on evictions lifts in mid-June, Pride's new restaurant could close before it ever opens. “If I don’t ‘cure’ this, they can come after me personally,” Pride says. “I’ve just spent all this money on the space, which they could take back in possession, and our money would be down the drain.”

In an emailed response, Brian Ullman, a lawyer who represents Gottlieb’s 551 Hudson Street Property, LLC, wrote that “this tenant has been in arrears since prior to the Governor’s administrative order closing New York businesses. The notice sent relates to the prior and ongoing arrears.” The owner, Ullman continues, “is considering all tenant rent issues on a case by case basis.” (The arrears, which Ullman says date to January 2020, were for legal fees that were under dispute, Pride says. He says March and April are the only months he didn’t pay agreed-upon rent.)

Pride’s experience underscores the precariousness many restaurateurs face across the country: Often, the only thing standing between their business and bankruptcy is a landlord’s largesse.

Outliving a Crisis

“Rent is never a suggestion,” says Lee Jacobs, a partner in Helbraun & Levey LLP, which specializes in the restaurant industry. “My fear is that hundreds of thousands of unsophisticated small-business owners think that because we’re in a pause, or a shelter-in-place, that that excuses them from paying rent. Unfortunately, it doesn’t.”

Many landlords, Jacobs says, have been willing to work with tenants, particularly “landlords that are mom-and-pop—either family-owned or owned by someone who has a handful of buildings,” he continues. “Larger institutional landlords are less likely to negotiate or be helpful because they have the cash to outlive this crisis, and they can outlive having empty retail space.”

Should restaurants simply stop paying or fail to successfully negotiate, “consumers could see empty storefronts change from ‘closed’ to ‘for lease’ as early as June, and most likely in July,” Jacobs says.

The Negotiations

Restaurateurs have worked desperately to avoid that scenario. It’s made more challenging because, although $350 billion was set aside for small-business loans under the Payment Protection Program (PPP), operators will have to pay them back if they don’t meet certain requirements, such as using 75% of the money for payroll. Yann de Rochefort, founder of Boqueria restaurants, a casual Spanish concept with seven locations in Chicago, New York, and Washington, D.C., has applied for the loans. “I’m pursuing every option to keep business going,” he says. He’s not paying rent at all right now—“the money just isn’t there.”

De Rochefort has a different landlord for each property, “from the smallest imaginable to the big guns, like Brookfield,” he says. In his case, the small landlords have been the most accommodating, but even large management companies are willing to negotiate. “The mom-and-pop owners are willing to kick the can down the road until we have more information on what this recovery will look like,” he says. His larger landlords, such as OTO Development LLC and Boston Properties Inc., “are almost uniformly offering rent deferral—to delay payments, but not waive them,” he adds. He hopes that the next phase of the stimulus plan addresses the reality that restaurants can’t get fully operational until the public health crisis has passed—and doesn’t mandate specific dates for loan forgiveness. “Otherwise, businesses fail, landlords fail, banks are left holding the bag,” de Rochefort says. “Good luck putting that all back together.”

In Chicago, Rob Katz, co-founder of the Boka Restaurant Group, which operates 20 properties including the popular Girl & the Goat, is negotiating with banks on his leases. Part of his calculations are based on his understanding of the building owner’s liquidity. “A landlord who has owned a property for decades and carries zero to little debt has the flexibility to be lenient,” he says. “From them we might ask for 90-day rent abatement. If I have 96 months on my lease, make it 99 months.”

Katz is asking his landlords for full rent abatement for April and at least half of May. He says he’s been able to negotiate with the small banks that hold some of his other leases, such as Illinois-based Wintrust Bank. He also wants the next phase of the stimulus package to extend the forgiven rent provision from the current eight weeks under the PPP to at least 12, with an open-ended start date that anticipates when restaurants might actually reopen. “I can negotiate April with my landlords; I know I’m going to need help in May and June,” he says. Katz has applied for loans under the PPP; he says that even if he doesn't meet the requirements and has to pay portions of the loan back, the 1% rate makes sense. “Listen, March was a disaster for us, we won’t reopen in April, it looks like May is a nonstarter, I have no assets coming in,” he says. “If the loan is at 1%, it’s cheap money, I’ll take it.”

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The Landlords

Will Donaldson is the chief executive officer of the Politan Group, which operates six food halls in such cities as Chicago, Houston, Miami, and New Orleans. Each has been closed for almost three weeks due to local shelter-in-place rules.

Donaldson has waived rents for his tenants “until further notice,” he says. The people in his food halls are invariably artisanal food makers working behind counters to sell their specialty product. “Our guys are the most fledgling of entrepreneurs, there’s not a question that they could pay rent,” he says. He thinks the government should consider hitting the pause button for six months and waive rents, in a manner similar to President Franklin Roosevelt’s actions during the Great Depression. He admits that his own landlords “aren’t there yet” in terms of pausing rent.

Other landlords have scrambled to create a one-size-fits-all approach to their tenants in an effort to respond as quickly as possible.

“We’re offering tenants the option to dip into their security deposit for the first three months,” says Steve Gonzalez, the head of retail leasing for TF Cornerstone, a landlord that leases to 11 sit-down restaurants and 15 quick-service restaurants in New York City, and three sit-down and six quick-service locations in Washington, D.C. After that, tenants can pay rent based on a percentage of their sales that month, and after that they’ll go back to paying the regular rent that would have been due under the lease. That way, Gonzalez says, “we’re willing to absorb the downside, but if there’s upside, it’s good, too.”

The response has mostly been positive. “It’s a mixed bag. Some have been really appreciative that we came out with this really fast,” Gonzalez says. Others were hoping for something like rent deferment, but the majority “have been pretty pleased with us doing something rather than nothing.”

“I hear calls of ‘cancel the rent!’” says Jeffrey LeFrancois, executive director of New York’s Meatpacking Business Improvement District. “But a lot of property owners are in situations that aren’t dissimilar to restaurants” in that they have their own financial obligations and loans to pay. “Not many landlords are reaping pure profit from tenants,” he says. “They don’t want a tenant not to reopen. Then they have empty storefronts to deal with, and we are going to see a lot of those.”

Looking Ahead

One of those storefronts might be Caffe Dante. Pride is trying to be proactive. At first he was forced to lay off 45 of the original Caffe Dante’s 49 employees; now he’s rehired 12 and started a cocktails-to-go service. All of the proceeds, he says, go to paying for his employees’ health care, providing a 5 p.m. “family meal” for current and past employees, and donating 200 meals a week to hospitals. (This location, given its ongoing payroll, should qualify for stimulus money.)

After being served notice, though, Pride says he’s beginning to despair. “Here I am, I’ve got no money, and the only money that’s coming in is going to take care of people in need,” he says.

“I’m not naive enough to just say to my landlord ‘we can’t pay rent, you have to deal with it,’” he continues. “But there has to be [a rental agreement] that helps us run our business in a way that we can focus on being a good tenant for a long time.”

David Goldsmith

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“Overwhelming majority” of Brooklyn retailers asking for rent relief: report
About half of retailers made this request indefinitely, according to TerraCRG report
Retail tenants in Brooklyn are requesting rent help from their landlords in droves as the pandemic rages on and forces many stores to shut down indefinitely, according to a report from TerraCRG.
The report detailed responses from 80 retail property owners. About two-thirds of the landlords surveyed said between 75 and 100 percent of their retail tenants had asked for rent deferrals or forgiveness. About 12.5 percent said they received the request from 50 to 75 percent of tenants.
Almost half of the landlords said their tenants asked them for indefinite rent relief, while 37.5 percent said tenants asked them for an average of three months. And almost 80 percent said they had not developed a portfolio-wide policy for rent relief but were instead dealing with it on a case-by-case basis.
New York State halted all evictions on March 15 in response to the pandemic, but the state has not yet implemented any rules or guidance regarding rent moratoriums.
A common refrain in real estate since the pandemic picked up speed has been that tenants not paying rent would just be part of a chain reaction that could lead to landlords not paying their mortgages, which could in turn lead to bank failures. TerraCRG found a roughly even split when it came to retail landlords asking their lenders for more time to make mortgage payments, with 35 percent saying they had asked for more time, 36.2 percent saying they had not, and 28.7 percent saying such requests were still in progress.

For the landlords who did ask for additional time, just over half said their lenders had “somewhat” worked with them to address their situation. Just 14.8 percent responded with an outright yes, and 33.3 percent said the lenders had not worked with them.

And most landlords were not especially hopeful about the situation turning around quickly, with more than 60 percent saying they were not very optimistic about a “V-shaped” economic recovery after the pandemic.

TerraCRG founder Ofer Cohen said his firm got the general impression that people on all sides of the retail equation were trying to be reasonable and accommodating during the crisis.

“Everybody has been trying to be very cooperative on both the tenancy and the ownership side,” he said, “and I think what this data suggests is that this is a very much market-wide problem.”

Retail had already been struggling before multiple “stay at home” orders forced businesses in Brooklyn and across the country to close their doors indefinitely. While Cohen said he does not think that the pandemic will lead to the end of retail as we know it, he did predict that it will spark at least some closures.

“The retail that did struggle, or the retail that was borderline struggling, I’m assuming that this event is definitely going to push them over the edge,” he said.

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Some retail landlords have collected just 15% of April rents: Report
With state-mandated retail closures across US, the battle between retail landlords and retail tenants is heating up

The fight over commercial rent payments looks like it may be ugly.

So far in April, some retail landlords and mall owners have collected just 15 percent of what they were owed, according to Bloomberg, citing a Marcus & Millichap estimate. And it is only expected to get worse in May, when more than $20 billion in rent payments will come due, the report noted.

Retail landlords in the U.S. generally collect more than $20 billion per month in rent, according to CoStar. But in April, landlords with higher concentrations of shuttered stores have so far collected between 15 and 30 percent of rent.

Tenants who are still paying rent for April include AT&T, T-Mobile and J.C. Penney, while Ross Stores and Solidcore and asking for rent abatements. Williams-Sonoma has stopped paying rent as well, and Equinox has also stopped paying rent at several New York City locations.

Several landlords are trying to negotiate deals with lenders to avoid their own defaults. Insurance companies and banks are working with them on a case-by-case basis, but there are fewer options for borrowers in commercial mortgage-backed securities.

So far, about 11 percent of CMBS retail property loan borrowers have been late with their April payments, according to Trepp. That means $13 billion in CMBS loans could miss their monthly payments if the pace holds up.

“The banks are a little more fluid, and often there’s recourse,” B+E CEO Camille Renshaw told Bloomberg. “But many large properties have CMBS debt, and when there’s a crisis, no one is there to pick up the phone to negotiate.”

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Coronavirus has changed retail bankruptcy and left landlords in the lurch
Some judges are now allowing retailers to suspend their bankruptcy cases — along with other concessions — preventing landlords from collecting rent

One of New York City’s iconic local retailers filed for Chapter 11 in mid-March, but it wasn’t until a couple of weeks ago that the company, Modell’s Sporting Goods, made an unusual request to the bankruptcy judge. The family-run athletic gear retailer that had shuttered 134 of its stores asked for a suspension of the proceedings as the coronavirus spread around the country.

The judge agreed to hit pause on the case. That means Modell’s landlords will not be able to receive rent payments on those stores, payments they would be entitled to during a bankruptcy proceeding.

The ruling has already proved a turning point for retail bankruptcy proceedings, experts said. It has helped other retailers now in Chapter 11 and struggling to restructure their companies with no stores in operation. But the decision has also further strained landlords who are unable to find replacement tenants amid the global pandemic and who are facing their own financial uncertainties.

“There’s just not this big supply of retailers waiting in the wings to backfill an old anchor and some of these big spaces,” said Soozan Baxter, a landlord consultant who has worked on the leasing of developments like Hudson Yards and Brookfield Place in Manhattan.

The pandemic and statewide stay-at-home orders stopped Modell’s bankruptcy process in its tracks. Because it shuttered all its stores, Modell’s was forced to forgo crucial liquidation sales, said Michael Sirota, co-managing shareholder of law firm Cole Schotz, which is representing the retailer.

“It’s a little bit, in my view, inconsistent to say from a landlord’s perspective, ‘You owe us rent even though you don’t have access to our space,’” Sirota said.
But Modell’s landlords objected to the move, insisting that it allows Modell’s to stay in its space rent-free.
One group of those landlords, which included mall owner Macerich, who did not reply to a request for comment, said they “have no choice but to continue to allow the debtors to utilize their premises regardless of the risk of potentially never receiving payment for those services, and potentially without having any recourse.”

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J. Crew nears bankruptcy, Brooks Brothers seeks buyer
The companies are just the latest retailers facing financial difficulties

J. Crew and Brooks Brothers are among the latest retailers on the brink of bankruptcy.

J. Crew, which has 322 stores, is seeking $400 million in financing to fund operations during bankruptcy, CNBC reported. And Brooks Brothers is seeking to sell itself, a deal that could potentially be part of a bankruptcy filing, according to Bloomberg.

J. Crew, whose holdings include retailer Madewell, was struggling before the coronavirus sent shoppers home in March. The company saw “meaningful improvement” in its 2019 business, according to Moody’s, compared with the prior year, but as of February it had $93 million in total liquidity as debts came due. TPG Capital and Leonard Green & Partners bought the company in 2011 for $3 billion.

Similarly, Brooks Brothers’ woes predate the health crisis. The Wall Street favorite has $600 million in debt and many of its 250 U.S. locations were also struggling before the pandemic, sources told Bloomberg. Its attempt at a sale began last year.

The pandemic has exacerbated retailers’ financial problems. High-end department store Neiman Marcus is also nearing bankruptcy, though a group of its investors are pushing for the firm to seek a sale. J.C. Penney, too, is in talks with its lenders for at least $800 million in bankruptcy financing.

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Half of mall-anchored department stores could close within a year
The coronavirus pandemic has devastated brick and mortar retail

If you’re looking for some post-lockdown retail therapy, your choices may be limited.

More than 50 percent of department stores anchoring shopping malls could permanently close within the next 12 months, according to a Green Street Advisors report cited by CNBC.

Anchor department stores are themselves key to the financial viability of mall properties, but closures could also trigger problems with smaller mall tenants.

Not only do anchor tenants bring in foot traffic to other stores, but many so-called in-line mall tenants have co-tenancy clauses in their leases allowing them to seek lower rents or break leases early if an anchor space goes vacant. That could force some malls themselves to shutter for good.

“Many malls will now be faced with multiple anchor vacancies, a tough place to come back from, especially in an environment where demand for space is virtually non-existent,” said Green Street Advisors analyst Vince Tibone.

There isn’t much investor confidence in the sector. The mall-heavy CMBX 6 index has tanked since the pandemic hit and landlords started to default on mall loans.
It’s no wonder that some mall operators and retailers want to re-open as soon as possible. Simon Property Group intends to re-open 49 malls across 10 states this weekend and Macy’s announced a plan to re-open 68 stores early next week. The retailer is aiming to open all 775 of its stores by the end of June.

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Brooklyn Boulders sues landlord to escape Williamsburg lease
Location was to house boutique studio concept, BKBX

The coronavirus pandemic has been a frustrating time for gym operators nationwide. So frustrating, in fact, that Brooklyn Boulders now wants out a big lease it signed last year.

The rock-climbing gym is suing its landlord to get out of a 30,598-square-foot lease across three floors at the base of 56 North 9th Street, a 45-unit rental building in Williamsburg. The property was built by Jay and Michael Weitzman in 2018.

On a conference call Friday, the tenant informed the landlord that it was terminating the lease “pursuant to the legal doctrine of frustration of purpose.” Under New York law, the federal suit notes, frustration of purpose refers to when an unforeseen event destroys the underlying reasons for performing a contract.

The Weitzmans rejected the termination and said they would see Brooklyn Boulders in court.

The climbing business’ complaint, filed Wednesday in the Eastern District of New York, states that executive orders by Gov. Andrew Cuomo in response to the coronavirus pandemic “completely frustrated the very purpose of the lease and made it impossible for [Brooklyn Boulders] to perform.” It seeks a declaration that its termination of the lease was lawful.

The retail lease was the third-largest inked in Brooklyn last year. Cushman & Wakefield’s Diana Boutross, Ian Lerner and Abie Dweck represented the landlord in the deal. Base rent for the first year of the lease term was $1,957,500, according to the suit.

The landlord declined to comment. Brooklyn Boulders did not respond to a request for comment.

When the Williamsburg lease was first reported last February, the venue — which was to include art, co-working and events in addition to rock-climbing — was expected to open later in 2019. Details from the lawsuit allege why that did not happen.

When the landlord first tendered delivery of the space in June, the suit says, it was plagued with issues — “water in the basement, electrical service being incomplete, and the elevator stopped approximately six inches short from the third floor.”

The landlord pledged to fix them immediately, but the elevator was not corrected until March 19, 2020, the electrical work was not done and the mezzanine floor was not constructed as agreed, the lawsuit claims. Then the coronavirus happened.

The pandemic has prevented Boulders from continuing construction and operating its business in the space, something its owners say was “completely outside of [our] control and was not foreseeable or anticipated” when the lease was signed.

Additionally, the operator says, the Williamsburg location was not going to be a typical rock-climbing gym with relatively abundant space and unstructured activity, but a boutique BKBX location based on a niche business model.

That model depends on “the ability to convene classes where people are densely packed” and the appeal of “tight co-mingling with like-minded individuals” and therefore is not economically viable under social-distancing guidelines, the suit says.

The company’s “specialized business plan is completely destroyed under the anticipated continued governmental requirement of social distancing,” it argues.

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Virus will leave lasting impact on retailers and their landlords, industry pros say
David Firestein, James Famularo and Jeffrey Roseman agreed New York City’s retail estate scene will never be the same

The near-total shutdown of New York City shops and restaurants during the coronavirus crisis will likely be felt for years to come in the retail real estate world.

In the short-term, landlords and tenants will have to come up with creative solutions to help commercial tenants back on their feet, according to some of the city’s top retail brokers who discussed the state of the market for the latest installment of TRD Talks Live.

The definition of “short-term” is up for debate.

“I would describe short-term in this case as being years and not months,” said David Firestein of the Shopping Center Group.

Firestein joined Jeffrey Roseman of Newmark Knight Frank and James Famularo of Meridian Retail Leasing on Wednesday to discuss the way the coronavirus pandemic is affecting the retail business. The Real Deal’s Hiten Samtani moderated the panel.

Jamestown president Michael Phillips recently said he believes the days of a landlord “as an overlord to collect rent” are over.

Firestein said that for next two or three years, it’s likely landlords will have to accept a percentage of their tenants’ profits in lieu of straight rent payments, in order to help shops get back into the red.

Roseman said thought leases going forward will include clauses that provide relief for tenants should another pandemic hit. That, he said, will make the leasing process even more complex.

“Leases were complicated enough as 100 pages,” he said. “Now there’s going to be a lot more pages.”

The top deal makers said they all thought sit-down dining restaurants will face stiff challenges returning to normal. Famularo said most restaurant owners he spoke with are planning to reopen at 50 percent capacity.

He said they planned to supplement lost income by ramping up their delivery services. And in the meantime, the State Liquor Authority has provided some relief by allowing restaurants to deliver alcoholic drinks.

“If you want a mixed-drink you can order it from your favorite restaurant and they’ll deliver a cocktail or a beer or a mixed drink,” he said.

The three veteran brokers said that with so much turmoil in the market and lots of vacant space likely to become available, landlords and tenants will need their services more than ever as the city begins to reopen.

They acknowledged the challenges for young brokers to make it through the tough market, but said it presents an opportunity to reach out and find the new tenants who will be looking to break in and lease space while prices are down.

Many retailers and landlords are looking for relief from different levels of government. Brendan Wallace of Fifth Wall Ventures recently called on the federal government to provide a $30 billion bailout to the retail industry.

Firestein said he expects President Trump is likely sympathetic to the challenges Manhattan retail landlords are facing.

“My guess is this president probably talks to some of the major real estate guys in New York maybe on a weekly basis,” he said.
The near-total shutdown of New York City shops and restaurants during the coronavirus crisis will likely be felt for years to come in the retail real estate world.

David Goldsmith

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Retail rent collection plunges to 58% in April
More than 1 in 5 large national chains aren’t paying

If retail landlords opened a Tenant Hall of Shame right now, they might begin by inducting Supercuts, Barnes & Noble, Red Robin, General Nutrition Centers, Gap, H&M, Foot Locker and Men’s Warehouse.
Those big names were among the 21 percent of the 135 major chains paying no rent or a small fraction of it in April, according to a new report.
Overall, national retail chains paid 58 percent of billed rent last month, down from 96 percent during the same period last year, data firm Datex Property Solutions found. Gyms, movie theaters and hair salons were among the nonpayers.

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.

Datex clients include major landlords such as Vestar, Weitzman, investment firm Brixton Capital, Devonshire REIT and Lewis Retail Centers.
Grocery stores, banks, pharmacies, pet stores, office, fast-food chains and home goods stores largely made up most of the list of payers.

An earlier Datex report found April rent collection began terribly for commercial landlords.
Datex CEO Mark Sigal noted that some of the retailers who settled up with their landlords by the end of April had started the month with low payments. Examples include cosmetic chain Ulta Beauty and low-cost clothing chain Ross Dress for Less.

“To me, that’s indicative of a tenant who tested a strategy [of non-payment],” said Mark Sigal, Datex’s CEO. “I think what the data show … [is] tenants backed away from that strategy.”
He attributed that to landlords’ harsh reaction to lack of payment from retailers with the ability to pay.

“The tenants that took the ‘we’re not going to pay’ strategy that clearly had the wherewithal, landlords took a very hard line,” said Sigal.
He pointed to one shopping center in Louisville, Tenn., near Knoxville, where a landlord sued six tenants for not paying rent. Two of the tenants, Mattress Firm and kids clothing retailer Carters, made Datex’s list of 135 laggards. By the end of the month, the baby clothing chain paid 0.9 percent of rent nationwide, while the mattress seller paid 26 percent, the report found.

Chains that paid some rent include Applebee’s, Boost Mobile, Five Guys Burgers, GameStop, Massage Envy, Planet Fitness, Sally Beauty Supply and Subway. Those retailers paid landlords less than half of what they paid a year ago.

Sigal said that within Datex’s network, more than a third of tenants are asking for rent relief.
Allstate Insurance paid 87 percent of its collective bill and State Farm paid 82 percent. Both paid 100 percent a year ago.

Sigal noted, however, that April was only the first full month of the pandemic. Some stores plan to reopen or expand their hobbled operations this month while others will stay closed. “May is where I think some of this shakes out,” he said.

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New Threat to New York City: Commercial Rent Payments Plummet
One landlord reported that 80 percent of retail tenants missed rent at the start of the month. The drop in commercial rent payments could imperil property tax collections that pay for city services.

In Brooklyn, a nightclub has been closed for two months. In Manhattan, a travel agency says it is unlikely to ever reopen. Both have not paid rent since the coronavirus shutdowns began.

As a result, their landlord, Jane Lok, collected roughly 50 percent of her monthly rent from her six commercial tenants in April and May, a drastic drop-off from normal times. She owes a $20,000 insurance premium this month and a much higher annual property tax bill in July, both of which have caused her to lose sleep over how she will pay.

“I’m just running my numbers and seeing when I will run out of money,” Ms. Lok said. “We are already dipping into savings.”

Across New York City, commercial tenants are falling behind in rent at unprecedented rates as the coronavirus outbreak has caused a nearly complete lockdown of the city for two months.

Residential rent collections have also declined as tenants who lost jobs have stopped paying. But the erosion of commercial rents, so far, is worse and has stripped landlords of their largest source of income every month, especially for smaller property owners, and has started to jeopardize the health of their own businesses.

The cascading impact of the coronavirus pandemic and stay-at-home orders on New York City have reached a breaking point, property owners and developers say. Two months into the crisis, the steep drop in rental income now threatens their ability to pay bills, taxes and vendors — a looming catastrophe for the city, they warn.

If building owners cannot come up with enough money to pay their next property tax bill in five weeks, a deadline the city has refused to postpone, the city will be starved of an enormous revenue stream that helps pay for all aspects of everyday life, from the Fire Department to trash pickup to the public hospitals. It could lead to a bleak landscape of vacant storefronts and streets sapped of their energy.

David Goldsmith

All Powerful Moderator
Staff member
If you are a retail landlord and the only reason you didn't renew the lease of a long term retail tenant was because someone was offering a lot more rent, but even if you thought that number was untenable they were backing it up with a personal guarantee, now you are screwed.
New law shields restaurateurs, retailers who quit leases
De Blasio signs measure protecting retailers’ personal assets from landlords

Mayor Bill de Blasio on Tuesday signed into law a package of Covid-19 relief bills, including one that temporarily bars landlords from going after restaurant and store owners’ personal assets.
The law suspends the enforcement of personal liability provisions in commercial leases or rental agreements for a default that occurs between March 7 and Sept. 30. Attempting to enforce such provisions constitutes harassment under the measure.

“With the signing of my bill, any small business owner with a personal liability clause in their lease will see that provision temporarily suspended, and they will no longer have to fear their landlord going after their personal life savings and assets because of a disaster no one saw coming,” Council member Carlina Rivera, the bill’s sponsor, said in a statement.

Opponents and some council members had raised legal concerns about the bill, saying the city was overstepping its authority by interfering with private contracts. Attorneys also pointed to the fact that personal liability provisions are often part of separate guaranties signed by the tenant, not baked into lease agreements as the council bill implies.

In addition to the personal liability measure, the mayor signed a bill that expands the definition of residential and commercial tenant harassment to include threats based on the tenant’s status as a Covid-19 affected person, essential employee or recipient of a rental concession or forbearance.

Another bill signed Tuesday prevents third-party food delivery services, like Seamless or Uber Eats, from charging restaurants a fee greater than 15 percent per order for delivery and 5 percent per order for any other charge.
The restaurant industry had pushed for the measure, saying the delivery apps were eating into their profits — but were so popular that quitting them might cause an eatery’s takeout business to evaporate and cost them customers who might later dine in.

“A big problem here is that Grubhub and Seamless control 60 percent to 70 percent of the market,” said Andrew Rigie, executive director of the NYC Hospitality Alliance, via email. “They use that market share to increase fees.”

David Goldsmith

All Powerful Moderator
Staff member

Le Pain Quotidien freed from 59 leases in bankruptcy
New owner will reopen 35 of the eatery’s 94 locations

Upscale bakery chain Le Pain Quotidien will be allowed to break 59 of its leases, in a decision the judge acknowledged is “unusual.”
The company filed for Chapter 11 bankruptcy protection, which allowed it to pare down debt and complete a $3 million sale to Aurify Brands pending court approval, Bloomberg reported.
“The relief requested is unusual, but these are unusual times,” U.S. bankruptcy Judge John Dorsey said of Le Pain Quotidien’s request for immediate freedom from its leases.

Aurify plans to reopen 35 of the Belgian brand’s 94 stores in the U.S., which employ about 1,000 workers. The locations have been closed since state and local governments issued shutdown orders at the beginning of the pandemic.
The popular chain was founded in 1990 and opened its first U.S. eatery in 1997. CEO Doug Saltzman, who joined Le Pain Quotidien in 2016 after 14 years at Starbucks, bought an Upper West Side pre-war duplex for $2.8 million the following year.

In deciding which of its leases to renegotiate, Aurify focused on underperforming stores and “assessed the impact of operating with a reduced portfolio of restaurant locations,” according to court filings, Bloomberg reported.
The buyer may also seek to renegotiate additional leases, an attorney for Aurify said in a court filing.

David Goldsmith

All Powerful Moderator
Staff member
Nearly 140,000 businesses on Yelp remain closed since coronavirus hit
Around 41 percent of those businesses are considered permanently closed

Nearly 140,000 U.S. businesses that closed since March 1 remain shuttered, and just over 40 percent of them have closed for good.
Yelp’s latest report on businesses listed on the platform show that more retailers closed than any other businesses during the coronavirus pandemic, but a higher number of restaurants are closing permanently, according to the Wall Street Journal.

Nearly 27,700 retailers closed and 35 percent of them marked themselves as permanently closed. While just under 24,000 restaurants have closed since the beginning of March, 53 percent of them are considered permanently closed.
Around 175,000 Yelp-listed businesses were closed in April, meaning about 35,000 have reopened since then.

Some of those businesses could soon close again as the number of positive COVID-19 cases rise nationwide. Texas, California and Arizona account for nearly half of the almost 40,000 new cases reported Thursday.
Texas Governor Greg Abbot on Friday ordered bars to close at noon except for delivery and takeout and limited restaurant capacity to 50 percent, but stopped short of ordering any businesses to shutter completely.

Meanwhile, searches surged for black-owned businesses across the country in the weeks after the late May police killing of George Floyd in Minneapolis. There were 222,000 searches for black-owned business compared to 9,000 in the three weeks prior.
Yelp also created a function to search for black-owned businesses.

David Goldsmith

All Powerful Moderator
Staff member
Indoor dining delays could be final straw for many restaurants

Cities across the U.S. are delaying plans and reversing orders to allow restaurants to open for indoor dining, marking the latest setback for one of the hardest-hit industries as COVID-19 continues to spread across the country.
With outdoor dining permitted, many restaurateurs have expanded their seating onto sidewalks, even spilling into local streets to lure passersby. But a few measly chairs alone can't carry them through the seemingly unending interruption caused by the coronavirus pandemic.

"Anybody that thinks that outdoor dining is a solution needs to have their head examined," said Philippe Massoud, owner of Ilili, a Lebanese restaurant near Madison Square Park, after New York City Mayor Bill de Blasio late last week said the city would not allow indoor dining to resume after the July Fourth weekend.

The decision to pause comes after cases recently climbed in communities where restaurants had already reopened, in states such as California, Florida, Pennsylvania and Texas.
Massoud was disappointed about the course reversal, after investing in training sessions for employees and purchasing perishable food items — all to prepare to open for indoor dining this week.
"We had set up training sessions, started preparing some sauces, ordered our butcher cuts, and then we had to slam on the brakes," he told CBS MoneyWatch. "While safety is our priority, we don't have the ability to do these starts and stops because they cost us a lot of money," he added.

Instead, he'll rely on a combination of take-out and delivery orders and extended open-air seating, allowed through New York City's summertime "Open Restaurants" program.

Restaurants can temporarily expand seating onto sidewalks and streets to allow for social distancing, so long as they create protective barriers using planters or similar objects that block seating areas from auto and bicycle travel lanes. Roadway seating is allowed through September 8.
And so restaurant owners like Massoud have invested thousands of dollars in building attractive outdoor environments. After all, it's one of few accommodations that gives them a fighting chance of surviving.
Massoud said he's already spent about $5,000 expanding an existing outdoor cafe. He sunk another $8,000 into planters, chairs, umbrellas and other design elements that comply with the new initiative's safety guidelines.

He did receive a loan through the federal government's Paycheck Protection Program, without which the restaurant would have already gone out of business, he said.He's committed to giving the new way of doing business a shot — if only for his staff and customers. He doesn't expect to be profitable again without substantial, long-term aid in the form of total rent relief and business-interruption insurance payouts.

Normally a 260-seat eatery, Ilili will open for outdoor dining on Wednesday with just 24 seats.
"The math doesn't make sense"
The postponement of indoor dining could mean throwing in the towel for some restaurant owners.
"We are hearing countless restaurants are already closing. People are going to now decide, 'I can't hang on any longer,'" said Andrew Rigie, executive director of the New York City Hospitality Alliance, which in May surveyed nearly 500 restaurants, bars and nightclubs about reopening.
The city is home to more than 25,000 eating and drinking establishments that employed roughly 300,000 people pre-pandemic, according to latest economic impact study from the Mayor's Office of Media and Entertainment. That count doesn't include restaurants that are only open for brunch and lunch, according to Rigie.
Nearly 4% of restaurants surveyed by the Hospitality Alliance said they expected to close permanently as a result of COVID-19. But another 53% said they don't know if they will ever regain their footing.

And for those owners that do give outdoor dining a shot, profitability is essentially off the table.
Massoud —a self-described realist with a background in finance — doesn't expect to turn a profit anytime soon. In fact, he would be surprised if he were even able to recoup his investment in the outdoor cafe, whose menu includes dishes ranging from $18 brussels sprouts to a $65 whole organic chicken. Assuming a relatively low profit margin of 3%, Massoud estimates he'll need revenue of $266,000 over the eight weeks during which he's permitted to operate, just to recoup his $8,000 investment. "That's impossible, the math doesn't make sense," he said. "The game is not about making money. The game right now is to lose the least amount of money so you can stay open for as long as possible until there is a brighter day," he said.
That would equal about $33,000 in sales per week, or $4,700 per day, spread out over only 24 seats. Where he used to do 400 covers a night, he'll now do just 20.

"There is no way on planet earth you can recoup your investment, and that's not even counting the days you'll be shut down because of the weather, like if it's raining or excessively hot," Massoud said.
He'll stick it out for the near-term and reassess his reopening prospects in eight weeks.
"If it rains it's over"
Benjamin Prelvukaj, the co-owner and co-founder of Benjamin's restaurant group, has three restaurants in New York City, one of which will open for outdoor dining on Wednesday.
Prelvukaj spent $15,000 on a tent for Benjamin Prime, a 275-seat restaurant near Grand Central Terminal, that will have outdoor seating for 40 people.
Benjamin Prime owner Benjamin Prelvukaj purchased a $15,000 tent in order to seat customers outside. BENJAMIN PRELVUKAJ
He's trying it out, but stressed that without indoor dining, his restaurants won't survive, for one because outdoor dining is weather dependent.

"We are going to open, but the problem is it's July and it's hot and humid outside. I don't know how people are going to feel about eating in 100 degree weather outside," he said. "And if it rains it's over. Everyone is going to leave and everything is going to go down the drain."
The message from owners is clear. Without more help, or unless the virus subsides, it's over for many restaurants.
"We are in the ICU on the operating table, our pulse is declining, the monitor is blinking. Please help us," Massoud said.

David Goldsmith

All Powerful Moderator
Staff member
Retailers boost rent payments but Covid surge prompts caution
Chain stores paid 68% of June rent, though recent uptick in cases may mean bad news for landlords for July collections

The amount of rent Burger King paid in June compared to May was a whopper. The fast-food chain forked over 100 percent of what it owed landlords last month, compared to 63 percent the month before. The same went for Dave & Buster’s, where the new motto could be “Eat, Drink, Play…and Pay!” as landlords for the chain also collected all of June rent compared to 67 percent in May.
As states have reopened for business, national chain retailers have steadily paid a higher percentage of the rent they owe. But landlords may see collections fall in July, given that many areas across the country have experienced a recent spike in Covid cases.

In June, national chain retailers paid 68 percent of their rent, according to a report from Datex Property Solutions. That was up from the 58 percent that chains paid in May, according to Datex, which surveyed 141 of the largest retail chain stores across the country. Landlords can thank the widespread reopenings, the federal government’s Paycheck Protection Program loans and rent relief agreements that landlords worked out with their tenants, Datex CEO Mark Sigal noted. The report does indicate which chains have received relief.

The news was not all good. Landlords with clothing stores, gyms and theaters as tenants have seen rent collections remain low. Very low.
JCPenny, which paid 20 percent of rent in May after having declared bankruptcy, did not pay any rent at its stores last month. Justice, Lane Bryant and Century 21 also did not make any payments. It was at least the second month in a row that all three clothing companies failed to make rent payments at their locations, according to Datex.

Those were the only four of the 141 retailers in the Datex report whose landlords did not collect any rent at their locations. Last month, that nonpayment number was at 18.
Other chains continue to suffer. LA Fitness paid just 4 percent, while AMC Theaters paid only 5 percent. AMC has suffered billions of dollars in losses as all of its 600 movie theaters in the U.S. — and 1,000 worldwide — have been closed during the crisis. Early last month, the company said it hoped to reopen by July, but that won’t be the case for its New York locations, and it remains unclear elsewhere given the recent surge of Covid cases.

But one retailer whose rent payments surged in June was Hallmark. It went from paying 21 percent in May to about 74 percent last month.
Supermarkets and drugstores have been among the very few bright spots in retail amid the months-long pandemic, along with some fast-food chains and takeout restaurants.

Hair salons, which for the most part had been shuttered, are beginning to make a comeback as customers rush to tame their quarantine quaffs. Great Clips boosted its rent payments to 84 percent in June from 66 percent in May, while Sport Clips went from making 67 percent of rent to about 78 percent last month. But one of the best known chains, Supercuts, has remained mired in nonpayment, with rent payments having been trimmed down to about 20 percent.

“A lot of that is obviously market-dependent,” Datex CEO Mark Sigal said. “Hair is definitely ground zero of how aggressive a given market is in terms of opening up.”
In several cities reopenings have slowed, with the timeline for indoor dining pushed back — as was the case in New York City — or halted entirely, as with Miami and L.A. All of that could have a spillover effect on retail sales, experts say.

“The big sort of unknown, as you’ve already seen in some of these states that aggressively opened up, they’re now starting to dial back,” Sigal said. “So, it’ll be interesting to see if [retail] categories that saw some lift as more aggressive states were opening up see some challenges.”