Rent checks normally start to pour in the first of every month for commercial property landlords. Not so on April 1, which marked the first time tenants had rent bills due since the start of the coronavirus pandemic.
Making the monthly rent payment suddenly became more of a challenge for many businesses, as some had to temporarily shutter last month amid the response to COVID-19.
Commercial landlords are dealing with dozens of tenant requests for deferments or discounts on rent, at least for April.
It’s a challenge as bills for the property owners, who face insurance, taxes and upkeep of the buildings and shopping centers, come due every month.
“It’s like a wreck in slow motion,” said Curtis Jared, president and CEO of Jared Enterprises Inc., which owns several retail shopping centers, including Battlefield Plaza and Brentwood Center. “You see it coming and all you can do is try and brace for it.”
David Wenzel is a small-business owner who was faced with the uncertainty of paying his April rent. He ended up temporarily shutting down his salon on Republic Road.
“There was a lot of stress, anxiety and tension before we closed,” Wenzel said.
The owner of David Wenzel Salon LLC was staring down a roughly $4,000 monthly rent payment on his six-year lease with landlord James Tillman.
He’s not alone in the struggle for income to cover hard costs.
March retail sales recorded the biggest monthly drop in history, down 8.7% seasonally adjusted from February, according to the U.S. Census Bureau. The reduced sales exceeded the prior record of 4.3% in November 2008 during the Great Recession.
Jared said his 11-employee company has been communicating with tenants since the federal government began debating the $2.2 trillion Coronavirus Aid, Relief and Economic Security Act signed into law last month.
He said the company recognized tenants would start feeling economic pain as the travel industry essentially shut down by mid-March. No traveling means a slowdown in spending at retailers and restaurants, he added.
With financial pressures mounting, Wenzel was able to negotiate with Tillman to pay 25% of his rent for April.
The additional money owed for this month will be tacked onto future rent bills, he said.
Tillman has ownership in roughly 45 commercial buildings in Springfield with nearly 100 tenants. He said about half of his tenants haven’t paid even a portion of rent in April.
Some tenants, including national chains Mattress Firm and Red Robin Gourmet Burgers, were seeking to delay multiple months of rent payments. That wasn’t going to happen, Tillman said, adding he has property taxes and insurance to continue paying.
However, no rent in April was a concession he made.
“What I’m telling everybody now is take this month off, get your stimulus money and be prepared to pay for next month,” Tillman said, adding some tenants plan to pay extra over multiple months.
Rental deferment and discounts are among the flexibility landlords are exhibiting to meet tenant needs.
At Jared Enterprises, 70-80 of tenants have a rent modification plan in place for April.
“It’s a domino effect. The tenants cash flow is affected, ours is affected and then it affects the payment to the bank,” Jared said.
“Everybody’s working with each other.”
Adjustments, including waiving late fees and interest, are being made on a case-by-case basis, he said.
At Branson Landing on the shores of Lake Taneycomo, roughly 70% of its near 90 tenants are pursuing some sort of delay or discount in rent, said Rick Huffman, the outdoor retail center’s developer. With only seven businesses currently open, he said the HCW Development Co. LLC team is assessing each tenant individually.
“If their financial situation is dire, we’re obviously going to work with them,” Huffman said.
According to the landlords interviewed for this story, tenant rent situations are being addressed on a month-to-month basis.
“I always try to work with my tenants and I’m eager to work with them,” Tillman said, adding he started to hear from tenants as soon as Springfield announced its stay-at-home order March 24 that identified essential and nonessential businesses throughout the city.
The landlord-tenant conversations are made with the understanding that enough income needs to be coming in for the property owners to make payments to the bank, Huffman said.
That includes taxes, insurance and common maintenance charges to keep up the properties.
“We’re fortunate that we have enough cash and equity in the project to survive. We’ll be fine,” he said of the $420 million Branson center.
However, he said its future financial health depends on how long the COVID-19 crisis lingers.
One help is the U.S. stimulus package that includes $350 billion for a Paycheck Protection Program. Loan funds are capped at no more than 25% to pay rent.
Tillman has empathy for the concerns of business operators. He has ownership in 10 restaurants and an electrical contracting firm, Complete Electrical Solutions. He estimated roughly 300 restaurant employees, or 75% of the workforce, have been laid off in recent weeks – including workers at six First Watch cafe franchises, two of which are in Springfield.
As such, Tillman has applied for nine loans under the federal program, and he’s been approved so far for seven, in the $100,000-$200,000 range.
He’s still waiting on word about disaster relief loans through the U.S. Small Business Administration.
Huffman said he also was approved for the payroll program. It covers two months’ payroll for the center’s 12-person staff, he said, declining to disclose the loan amount.
The landlords say rent relief would have to be revisited in May, as a number of businesses deemed nonessential will have been closed throughout April and generated no revenue.
“I’m sure we’ll still have rent relief because we don’t even know if some of these tenants can be open by then,” Huffman said.
“It’s still undecided when the government is going to allow people to go back to work.”
The uncertainty makes it difficult to project the commercial real estate landscape for several months, Jared said.
“These are unusual times,” he said. “As long as the tenants are communicating with us what’s going on and we have some sort of understanding in writing that we’re all working on … we’re fine with that.”
Adrianna Norris became a first-time business owner with the opening of Finley River Chiropractic; PaPPo’s Pizzeria & Pub launched its newest location; and Huey Magoo’s opened its second store in the Ozarks.