2A — May 29 - June 11, 2020 — M id A tlantic Real Estate Journal


M id A tlantic Real Estate Journal

M id A tlantic R eal E state J ournal Publisher, Conference Producer . .............Linda Christman AVP, Conference Producer ...........................Lea Christman Publisher ........................................................Joe Christman Editor/Graphic Artist..... .................................Karen Vachon Contributing Columnist ......................Paul G. W. Fetscher, CCIM CRX CLS, Great American Brokerage Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly Periodicals postage paid at Hingham, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal 350 Lincoln St, Suite 1105, Hingham, MA 02043 USPS #22-358 | Vol. 32, Issue 10 Subscription rates: 1 year $99.00, 2 years $148.50, 3 years $247.50 & $4.00 single issue - plus postage REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Phone: 781-740-2900 | Fax: 781-740-2929 www.marej.com

Paul G. W. Fetscher, CCIM CRX CLS

How to Deal with Landlords in the Age of Covid-19


ow is a retailer sup- posed to survive when he is restricted from

opening? How should he deal with his landlord in these un- precedented times? As a tenant representative agent, my real job is to deter- mine how much business my customer can do in a given space and negotiate for a rent that is prudent. We enter into our retail leases and negotiate rent based upon our expec- tation of retail sales. Today with the current COVID-19 epidemic, we find ourselves in a situation where the vast ma- jority of retailers are restricted from doing any business but are expected to pay rent. “Call Your Landlord Be- fore He Calls You” . It ac- knowledges that you are having a problem and sets the stage for a discussion towards how the two of you can together work things out. Know what to ask for. The initial alternatives are either a full or partial rent forgiveness or a postponement of rent. Landlords are rather unrealis- tic in their understanding of the narrowmargins existent in the restaurant business. Retail space is unique. The value of retail space is Directly Proportionate to the ability to do retail sales in that space. The more sales you can do, the more valuable the real estate. So initially plead for a Forgive- ness of Rent. No Sales = No Ability to pay rent. A landlord and tenant origi- nally made a deal, based upon an expectation of a certain level of sales. However, when they are precluded from full opera- tions, they have not made the expected sales and therefore cannot afford to pay the con- tract rents. Courts have a nice phrase regarding rents: “Use and Oc- cupancy”. But if there legally cannot be any use, should there be a legal obligation to pay rent? A survey of Long Island retail landlords show that 46.6% of them have received less than 50% of Scheduled Rents due April 1st. The landlord must pay real estate taxes (no government has given any relief on that), along with insurance and some

security and utilities. An of- fer to help cover those items is a compromise position. The largest obligation is probably his mortgage. Well, maybe it’s time for landlord to go to his mortgagee and ask for a forbearance, or delay, or inter- est only. On one webinar, a representative of the Federal Reserve revealed the Fanny and Freddie may be open to such discussions. Ask an understanding land- lord to simply hit the “Pause Button” for 90 days. Then re- sume the rent and extend the term by that postponement. That way the landlord will receive every dollar he had initially bargained for. You can put a landlord in a better position by offering to extend your lease term for additional years, in exchange for forgiving rent now. He will know that he will have some certainty of scheduled income for a longer time. Some landlords are willing to help tenants by not forgiv- ing, but by allowing a tenant to defer rent for perhaps 90 days and then pay it back over the next year or two as additional rent. That would amount to a 12.5% increase if spread over the next two years. Do you have something that could benefit landlord? In ex - change for rent forgiveness, you might relinquish an exclusive on a product category. For in- stance, a 2,000 s/f tenant such as Row House might have an exclusive on fitness, when a yoga studio would want to take other space in the center. “This is not the end. This is not the beginning of the end. But this may be the end of the beginning” - Winston Churchill After 9-11 and Superstorm Sandy, it took 6 months before markets returned to some- thing resembling normal. We would like to think that with

“Flattening the curve” It is time to declare Victory. Not Nearly! Right now, New York has an infection rate of 1.6%. So, if we lift restrictions, we only have 98.4% of the popula- tion to worry about. Who will the customer be on the other side of this crisis? Will it be part of the 98.4% who cares to be reckless? Or is it the worker who has not had a paycheck for 90 days? If restaurant tables are re- quired to be 6’ apart, either by edict or by social convention, seating capacity in restaurants will be reduced to about 50% of current levels. Fewer seats equals Lower sales. As we emerge from this, we will have to crawl before we can walk. In recovery, what is a fair and equitable rent? A restau- rant can endure a 10% Gross occupancy Cost (Rent + CAM + RE Tax). Will your landlord be willing to accept that as a workaround for the next year until we all get inoculated? The Gap or Old Navy has an advantage. They can close for 90 days, but when they reopen, they still have 100% of their inventory. In a restaurant, all the perishables will have perished. Most of the food in a restaurant is sold before it is paid for. So the restaurants have an outstanding payable even before they accept new inventory to reopen. What is a landlord’s BATNA? What is their Best Alterna- tive To a Negotiated Agree- ment? The National Restaurant Association did a survey inmid- March. 3% of their membership had closed their restaurants PERMANENTLY! Another 11% of their members said that they might have to close per- manently , if this lasted for 30 days. Now, a month past that survey, and we have no vision of where is the light at the end of continued on page 28A

ONLINE ONLY A UCTION S Bid Online June 18 th - June 24 th “Don’t wait to buy land, buy land and wait.” Will Rogers


Bidding Ends: 10:00 AM

Selling Absolute!

Property Location: Tuckahoe Rd. & Coles Mill Rd., Franklin Twp., NJ

Prime Corner Lot, Signalized Intersection of CR 538 & CR 555, Neighborhood Commercial Zoning (NB), $1000 STARTING BID


Bidding Ends: 10:15 AM


EHT High School & Community Center

Property Location: 5064 English Creek Ave., Egg Harbor Twp., NJ

Surrounded by Residential Subdivisions, Egg Harbor Twp. High School & Community Center, On Busy Communter Road, $10,000 STARTING BID!

ALL bidding will be ONLINE ONLY at WarnerRealtors.com

856.769.4111 WarnerRealtors.com

Mid-Atlantic Real Estate Journal, 1/4 pg, May 29 & June 12

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