Amid COVID-19, Texas Retail Owners Have Tenants’ Backs

REBusiness|June 2, 2020

Written by: Taylor Williams

As COVID-19 disrupts the American economy, healthcare system and way of life, retailers and restaurants — the commercial real estate users whose very profitability and essence thrive on social congregation — have already been pegged as immediate casualties of war.

According to data from the U.S. Department of Commerce, total U.S. retail sales fell by 16.4 percent between April and March, well above the projected drop of 12.3 percent. And specifically within the Lone Star State, the Texas Restaurant Association issued a statement in mid-April warning that as much as 40 percent of the state’s restaurants could remain permanently closed as a result of the pandemic.

The month of May has seen Texas emerge as a national trendsetter for reopening retail and restaurant businesses. Texas Gov. Greg Abbott granted  restaurants and malls permission to begin reopening on May 1, followed by gyms, bars and bowling alleys during the week of May 18 to 22. All establishments were required to reopen at limited occupancies.

But even prior to the pandemic, landlord and tenants in brick-and-mortar retail were already engaged in a vicious battle against e-commerce. The introduction of COVID-19 has not changed physical retailers’ need to be aggressive, but it has raised the stakes.

To that end, shopping center owners are getting creative to keep tenants in their spaces, largely banking on the hopes that the pandemic will subside in the coming months and that the second half of 2020 will see a strong economic rebound.

Forms of Aid

On March 27, the federal government signed the Coronavirus Aid, Relief & Economic Securities Act (CARES) into law, establishing the Paycheck Protection Program in the process. The initiative allotted $376 billion in financial aid to some 200,000 small businesses. On April 22, new legislation passed to increase the total allotment to $484

Yet for some retailers, federal aid has been too little, too late. As they are forced to close their stores, many retailers that have been deemed nonessential are finding themselves in cash crunches, with little choice but to appeal to their landlords for relief.

Rent deferrals, perhaps the most common form of relief, can be granted under various terms. One common form of restructuring involves landlords not collecting rent for a couple months from certain stores that are closed, then simply extending the lease by the length of that period and collecting during those months. Other retail owners are only collecting the triple-net items of taxes, insurance and common area maintenance fees in lieu of principal rent payments plus those items.

“Most retail landlords are offering some deferred rent to be paid back over six, nine or 12 months after their retailers reopen,” says Terry Montesi, CEO of Trademark Property Co., the firm behind projects like Victory Park in Dallas and the redevelopment of the Memorial City Mall in Houston. “Landlords can defer rent for a couple of months and amortize it over a period of time after the deferral. In addition, many landlords can and are focusing on helping their tenants have successful reopenings.”

“The length of the amortization period varies from tenant to tenant and is a talking point,” adds Dan Frey, principal at Austin-based developer Endeavor Real Estate Group. “But the communication between the two sides is at an all-time high. Regional and local tenants that have asked for help have not made egregious requests, and landlords understand that it will take some time for business to ramp back up, so these deferred payments are being pushed down the road in some cases.”

Montesi says…

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