Why it makes sense for property owners & tenants to work together right now
Guest post by Ingrid Richter, ISR Strategies and Downtown Development Authority (DDA) Board Chair
As the coronavirus continues to ravage the national economy, the local economy also has been hit with a hard, swift blow. Especially challenged are our Downtown food, beverage and hospitality businesses, as well as our street-level retailers. Prior to the shutdown, Downtown sales tax receipts were up 11 percent in January. With unemployment claims skyrocketing, now is the time to help support the small businesses that make up the fabric of our local and Downtown business community.
Financial Support for Businesses Affected by COVID-19
The CARES Act promises some relief. Local philanthropists are stepping up through funds at Exponential Impact and Pikes Peak Community Foundation.
Organizations such as the Pikes Peak Small Business Development Center are providing technical support. Downtown Partnership maintains a list of links to key partner organizations offering funding and technical support.
Nevertheless, all forms of aid are essential. During this unprecedented time of economic downturn, how can we sustain our small businesses, including our Downtown storefront businesses?
Blend and Extend Provision
In studying previous economic downturns, one of the more successful strategies used during the 2008 financial crisis was the implementation of what is known as a “blend and extend provision” to an existing lease. Amending a current lease to add “blend extend” provision grants the tenant relief by deferring rent and operating expenses for a short period of time (perhaps three to six months) in exchange for a lease extension equal to the same amount of time, with the amount of deferred rent and operating expenses amortized over the remaining term of the lease.
Why it makes sense for owners & tenants to work together
It can be argued that this strategy doesn’t relieve landlords from making loan payments or paying current operating expenses necessary to keep the property out of default or collection. Property owners continue to have obligations such as loan payments, property taxes, property and liability insurance, utilities, and other expenses required to maintain a property.
However, landlords know and understand that tenants going out of business and/or filing bankruptcy has serious impacts on the local and state economy, property values, and the landlord’s pocketbook in terms of expenses associated with re-leasing a property to include legal expenses, removing personal property, deferred capital expenses, the cost of extended vacancies in trying to backfill vacant space, necessary tenant improvements to release the property, and real estate commissions.
Demanding that rent stay current may force small businesses to give up, even when relief may be available through the CARES Act.
Where do we go from here?
Devising a short-term strategy to get through the next several months will return significant benefit to our local real estate and business economy in the future.
If you rent, there is no doubt that you have already lost sleep about how you will make your next rent payment. No doubt you’ve already discussed ideas and proposals with your landlord. Be prepared to let your landlord know what you have done to help yourself (including looking into and applying for the grants and loans available) and expect to be open with them as to the actual impact this has had on your business, your employees and your finances. It’s imperative tenants and landlords support each other during this unprecedented time in history.
If you own property, ask your lender about whether refinancing the property might be a viable option. Interest rates are at historic lows, and refinancing helps to reinvigorate the local economy.
Today’s economy demands that ALL available options be considered, researched and used. This is not a time to close our eyes and simply hope the pandemic passes. We must be proactive. We must work together to move our economy forward so we come through this crisis. The devastating short-term impact of this crisis must be weighed against the benefit of long-term collaboration and economic prosperity.