Renegotiate or Terminate, A Look At Landlords vs Tenants

Grant Norling — Fri, 13 Feb 2009 22:48:17 +0000

Unless you have been living under a rock for the past year, you know we are in a recession. This recession has impacted everyone from the average Joe to leaders of fortune 500 companies. We know that the recession has hit retailers hard; but how bad is this situation affecting landlords?
Many retailers are searching for solutions, and some are looking to renegotiate their leases. It’s a tough situation for landlords because they obviously want to keep their buildings occupied; but they don’t want cash-on-cash returns and the ability to repay debt to slip.
Through conversations with local owners and property management firms, it is apparent that the request for rent reduction is the hottest thing among retailers. Although the requests range from heart breaking personal letters to standardized form letters, the plea remains consistent: “reduce our rent so we can stay in business.”
The difficulty from the landlords’ perspective is trying to target relief to tenants that are valued and have legitimate problems, while weeding out every other fishing expedition from tenants that do not merit consideration. And the requests are coming in title waves. Are retailers playing the NBA flop game?

Figure 1 “You can see we are in trouble, right?”

The answer appears to be yes. Costar talked with a few national shopping center landlords in a recent article by Sasha Pardy. The article discusses a laundry list of national retailers and how they are dealing with the economic downturn. However, there was a good deal of discussion on how landlords are dealing with rent reduction requests. It appears that tenants being granted relief are a drop in the bucket compared to those asking. Particularly interesting viewpoints came from Regency Centers and Kimco; their viewpoints are presented in the article are below:

REGENCY CENTERS
Mary Lou Fiala, president and COO of Regency Centers, said in the company’s Feb. 5th quarterly conference call, “Regency is receiving requests for rental assistance from a great number of tenants. There is a few people that we’ve made exceptions for.” The decision is made tenant-by-tenant, explained Fiala, adding that Regency requests three years of sales information, income statements, and credit applications from tenants, as well as a recovery plan.
In the case that rent reduction is granted, Fiala said, “any reduced rent is deferred and not forgiven.” She said that only 37 of Regency’s 9,000 tenants had been granted such reductions in the last month, “and in 28 of these cases, we were able to extend term of the lease.”

KIMCO REALTY CORPORATION
David Lukes, EVP at Kimco Realty Corp., said in the company’s Feb. 5th quarterly conference call, “We are preparing for a continued difficult time for our tenants and are forecasting continued weakness and uncertainty. The ability of a tenant to prosper is partly due to their cost of occupying their real estate.”
“We have a detailed concession request package that we’ve developed that’s required…and are using occupancy costs, financial help and sales history to separate the tenants that truly need help from those that are merely following the saying, ‘you don’t get it if you don’t ask,” explained Lukes. To date, the number of requests Kimco has granted are “minimal” compared to the number of requests it has received, said Lukes.

Read more of Sasha Pardy’s article on Costar

Retail News Blog» Renegotiate or Terminate, A Look At Landlords vs Tenants

Renegotiate or Terminate, A Look At Landlords vs Tenants

Figure 1 “You can see we are in trouble, right?”