Retailers will be getting a knock at the door at the beginning of the month, and it probably won’t be a delivery person. More likely, it’ll be the mall or building landlord looking for the next month’s rent payment. Beyond the devastating health crisis, COVID-19 is creating an economic problem as most businesses are closed with no sales coming in. Merchant rent payments will be taking a major hit. Merchant landlords, who have already seen emptied storefronts and retailers closing by the thousands in recent years, now face cash flow issues of their own.
Landlords have their own financial obligations, but what choice do they have for merchant rent payment? Early indications are that landlords and tenants will try to make a deal by deferring rent payments. Some major retail chains such as Nike, Subway, and Cheesecake Factory have announced they will not pay next month’s rent in full, or at all.
Considered mainly non-essential, most retailers are closed and have no sales except for online channels that won’t sustain the businesses. Uncertainty plays a large role here, as we do not know how long this will go on, as does the backstop effectiveness of Federal Reserve. Large retail chains will survive, many with less stores, but small business will bear the brunt of COVID-19’s ultimate toll.
The following Forbes article, excerpted below, reports more on this topic:
Later this week, rents come due on retail stores for the month of April. Because stores are mostly closed, there is a frenzy of discussion and negotiation going on right now among retailers, landlords and advisors about what will actually be paid. As Patti Kantor, real estate partner at the law firm of Mintz Levin, told me, “it’s going to be hard to figure out how to resolve this in a way that does not destroy retail stores or landlords.”
Many of the largest and most active law firms in retail real estate wouldn’t talk on the record for this article. That tells me that these firms, who represent the largest landlords, see weakness in their clients’ positions and don’t want to disserve their clients’ interests by talking about it. But retail analysts all say that the vast majority of retail tenants are seeking deferments and abatements for their April rent.
Fitness, movie theaters and furniture stores, were cited as the most aggressive in cutting costs this week. In general, there is more discussion of deferment than of abatement for merchant rent payment, but either way there will be less money changing hands for retail rent payments this April than there has been for a very long time.
Overview by Raymond Pucci, Director, Merchant Services at Mercator Advisory Group