Coronavirus and commercial rent: What tenants should know if they are pressed for cash

Communication is essential, an industry expert says

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Businesses across the country have shut their doors as the federal government works with states in order to stem the spread of coronavirus – but the economic impacts have already begun to sink in for many business owners.

While some industries have been able to pivot services online, or shift to delivery, drawing in some revenue, others have been forced to close entirely. These circumstances have placed a heavy financial burden on the shoulders of owners, who are having trouble making regular payments, including everything from employee salaries to bills.

Rent costs are often one of the larger expenses in business owners’ have, and they might be one of the first line items they find themselves unable to afford if operations are reduced or halted.

For owners in this situation, Francis Greenburger, chairman and CEO of New York-based real estate and property management firm Time Equities, told FOX Business that tenants should contact their landlord and be prepared to explain their financial situation in its entirety. They will likely be asked to show their financial statements, assets and what capital and reserves they have.

That’s because landlords' abilities to deal with rent relief is very limited since they don’t keep the money, Greenburger pointed out. The cash is put toward the costs of maintaining the building, real estate taxes owed to the city and state and bank financing. In the end the landlord may only keep 10 percent to 20 percent.

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“This virus is hurting everybody and the cost of it is enormous,” Greenburger said. “Everybody is going to have to dig into their pockets deeper than usual.”

But businesses without the resources to make their payments can get relief. That would likely come in the form of a cooperative agreement whereby the tenant will eventually make the full payment. That can include deferring rent payments or asking the tenant to extend his or her lease in exchange for near-term rent relief.

“This is a very particular problem. It’s related to a national health emergency and everybody is in this together, so that’s understood,” Greenburger said. “But exactly who needs what is different. Just like the federal rebate monies are not being sent to people who earn over a certain amount … we can only help a limited number of people … and we have to address that to people who are in absolute need, not to people who have other resources.”

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However, communication is essential. Failure to contact your landlord altogether and skipping out on payments can lead to bigger problems. Meanwhile, many cities and states have put a pause on evictions, but that doesn’t give tenants a free pass to forego rent. Failing to pay will hurt credit and credibility, Greenburger said.

There are federal relief programs aimed at giving financial assistance to small businesses. Loans from the Small Business Administration’s economic injury disaster loan program and its paycheck protection program are intended to be put toward essential costs like rent.

In an effort to help alleviate the issues pressing the commercial real estate system,from tenants to banks, Greenburger is sending a letter to lawmakers proposing that banks suspend interest collection for three months and instead add it on to the next 12 months’ worth of payments. For those 12 months where the additional interest money was being paid, banks would waive principal pay downs, which would lead to a mortgage balance at the end of the mortgage. The idea is to provide short-term relief, while allowing banks to eventually recoup 100 percent of what they are owed.

A similar proposal has been enacted by the Canadian Imperial Bank of Commerce.

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