Retail landlords weigh tenant-relief requests

Coronavirus-related business shutdowns hit local retailers last month, and now it’s their landlords who are starting to feel the pain.

With April’s rent due now, landlords are taking a variety of approaches with retail tenants who may be unable to pay their leases because sales have dried up.

On March 16, Indianapolis Mayor Joe Hogsett ordered all restaurants to cease dine-in service, though takeout and delivery is still allowed. The order also required bars, nightclubs, movie theaters, entertainment facilities and fitness centers to close. On Wednesday, Hogsett extended that order until May 1.

Most landlords are offering their retail tenants some kind of rent relief—but the form that relief takes can vary greatly, said Seth Biggerstaff, a vice president at Indianapolis-based Veritas Realty.

“There’s no right or wrong way. It’s going to be different for every tenant,” Biggerstaff said.

Veritas specializes in retail property and manages 3.5 million square feet of commercial real estate, the vast majority of it in Indiana. Most of the properties Veritas manages are owned by third parties, though the firm does own some retail property.

Among the landlords that Veritas represents, Biggerstaff said, some are allowing tenants to delay rent payments for a couple of months, adding those payments to the end of the lease term and effectively extending the length of the lease.

Landlords are also offering some tenants the chance to skip a couple of lease payments if they agree to renew their lease for a specified period.

In some cases, landlords are dipping into tenants’ security deposits to cover April’s rent, Biggerstaff said.

Local landlord Ed Battista, who owns several retail properties around Indianapolis, said he’s optimistic that the federal Coronavirus Aid, Relief and Economic Security Act, known as CARES, will be a good solution for many of his retail tenants.

The act will offer small-business loans of up to 2.5 times the business’ average monthly payroll costs, up to $10 million. Borrowers can use the loan to cover payroll, rent, mortgage interest or utilities, and up to 100% of the loan is forgivable if the business keeps all its employees on the payroll for at least eight weeks.

“From what it looks like, it should be plenty of capital to keep most restaurants going for a couple of months,” Battista said.

Battista’s real estate holdings include 870 Massachusetts Ave., whose tenants include the restaurant Rooster’s Kitchen; pet store City Dogs Grocery; Mass Ave Wine, a wine shop and café; and others. He also owns retail real estate in the city’s Fletcher Place and Holy Cross neighborhoods and is a partner in several restaurants, including Milktooth and Bluebeard. He’s also a partner in the Kan-Kan Cinema and Brasserie, a Windsor Park theater and restaurant whose opening has been delayed because of coronavirus restrictions.

Some tenants called right away when it was clear their sales would be affected by the shutdowns, Battista said. Others hadn’t yet called as of Wednesday.

Battista said he is frustrated by what he describes as a “ridiculously slow” federal response to the coronavirus and its economic fallout. As of Wednesday, the CARES Act had not yet released final guidance and opened the application period for its small-business lending program.

In the meantime, Battista said he’s willing to work with his tenants and extend payment due dates while they seek federal relief.

Various factors affect how much leniency a landlord is willing to offer.

Biggerstaff said many landlords are examining tenants’ financial records and other factors as they make their decisions.

Landlords may be more forgiving toward a small business as opposed to a national tenant that has many storefronts—and possibly greater means to withstand a downturn—Biggerstaff said.

And a restaurant tenant, for instance, that is still doing some business through drive-in, carryout or delivery is in a different situation than a tenant that has been forced to shut down altogether.

Some landlords are taking a harder line, saying they need the rent payments so they can cover their own expenses.

“Things are ugly for us as well,” said a local shopping center owner who did not want to be named.

The shopping center owner said his company is offering rent relief to some tenants, though it still expects them to cover their monthly “triple net” expenses—the insurance, taxes and maintenance costs that tenants pay in addition to their base rent.

The owner said some tenants had paid their rent as usual as of Wednesday, while others have asked for relief. Some tenants are refusing to pay, citing the force majeure clauses in their contracts. Force majeure clauses can provide contract parties with an “out” in the case of an unanticipated and uncontrollable event.

But these clauses are open to legal interpretation, Biggerstaff said, and it’s not clear that the coronavirus will qualify as a force majeure event. “Traditionally, pandemics aren’t really included in that.”

Indianapolis-based Simon Property Group and Kite Realty Group are both major retail landlords with properties across the U.S. Neither could be reached for comment Wednesday. Simon has eliminated more than 100 corporate jobs and furloughed other workers while its 200 U.S. shopping centers remain closed.