As the owner and manager of properties with retail tenants, my company has an up-close look at the economic stress caused by COVID-19. Retailers are caught in the double whammy of closing their doors for several months, and now, as they gradually reopen, they are faced with a faltering economy and spiraling unemployment that has caused many to be cautious in their spending. While no one can definitively state how long it will take to eradicate the virus and repair the economy, we see several trends developing that will help retailers recover.
We are encouraging our tenants to be creative and look for new ways to buy and sell. For example, we have restaurants that have set aside space in parking lots for fast pickup of to-go orders, and in some cases, we have succeeded in getting city officials to waive permitting requirements that normally would wrap such innovation in red tape. In strip centers, we are encouraging restaurants to place tables on the sidewalk – again with fast-tracked permissions from local officials. The extra tables allow them to get closer to their original seating capacity while also allowing for suitable social distancing between tables.
For stores, one of the primary concerns is the safety of employees, who may be more at risk for infection than customers. Relatively inexpensive changes – like plastic barriers at checkout counters – are becoming the norm, and we see store managers looking for every opportunity to create additional spacing in aisles and displays. Handwipes and sanitizer stations are becoming ubiquitous. The biggest change is to limit the number of customers in a store at any one time. We know it goes against the grain for a retailer to limit customers, and there is no precise formula to determine how many is too many. This is a practice that likely will remain with us until COVID is eradicated, and we’re encouraging tenants to experiment until they find the right balance.
The thorniest question has been mask requirements for customers. Most stores are shying away from barring customers who choose not to wear a mask, given the tension that has developed around this issue. Whatever customers decide to do, stores should keep employees safe. There is a lot of misinformation floating around, and the Centers for Disease Control and Prevention (CDC) in Atlanta remains the best source for unbiased advice on safety. The International Council of Shopping Centers (ICSC) is another good source for objective and practical guidance.
Landlords May Make Limited Concessions
We all have seen dire predictions of bankruptcies and a wave of store closings, and there is no doubt that tenants and landlords are worried. Tenants should expect their landlords to work with them over the next few months to soften the blows of the downturn and there will be shared pain. Landlords have bills to pay – lenders, taxes, operating costs – that make it difficult to write off debt. But it’s reasonable to ask a landlord to defer all or part of rent, with an agreement to pay the arrears at some date in the future. Landlords are getting quite a bit of pressure from tenants – both independents and big box chains – to forgive rent. Unfortunately, unless lenders and investors forgive our obligations, we are not in a position to hand out get-out-of-rent-free cards to our tenants.
Landlords are not likely to alter existing leases, but we are seeing tenants ask for clauses in new leases that include rent abatements if the government orders a shutdown. This is a difficult issue that will require input from lenders, insurers and investors. Everyone is going to have to give a little.
More than ever, it’s important for tenants and landlords to communicate. Our success depends on our tenants’ success, and we’re willing to work with them to find creative solutions. I am making a special effort to talk to clients as often as possible in this period, sometimes in person but also on the phone, email or through video conferencing. We’re all in this together and I hope this is just a bad memory at the end of the year.
Trina Joseph is Vice President-Asset Management at Coro Realty in Atlanta. She oversees Coro’s property management department and has more than 25 years of experience in property management. She can be contacted at firstname.lastname@example.org or 404.846.4027.