Businesses Reopen…And Then What?
I’m the glass half-full type, but I have to be honest with myself and others in this moment – extreme challenges and uncertainty lie ahead for the retail and hospitality sectors. It’s hard to imagine Boston without students on campus this fall, sport and entertainment venues closed to the public indefinitely, major events (Boston Calling, Boston Marathon, 4th of July Fireworks, etc.) cancelled or suspended and employers suggesting their teams continue to work remotely, as better described in this BBJ article, “Baker to employers: Keep your employees working from home.” With these economic drivers in limbo, social distancing measures unclear and consumer confidence low, it’s uncertain how tenants will continue to pay their bills even once they reopen.
Thus far, rent relief discussions between landlords and tenants have generally centered around the here and now. It’s been a patchwork approach that started with tenant obligations in April and continues month-to-month heading into June. Most of the landlords and tenants I have spoken with have agreed on some form of rent abatement through extended term or deferment with a delayed payback. These rent relief solutions are helpful for tenants right now, but I do have concerns with early payback schedules and incremental rent obligations down the road. It’s anyone’s guess when sales return to pre COVID-19 levels, and even when they do, is it possible to carry the added rent burden in future years by just kicking the can down the road? I personally believe it will take a far more aggressive rent relief effort (% rent only, complete restructures, etc.) to keep the lights on in 2020.
With this in mind, very few landlords and tenants have been able to settle on what the future looks like beyond April-June when PPP and other government assistance dries up. Rent is a meaningful piece of the puzzle, but it doesn’t answer the more important question: How can retailers and restaurants overcome a clear impact to revenues this summer and fall? Boston is historically very slow in the summer with many residents/workers opting to work remotely or take extended time-off. When non-essential businesses reopen later this month under strict guidelines around social distancing (occupancy, operations, etc.), the sales may just not be there. That likely means an entirely new round of rent relief discussions between tenants and landlords, which has the potential to become tense. Nevertheless, both sides must be proactive about having these discussions (even if it continues month-to-month) and what the next 12-24 months really holds. With a shortfall in sales volumes anticipated, financially extended tenants and landlords and little access to new capital…the future could like pretty scary without a partnership-first approach.