April 20, 2020
By Joe Cooper
Restricted access to office buildings during the COVID-19 pandemic has some Greater Hartford office, retail and other commercial tenants thinking they may be able to skip monthly rent payments. That isn’t sitting well with landlords.
“There’s definitely a perception out there on the part of a lot of tenants that they sort of almost don’t have to pay rent,” said R. Michael Goman, principal of East Hartford real estate advisory firm Goman+York Property Advisors LLC.
“And that’s wrong — it doesn’t make a lot of sense,” he added. “The small shops maybe can’t pay it, but the bigger firms can pay it and should pay it.”
Goman has been in talks with many of the bankers, design professionals, restaurant and shopping center/retail operators his firm advises on how to negotiate rent repayment plans and project how long it could take for their businesses to recover from the economic crisis caused by the coronavirus outbreak.
Rent payments, he said, have been a hot-button issue in the real estate community since Gov. Ned Lamont ordered non-essential businesses to stay home until the public health emergency passes.
The state judicial system has restricted commercial renter evictions until at least May 1, while Lamont has prohibited residential evictions until July 1. In addition, many banks and credit unions have signed on to a voluntary mortgage relief program for homeowners, and residential renters have been given a 60-day grace period for April and May monthly payments. Similar rent and mortgage relief has not been granted to businesses or property owners. As a result, some commercial landlords are attempting to delay mortgage payments by negotiating repayment plans with lenders, Goman says.
Goman says tenants should also inform building owners what they are able to pay, and negotiate reasonable terms.Some tenants have opted to either pay month-by-month, defer payments over several months or add payments to the end of a lease.
“Landlords are looking to at least get operating expenses because at the end of the day, they need to keep the doors open and keep everything running,” he said.
However, many restaurant, hotel and retail operators, and other industries slammed by the pandemic, are unable to forecast a payment planbecause of uncertain cash flows.
Goman said he heard from one 450-store national retailer that’s expecting the market to stabilize in 10 months. Another hotel operator managing dozens of hotels in and outside Connecticut says occupancy has fallen as low as 5% in some of the buildings it has kept open.
The length of the public health emergency and the impact of the Small Business Administration’s $350-billion Payment Protection Program will play a major role in determining whether independent operators can keep the lights long term, he says. But despite the economic hardships, tenants unable or refusing to pay rent will likely be summoned to court at some point.
“I think there will be years of litigation for these kinds of issues,” Goman said. “I think we can prevent a lot of that by landlords and tenants agreeing to talk things through. But that means everybody needs to come to the table with information, a plan and a reasonable approach.”
Landlords should not be rushing to boot commercial tenants that are struggling with rent payments because it’s unlikely they would be able to fill those spaces any time soon, Goman said. About 85% to 90% of office moves that were being mulled before the pandemic are in limbo, he said.
“[Business owners] aren’t expecting to get back to a level of normalcy until next year, which is pretty remarkable,” he said. “I thought I had seen pretty much everything, but no such luck.”
The rapid spread of coronavirus will likely encourage landlords to implement new health-and-safety measures in office designs.
Area design professionals expect some companies to move away from open floor plans to mitigate the potential spread of infectious disease, Goman said. That means traditional cubicle office formats could regain favor.
“The ability to spread a virus diminishes when people are working in a specific office,” Goman said.
There will also be more access to personal protective equipment in
the workplace. That may include the implementation of no-touch technology, such as devices that sense the presence of a smartphone and automatically open and close doors, he said.
Landlords have also been testing technology that deploys ultraviolet (UV) lighting geared toward filtering entryway air quality.
“We will see a lot more development in those types of technologies,” Goman said. “The no-touch devices have been around for a while.”
Joe Cooper is HBJ’s web editor and real estate writer. He pens “The Real Deal” column about commercial real estate.