A Look at What the COVID-19 Crisis Has Been Like for One Retail Landlord
A shopping center owner discusses rent relief requests, reopening plans and the outlook for experiential retail.
What do we do about tenants asking for rent relief?” “How can we make sure that when we reopen, we can do so safely?” “How many of our retailers will be left standing when the COVID-19 crisis is over?”
These are questions that are now painfully familiar to retail center owners around the country.
But as some states begin to loosen stay-at-home restrictions and others move to fully reopen, retail landlords have to find viable ways to solve these issues. To find out how some owners are navigating these uncharted waters, NREI spoke to Sanford D. Sigal, CEO of shopping center owner NewMark Merrill Cos., which operates about 80 centers located throughout California, Colorado and Illinois.
Because NewMark Merrill specializes in open-air centers, the company didn’t have to close any of them wholesale, but many of its tenants have been shut down or operating at limited capacity for six weeks or more. The firm’s rental revenues have declined by more than 40 percent in that time. And many of its small
business tenants are still waiting for federal aid. Meanwhile, this past weekend, some of its tenants shuttered by the lockdowns reopened.In the following Q&A, Sigal talks about how NewMark Merrill has been dealing with all the sudden changes to its operations.
This Q&A has been edited for length, style and clarity.
NREI: Did you have to close any of your centers due to shelter-in-place orders?
Sigal: We did not have to close any of our shopping centers, but about 50 percent of our tenants were forced to close or to work extremely limited hours.
NREI: Have you been getting many rent relief and renegotiation requests?
Sigal: For sure. We have about 2,000 tenants. We went from 0 requests on a Friday to 100 on a Monday. We had about 800 to 900 requests in total. And obviously, the predominant group that was asking for rent relief were the tenants that were limited in operation or could not operate at all; [a lot of them were] the small businesses—your restaurant was closed, your gym was closed. And especially for small businesses, we are their bank of first resort, not their bank of last resort. We are their lifeline.
NREI: How have you been handling those requests?
Sigal: The way we handled it, for the small tenants that were closed, we focused on them for the first 30 days. We worked with them on the timing of their rent payments, on deferment if they needed it. And we provided consultants for them on how to get federal aid. And it’s been challenging. So far, 800 of our tenants applied for federal aid, and only 60 received it.
NREI: Can you talk more in depth about some of the issues they faced in getting the PPP money?
Sigal: First of all, you have a whole base of tenants who never applied for a federal loan in their life. Some of them never had anything beyond a checking account with the bank. Then, a lot of these tenants were pulled in a lot of different directions—dealing with business issues, dealing with the loan, dealing with health issues—because remember, this is a health crisis. And they really need someone to help them through this process and that’s what we’ve been doing.
NREI: Can you give an example of one tenant that was in that situation and what happened with them?
Sigal: Let’s look at a small restaurant operator. That operator was directed to close. They didn’t have a delivery business and had maybe a limited takeout business. They came to us and what we told them was “We are not going to call your rent ‘late,’ we are not going to put you in default. We’ll work with you to get you a PPP loan.” They spent a good portion of March and part of April waiting to get their PPP funds. They finally got that money and paid us back and now they are paying us rent as a percentage of their sales instead of their full rent. And that’s a good example of the plan we had with those types of tenants.
NREI: How much has your rental income been affected as a result?
Sigal: Right now, we are receiving about 55 percent, maybe as much as 60 percent of our rent. But that’s about where we are. We don’t have a huge amount of debt, but like most businesses, we are not geared to work at 55 percent. So yeah, if it wasn’t for our lenders working with us, we would have a very difficult time.
NREI: Have you found lenders being flexible about finding solutions to the situation? Have some lenders been easier to reach agreements with?
Sigal: Thankfully, most of our lenders have been working with us. This is no one’s fault and if we all work through this together, we’ll figure it out. I would say that the life insurers and the banks have been great to work with. I would tell you that the debt funds and the conduits each have their own individual issues, they are much harder to work with.
NREI: As some states move toward reopening parts of their economy, how do you foresee it happening at centers like yours?
Sigal: How do I feel about reopening taking place? First, hopefully it’s orderly. We cannot afford to reopen and then reclose. That would be a disaster. We need good clarity from our leaders about what reopening looks like.
Second is safety and for us, it means some basics. It means hand sanitizer is very much available. It means everybody wears masks. Where possible, it means curbside pickup of goods and people using outside seating areas. Those are the basics.
As important is that we continue testing and making sure the worker base at each of our stores is tested and we don’t have anyone who’s carrying the virus. We are going to do a lot of messaging about paying attention to your temperature, about the need to wear masks.
And for a gym or a movie theater, there might need to be additional precautions. You might have to wear gloves and have your temperature taken. And seating will have to accommodate social distancing, that’s just something that is going to have to happen.
NREI: This crisis clearly hit the retail sector particularly hard, and especially experience- and entertainment-focused tenants. How do you envision the industry changing as a result?
Sigal: What we are seeing in retail is what we call a pre-existing condition, like with the virus. If you had a pre-existing condition as a retailer, it’s more likely to kill you. We had too much retail in the U.S., and a lot of it has been non-exciting retail.
But one thing won’t change: people like to be with other people. People are social creatures and like to have experiences together. I am very hopeful that if you have a movie theater, and you take your family to the movies, but you have to sit six feet apart from another family, people will still want to do that. And, hopefully, those precautious will get us through to a vaccine.