One landlord’s case for government stimulus — and what will happen if it doesn’t materialize

Six months into the pandemic, Sandy Sigal isn’t sugarcoating the situation. The NewMark Merrill Co. chairman and CEO sees a significant number of tenants, particularly small business owners, that won’t survive without additional government stimulus. NewMark Merrill owns and/or manages more than 80 shopping centers, spanning 10 million square feet, in California, Colorado and Illinois. He spoke with SCT contributing editor Beth Mattson-Teig.

How is your firm faring on rent collections?
Our collections, although still terrible, are probably better than what we had forecast when this all started. Our average collections are between 75 to 80 percent, depending on the month. Those centers that have grocery stores, Targets, Walmarts and that sort are doing better than those that have movie theaters, gyms and bounce house places.

How much fallout have you seen on store closures and bankruptcies?
We have been very lucky. Out of about 1,800 tenants, we have lost about 30 overall, or 1.6 percent, that have closed or left. We have quite a few that are working through bankruptcies and are restructuring, but they have kept their sites.

What percentage of your tenants have requested rent relief or some type of workouts?
About 950 tenants have requested rent relief or some sort of assistance. Of those, we have be enable to grant and document over 500 cases.

How effective has the Small Business Administration Paycheck Protection Program and other government stimulus been in helping your tenants stay in business?
We started out of the chute very good with government stimulus. PPP was a great concept, and there was pretty good uniformity at first. Over time, unfortunately, PPP became very difficult with our tenants due to some of the regulations that were associated with it. Even saying that, PPP and SBA were very good for our tenants. The problem is that money ran out around the first of August. There has been bipartisan support for additional PPP availability, as well as the RESTART Program[Reviving the Economy Sustainably Towards a Recovery Act], which I think is very good. That is still stuck in Congress, along with the other stimulus. I would say that the government’s handling in the beginning of the crisis was probably a B+/A-. The government’s handling of it at this point in the crisis is probably a D-.

Did those tenants that obtained PPP loans burn through the money fairly quickly, or do they still have that capital available?
I think they ran through it pretty quickly. They hired back people, reopened, bought new PPE materials and equipment, did their advertising and marketing and then they had to shut down again and were further restricted. That puts them in a really bad spot.
“We need further support of our tenants so they can pay their vendors, their employees and us. We need that to occur immediately. Next week is not soon enough. It’s an emergency”

Does additional stimulus legislation just need to be pushed through Congress, or do you think other things are needed?
Here is what is clearly needed. One is additional support for tenants through the end of this year to provide them with access to forgivable capital that they can use to reopen. Many of these tenants were open and had to close, and especially these small businesses are hanging on by their fingers. Lenders were very good with people like us for the first few months, but towards the end of the year, they are going to want to be paid something. That is a bit difficult. Clearly, we need further support of our tenants so they can pay their vendors, their employees and us. We need that to occur immediately. Next week is not soon enough. It’s an emergency. Two, we need liability protection for our tenants to reopen to protect them from frivolous lawsuits: People saying they got coronavirus at a business because it wasn’t safe. Third, we need a long-term loan facility to allow tenants to borrow when they can’t access their normal bank lender. A lot of these small tenants don’t have access to banking relationships. They really need that support.

Has your firm had to request forbearance from lenders on your loans?
Oh, yes. We went to our lenders early on in March and early April. We were very honest and transparent, and we said, “Look, here’s what we think is coming down the road. We are very concerned about it. We need you to be aware this has the potential to become a problem, and we need the flexibility to deal with our tenants. The forbearance is necessary to do what we need to support our tenants. We think we are going to survive, but we don’t know if our tenants are going to survive. If they don’t survive, it’s going to make it very difficult for the long term.” Many of our lenders were fantastic and worked with us on very generous and fair abatement agreements.

Are you worried about that forbearance running out?
We haven’t solved the problem, so we’re still worried, but we also respect the relationships that we have with our lenders. We want to do what we can do, and they’re doing what they can do. We think we have reasonable runway to get through the end of the year. Hopefully by the end of the year,
we’ll have more clarity and be in a position where the economy is functioning, not back to normal but at a more normal level.
Anecdotally, we’ve heard that many of these small businesses — restaurants, retail, service businesses — simply can’t and won’t survive.

What is your outlook?
The ingenuity of the entrepreneur is amazing. Yet there will definitely be a group of tenants, much greater than what we have already seen, that won’t be able to survive without significant assistance. If the government doesn’t provide that assistance, then we are at risk of losing 20 to 25 percent of our tenants by the end of the year. That is a real calamity. I don’t want to sugarcoat it. We’re going to see severe attrition in our tenant base if we don’t get government stimulus in place soon. With the proper government stimulus, you’re still going to lose some tenants, but more of them are going to be able to survive. A lot of them have already adapted, such as restaurants that now have a pickup and takeout business that is bigger than before and more outdoor seating. So while we will lose some, I think we will keep the vast majority, but that is only with government assistance.

With election rhetoric already heating up, do you think Congress will be able to get that additional stimulus passed through?
I definitely believe that there is urgency in Congress to get this through. If I were to guess, I would say that when the debt negotiations happen at the end of September, this will all get rolled into a package.

Is there anything else you would like to add?
One of the big wins in this pandemic is the reconnection between the communities and the small businesspeople in our shopping centers and the value each sees in each other. By giving back and supporting the communities, we have really connected the communities and the shopping centers. Almost all of our 80 shopping centers, with very few exceptions, are back up to 75 to 80 percent of the traffic they had a year ago at this time before the pandemic. That is a really good thing.

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