August 20, 2020 – In the midst of COVID-19 shutdowns and economic setbacks, commercial building owners and operators generally are demonstrating a willingness to provide distressed tenants with rent relief. By carefully following a few best practices, CRE companies can tailor those relief arrangements to support the tenant, the owner/operator and their lenders.
That’s one conclusion of a NAIOP Research Foundation Brief entitled “Working Together as a Team: Negotiating With Tenants and Leasing Space During COVID-19.”
NAIOP’s national Coronavirus Impacts Survey shows that tenant requests for relief have eased, but continued, since the beginning of the pandemic. In April, half of office and industrial building owners and operators surveyed reported that more than 10 percent of their tenants had requested relief. In July, the percentage of owners/operators receiving that level of relief requests fell to 32.4 percent for office buildings and 25.5 percent for industrial properties.
However, ongoing financial challenges for many American companies, increased infection rates in some areas of the country, the scheduled end of the federal Paycheck Protection Program this autumn and warnings of a possible second wave of coronavirus cases in the fall and winter could mean that owners/operators will have to address above-average levels of relief requests in the coming months.
Among respondents to the July NAIOP Coronavirus Impacts Survey, 77.5 percent said they provide tenants with the ability to defer rent payments and amortize them over the remainder of a lease. Meanwhile, 55.4 percent of respondents said they have also provided rent relief in exchange for a longer lease term.
The “Working Together as a Team” brief outlines several practices that are proving helpful in those relief negotiations. They include:
- Proactively reach out to tenants to let them know that assistance is available. In response to current economic stresses, one survey respondent had developed a 15-point approach to working with tenants, based on open communication and teamwork among the tenant, landlord and lender.
- Request tenant financials to demonstrate that they have a COVID-related need for assistance and identify any federal or state aid they have received. Lenders require financial documentation before consenting to a lease modification and financials can also help owners identify tenants who may be unable to resume regular rent payments.
- Many owners seek assistance from lenders to help them pay for property maintenance, taxes and insurance during periods when tenants are deferring rent payments. Lenders have generally been willing to allow borrowers to defer principal payments, as long as they can document need and maintain their properties.
To read the full “Working Together as a Team” Research Brief, go to https://www.naiop.org/Research-and-Publications/Reports/Working-Together-as-a-Team-Negotiating-With-Tenants-and-Leasing-Space-During-COVID-19