Noah Shaffer, senior director asset management with Confidant Asset Management. Courtesy photoA healthy appetite for online shopping and edgy stores was bad news for traditional retailers, but the coronavirus is the dreaded buzzword that might prompt more closures than expected.
“More likely than not retailers who were struggling will close more locations than they initially anticipated,” said Noah Shaffer, who runs daily and long-term property management and growth strategies for retail landlords across the U.S. “They are forced to make decisions, ‘OK, we will pay rent at this location but not at this location.’ More likely than not they are just being made to make tough decisions regarding which properties are the highest performers.”
Shaffer, senior director of asset management at Tampa-based Confidant Asset Management, would know.
The landlords he represents, including four in Broward and Palm Beach counties, asked for April rent but payments were missing from home goods chain Pier 1 Imports Inc. and the Krystal Co. fast food chain, both operating under bankruptcy protection before COVID-19.
Pier 1 planned eight Florida closures and Krystal wanted to shut down at least two, but more could be out of business. Pier 1 didn’t pay rent for a North Florida location, and Krystal didn’t pay another of Shaffer’s landlords, but he said neither location had been on the chopping block.
“Things, they changed now,” he said. “They may walk away from that location.”
Pier 1, which didn’t respond to a request for comment by deadline, canceled an asset auction, and lenders took control of the business.
Hard Times
Others aren’t in Bankruptcy Court but are scaling back. They include Macy’s Inc., which early this year closed Bloomingdale’s at The Falls near Pinecrest and in February announced it also would close stores at Pompano Beach’s Pompano Citi Centre and Sanford’s Seminole Towne Center. The planned closing of Macy’s Vero Beach store at Indian River Mall coincided with the mall’s March 24 closure, according to Katy Welsh, who represents the mall owner.
Charles M. TatelbaumMacy’s attorney Charles Tatelbaum declined comment on his client but foresees tough times for struggling retailers.
“I think you have to look at retailers as if they were patients. Not coronavirus patients,” said Tatelbaum, creditors’ rights and bankruptcy director at Tripp Scott in Fort Lauderdale. If you have “a patient that is suffering from a really deep cancer or something, … I think the coronavirus in turn would be terminal for them.”
The cancer patients include Pier 1 as it already faced e-commerce competition, he added.
COVID-19 has pushed even healthy retailers into hard times. Gyms had been coveted by landlords as they are immune to e-commerce but now are shuttered and joining those seeking rent abatement.
Katy WelshWelsh, a Colliers International director for retail services in Boca Raton, has heard of abatement requests from LA Fitness and Nordstrom, among others, as a member of different retail groups.
“National tenants are sending out letters, are asking for different periods of time,” she said. “The general consensus is they are asking for June 30. I did hear now that some tenants are asking for eight months, which is ludicrous. I would say that no landlord would agree to eight months.”
Publix and Walmart are among the landlords that temporarily waived rent, but others aren’t budging.
Mall owner Taubman Centers Inc., based in Bloomfield, Michigan, told tenants they must meet their lease obligations as the real estate investment trust has its own mortgages to pay.
This might create a sticky situation at Taubman’s Dolphin Mall in Sweetwater. Cheesecake Factory is a tenant, and the national chain announced it won’t pay April rent at any locations.
Neither Taubman nor Cheesecake explained how they would work out their differences at Dolphin Mall.
A Taubman spokeswoman said the company is speaking with all of its tenants and had “highly productive calls” with several at Dolphin Mall.
“Naturally, this new reality can be much harder for less-established tenants and we sympathize with their position,” Maria Mainville, director of communications said in an email. “However, as our recent letter stated, we must continue to fulfill our significant obligations and tenants share in that responsibility through their lease terms.”
Foreclosure Moratoriums
Federal and state governments have imposed temporary moratoriums on residential real estate foreclosures and evictions, but that won’t help the retail world.
Retail landlords with nonpaying tenants have the options to evict or reach a deal. But when it comes to tenants in decline before the virus, landlords are in a tough spot, Shaffer said.
“Why would I as a landlord say, ‘Sure. Add another five years onto the lease, and you are going to pay an extra $45,000-$100,000 in seven years when you might not even be around in seven years, so why is that interesting to me?’ ” he said. “ I am agreeing to a promise that is never going to be fulfilled. So it’s challenging for the retailers who are struggling to work out a long-term deal because the landlords are just not as receptive.”
Sebastian Jaramillo.Before retail real estate owners agree to forbearance, they should look at tenants’ financial status, said attorney Sebastian Jaramillo, who represents landlords in lease negotiations.
Jaramillo, partner at Wolfe Pincavage in Miami, and his clients are weighing which tenants truly can’t pay rent versus those who are trying to take advantage of the situation.
Not all of his clients received April rent and, even if they get breaks from their lenders, they still have to pay property taxes, insurance and utilities.
“The expectations are abysmal. They are already kind of expecting there’s going to be a large number of defaults in rents. It’s similar to what happened with the last real estate boom where a lot of people couldn’t afford their payments,” Jaramillo said.
The Good News
Shaffer’s landlords, who are institutional investors and owners of small plazas and standalone buildings, said his clients collectively received 95% of their rent for this month.
J.C. Penney Co., which is scaling back, paid all of Shaffer’s landlords.
The Indian River Mall’s J.C. Penney is expected to do well once the mall reopens, Welsh said. Five groups have been interested in scooping up the Macy’s space for redevelopment as a residential or entertainment alternative.
In the end, not all retailers will fare equally after the coronavirus.
Adam Lustig “The ones that have a significant online presence and have a stronger cash position and more liquidity have a better chance of surviving,” said Adam Lustig, a Bilzin Sumberg real estate partner in Miami. “There will clearly be some haves and have nots in the retail space.”
While more consolidation is on the horizon, Lustig expects the physical retail market to survive.
“This will clearly disrupt the retail landscape, but I don’t think this will be the death of retail and brick-and-mortar stores by any means.”
Read more:
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Don’t Expect a Retail Rent Break — Unless You’re a Struggling Chain
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