Rent Non-Payment and Lease Negotiation

[Chris T.]

With the recent report of large national tenants (Cheesecake Factory, Mattress Firm, Subway, etc.) already announcing that they will not be paying April rents, what will be the long term impact?  It sounds like some of these tenants are using this as a negotiating point with landlords to renegotiate their leases.  Mattress Firm it sounds like is telling landlords that if they don't want to renegotiate leases with lower rents (with a longer term), then they will not be paying rent.  

Has anyone heard how much of a discount they are asking?  Should we expect other national brands to follow suit?

[Joel Owens]

Most all retail tenants are sending out these types of letters. Nothing surprising folks. National tenants can be great to have but also try to take advantage any way they can. Lot's of these big sit down restaurants have premium A locations that they fought hard for to occupy. The larger the restaurant the less ideal locations there are to move to. Sit down can still do carryout and delivery. Will sales be down? Sure but they can still do some sales. Their models are predicated on a certain amount of sales per foot. IF and I mean IF the tenant can show financials and that they are truly hurting to pay the rent then many landlords will work with IN THE SHORT TERM until they recover. 

Landlords are not generally going to hand out permanently long term modified leases for A locations. Tenants are dreaming if they believe landlords are that dumb. Lot's of small restaurants are immigrant owned and they are the business. They might have 1 or 2 employees and the rest is family so it's simple for them to open back up when the economy starts up again. 

It's all not doom and gloom folks. Before selling commercial real estate starting about 17 years ago I was in the food business sector for over a decade in all facets. I know the space extremely well. The positive that can come from businesses that survive is they discover other parts of their business for growth that they likely did not know existed or gave much attention to. Example they have developed a strong carryout and deliver following in addition to eat in when that part opens back up.

QSR is already doing most of their business through carryout and drive thru anyways so not affected as much.

Some retail operators might close but I might counter they were under capitalized and possibly living on sales week to week and month to month. That tends to point to an operator that is not that seasoned or experienced. Many small restaurants are still pivoting and making it when the effort is put in.

Some tenants are sending out force majeure letters.

In most cases it is a negotiating tactic with the landlord for short term concessions.

Mattress firm as a tenant I would want them gone anyways. They are crap for a tenant and had a big scandal awhile back. Lenders typically do not like loaning on them for STNL or MTNL because of the junk status they perceive the company to be in.

I do not like vape shops either or vitamin stores. All these types of tenants tend to not have staying power because business is going online or government is looking to regulate them in future years.