Although many businesses may be having trouble paying rent during the COVID-19 pandemic, many landlords remain willing to work with them on a solution, local real estate experts say.
Louisiana’s Phase 2 restrictions allow more customers inside stores and restaurants than during Phase 1. But businesses still face uncertainty with their revenue streams amid a rising number of coronavirus cases and customers still wary of being out and about.
Here is some advice for those seeking help with past-due and future rent payments:
Communication is key. Cres Gardner, vice president of the New Orleans-area office of commercial real estate firm Beau Box, said it is imperative tenants communicate with their landlords about their situations and if they will need some type of rental relief. He said as long as a tenant is open and transparent about their financials and business plan to remain open, most landlords are willing to either tack on some time at the end of a lease to make up for missed rent or amortize that missed amount over a mutually agreed upon timeframe.
The commercial real estate market, especially co-working, co-living and short-term rental models, is expected to take a downturn. Gardner said it is usually in the property owner’s best interest to work with commercial tenants because demand for this space will be lower. It’s also important to retain tenants a landlord knows and trusts, he said.
Landlords want to avoid evictions, too. If a tenant is non-communicative or evasive with a landlord, Gardner said, an eviction will be more likely. “I know for most commercial landlords, they try to stay out of eviction court and try to work out settlements,” he said. “Evictions for any case are your last and best option.”
Louisiana lifted its eviction moratorium on June 15, and the federal CARES Act blocks evictions in properties receiving federal mortgage or renter assistance until Aug. 24. Baker Donelson attorney Chip Leyens said these freezes are for residential tenants, and he is not aware of any state-imposed restrictions on commercial property evictions in the state.
Deferrals are feasible, but forgiveness isn’t likely. Leyens, a transactional attorney and works with both tenants and landlords, said he has seen most property owners offer some type of rent deferral for tenants who are struggling to pay their bills but not much in the way of straight-up rent forgiveness. His general impression is that retail tenants have been affected more in the short term because office tenants and their employees can work remotely in most cases.
The turnover for residential leases are typically anywhere from six months to one year. Commercial leases generally last much longer, between five to 15 years. Leyens said landlords want to preserve those relationships because they’re longer-term deals.
Corporate Realty president and director of office leasing Mike Siegel said he has seen some landlords make concessions when it comes to forbearance of some rent, but that is limited. If a firm owned one of the Class A office buildings in the Central Business District and took on millions in debt, the lender will still ask for their payments. The firm will still need to pay its utilities, taxes and insurance while still providing cleaning services and maintenance for its tenants.
“It’s not just as easy as saying ‘you don’t have to pay your rent,’” Siegel said. “Your expenses will continue. It’s a tough situation for everybody because landlords want to be understanding, but they can’t just wave a magic wand and say tenants don’t have to pay.”