Over the past seven months, the COVID- 19 pandemic has presented unprecedented challenges for operating businesses throughout the country. Companies are trying to stop the bleed of lost revenue in any way possible, while they navigate new guidelines and restrictions for running their businesses. Cutting costs is a necessity and everyone is sharing the burden.
One lever that has received significant media coverage is reducing rent burdens. This is a polarizing topic with different news articles portraying both sides—tenants and landlords— as villains. Unfortunately, the reality is that businesses are fighting to survive and need to reduce costs in order to do that. At the same time, landlords are in the same boat; they need to service their debt or live off of their rent collections. The majority of tenants affected negatively by COVID-19 have most likely reached out to their landlords for rent relief, whether that be in the form of abatement, deferment or a combination of the two. Although this is a difficult conversation to have, it is not necessarily one that requires a winner and a loser. It does not mean leaving someone happy and someone upset.
The tenant-landlord relationship does not need to be restricted to a rigid, financial transaction of paying and collecting rent, or fulfilling or not fulfilling obligations. In most instances, leases are longer term in nature and require a multi-year and sometimes multi-decade relationship. If approached correctly, tenants should be able to receive the concessions they desperately need to survive and landlords should be able to see the long-term benefit of a negotiation that can add security and value in the future.
There is certain to be emotion in these difficult conversations that can ultimately provide for unproductive negotiations and grandstanding. STNL Advisors has been working day and night on behalf of its clients since early March on achieving their goals while balancing the needs and concerns of landlords.
Since the outbreak of the coronavirus unleashed a wave of shuttering, unshuttering, re-shuttering and re-unshuttering of businesses and state economies, STNL Advisors has renegotiated more than 6,000 leases. Some of the outcomes include three-month to nine-month abatements, three-month to 12-month deferrals, and partial abatements and partial deferrals of varying terms. Other outcomes include early lease terminations, 15% to 30% long-term rental reductions, and Purchase Options and Right of First Refusals secured.
As COVID-19 continues to have an impact on businesses throughout the world, it has never been more important to secure the sustainability of your business. Unfortunately, no one is sure what the coming winter season will mean for businesses and the country. Even if you worked out a short-term fix with your landlord, it is very likely that negotiations will need to resume, as being proactive typically secures the better outcome. Formalizing a strategy today can mean being in business 12 months from now.
Nico DePaul is the senior managing director with STNL Advisors, which provides real estate consulting services to private equity firms and their portfolio companies.