Developers, Owners Help Bridge Near-Term Hurdles
With creative solutions to bridge tenants’ cash flow gap, some owners are pushing current obligations into an extension of the lease or amortizing the amounts over the lease term.
SAN FRANCISCO—With many tenants struggling to pay rent and now staring at month two, commercial owners are finding creative solutions to bridge the gap until cash flow returns. A good number of owners are pushing current obligations into an extension of the lease or amortizing the amounts over the lease term, says Santino DeRose of San Francisco’s Maven Commercial.
“Now is the time for owners and tenants to work things out as best they can for everyone’s best interest,” DeRose tells GlobeSt.com. “A vacancy or closed business is not good for anyone.”
Noting the outsized impact on small businesses, South Bay owner John McNellis forgave April rent for mom-and-pops who closed shop in McNellis Partners’ neighborhood shopping centers, and reached out to others with options and flexibility to find solutions.
“Our tenants in the greater San Francisco Bay Area, save supermarkets, banks and a few others, have been shut down for several weeks by government order,” McNellis told the Urban Land Institute. “Tenants and competitors asked, ‘what are we going to do?’”
Specifically, Palo Alto, CA–based McNellis Partners is doing several things to help. For example, it forgave all rent and triple-net expenses for the month of April for its mom-and-pop tenants that have been forced to close, regardless of business type or when those tenants may reopen. That is to say, even if a tenant reopened on April 3, rent for the month would still have been forgiven.
“We will treat tenants that are mom-and-pop franchisees of national companies (i.e. Subway) slightly differently,” McNellis says. “Because our financial resources are a light-year from infinite, we will need the big guys to help us help their franchisees. Thus, we will forgive our franchisee-tenants’ rents up to that same one month, but only on a dollar-for-dollar basis with credits granted to them by their parent company; i.e., if Subway gives our tenant a $2,000 franchise fee credit, we will give it a $2,000 rent credit. We will give the same one-month credit to our mom-and-pop restaurant tenants outside the Bay Area even if they never shut down. But, as to our other small business uses that remain open, we will consider a rent credit on a case-by-case basis. Some tenants are suffering terribly, while others like cigarettes and alcohol appear to be thriving.”
If a given tenant needs more than one month’s help, McNellis says it will consider that on an individual basis, likely tying any additional help with a concession from the tenant, for example, exercising an option, extending the lease term or perhaps a downstream rent increase.
“Many of our national credit tenants are also suffering in this plague year and we completely sympathize with their plight,” McNellis observes. “They, however, will weather the storm. Also, they are highly sophisticated and understand that our lenders will not be forgiving any of our interest payments and that we are simply unable to offer rent breaks to credit tenants. We trust and hope that our world will have substantially returned to normalcy by May 1, even if it takes months to fully recover.”
Other firms such as Abode Services/Allied Housing of the East Bay helped with food, security services and case management in the conversion of two hotels into housing for homeless. The Comfort Inn and Radisson Hotel have both been leased to provide housing for homeless people who need to be quarantined due to COVID-19.
State officials secured the two hotels off of Hegenberger Road near the Oakland Coliseum late last month and selected Abode Services to provide case management, security and food services.
“The rest of us can self-isolate in our own homes,” Vivian Wan, Abode Services COO, told a local TV station. “And that’s just not an option for the people living on the street.”
Abode Services previously partnered with San Jose, Santa Clara County and the Housing Authority of the County of Santa Clara to provide long-term and temporary housing at a former hotel for individuals who are homeless. The program is part of a countywide effort to provide a safe and stable home to the thousands of South Bay residents who need one. The 56-unit site, formerly known as the Santa Clara Inn and now renamed Casa de Novo, is at 2188 The Alameda in San Jose. Adobe will provide housing, case management, and other social services to the long-term and short-term residents at Casa de Novo.