Net Lease REITs' Tough Approach to Tenant Relief Last Year Paid Off

Some net lease REITs took a hardline approach to tenant relief during the pandemic. While there was some flexibility for tenants experiencing true hardship, net lease owners expected tenants to pay rent through the pandemic. This was especially true for net lease assets, which tend to dominate the net lease sector.

REIT leaders at the recent GlobeSt.com Net Lease conference spoke on the Evolution of Net Lease REITs panel about how they handled tenant relief and management through the pandemic.

Cynthia Daly, SVP and head of underwriting at Four Springs Capital Trust, a REIT with middle market investment grade tenants, said the firm took a hardline approach to relief requests because the firm felt that most were opportunistic. “These were companies that were strong financially, and we addressed those requests appropriately,” she said on the panel.

For requests from tenants with legitimate concerns and challenges, Four Spring Capital was flexible. Ultimately, the firm had only two requests in that category. One had a guarantor that was able to step in and make the rent payment. The other satisfied the rent payment with a PPP loan, and the firm was flexible in accepting payment while the tenant waited for those funds. “We were tough where we needed to be, and we were flexible where we needed to be,” she added.

At VEREIT, the acquisitions team joined asset management in the immediate months following the pandemic to help field relief requests and respond to tenants. Like Four Springs Capital Trust, the REIT responded most fervently to small businesses or those with legitimate cash flow problems. Rob Sutton, VP of acquisitions at VEREIT, said that it was fascinating to see that some tenants were really in need and others wanted to see what they could get away with. The company had some tenants with increased sales through the pandemic, but would still request relief from ownership.

Out of the pandemic, the response from and to tenants during the pandemic is informing acquisition strategy on a forward-looking basis. Daly said that one major benefit of this event is that the firm got to know its tenants better. “That really impacts the way we look at those tenants going forward.

Sutton agreed, saying that its experience with tenants during the pandemic is changing the way that the firm thinks about the product going forward. For some, that has meant increasing allocations to industrial assets, as is the case for Spirit Realty Capital, according to panel speaker PJ Behr, VP of acquisitions, at the firm.