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The Retail Impact of Coronavirus: Landlord Tips

As COVID-19 continues to negatively impact the US economy, the retail impact of coronavirus is in the spotlight. Commercial landlords are concerned about how best to support retail tenants. Shopping outlets and restaurants are left wondering if they can meet rent obligations as unemployment spikes and consumer spending tightens. Just as the US revved up on experiential retail, interactive opportunities were masked up, distanced or shut down altogether.

The threat of another shutdown, the risk of an employee contracting COVID-19 and the pressure of adequately sanitizing heavily trafficked areas are constant considerations for retail managers and landlords alike. The retail impact of coronavirus is only just starting to play out and a proactive plan will serve landlords and tenants. 

All up, it’s incredibly challenging for all involved in retail – from cashiers to commercial landlords. 

We’ve covered how to appropriately field requests for rent relief – now, how can owners navigate ongoing concerns and lease changes? The Sterling CRE team shares opportunities for commercial landlords.

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What will retail look like next year?

Tip #1: Check In

Now is the time to be proactive and check in with your tenants – and practice active listening. How has business been since reopening? What measures have they taken to comply with local mandates? What is the sales volume this summer vs last? 

Investigating now with empathy and thoughtfulness may save you from surprises down the road. An added benefit is a strengthened relationship with tenants as you face this challenging future together. 

Tip #2: Roll Short-Term Relief into Long-Term Strategy 

Give and take requests create opportunities. If rent negotiations are needed, consider how to best serve your long-term goals for the property.  Is this the right time to request tenant financials, remove co-tenancy language from leases, eliminate exclusive uses in centers, convert leases to absolute net, or adjust cap limits on CAM?

Tip #3: Be Proactive

Even though the past six months have felt more like six years, these last few months will impact the coming years for commercial landlords. Moving forward, we expect to see tenants push extensive force majeure language. That means leases will likely include specific language regarding rent abatements during a pandemic.  Consider updates like this another negotiable item – longer leases and changing lease language can provide a space to find a mutually agreeable compromise. 

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Start reviewing leases ASAP

Tip #4: Review Your Leases 

Take advantage of this unique situation to internally audit your existing leases and amendments. What constitutes a default? What triggers a force majeure event? Most leases, especially those that haven’t been reviewed in some time, have room for improvement. Not sure where to start on reviewing or changing a lease? Stay tuned for a future post on lease review. 

So what’s the takeaway? Now is the time for proactive communication and careful lease review. While both might be uncomfortable to undertake, having a plan helps to guide decisions even as new challenges arise.