U.S. commercial landlords have granted billions of dollars of rent relief to struggling storefronts as property owners strive to keep falling occupancy rates from triggering more severe financial consequences, WSJ Pro Bankruptcy reported. With many commercial property tenants in dire financial straits due to the economic fallout from the coronavirus pandemic, landlords are reluctantly granting concessions on lease payments, lengthening payment terms, extending or shortening leases, lowering rents permanently and even forgiving past-due payments, according to real-estate advisers, property managers and lawyers. By providing the breaks following negotiations, landlords are hoping to avoid pandemic-induced tenant departures, keep properties occupied and rent payments flowing, while avoiding the larger losses that can come from evictions and increased vacancies in their shopping centers and malls. They are fearful of triggering lease provisions that kick in when key anchor retailers or a certain number of tenants leave a certain property, cutting rents for those that remain. Retail vacancies have been steadily on the rise and are expected to significantly increase. The average retail vacancy rate was around 4.5% going into the pandemic and estimated to end 2020 at 5.3% to 5.5% but is projected to increase to between 5.8% and 6.2% by the end of 2021, according to data from real-estate analytics company CoStar Group Inc. Before the pandemic, average retail rents were growing at more than 2% annually, according to CoStar. CoStar now expects rents to decline by anywhere from 1% to 3% year-over-year in 2021. A record-breaking number of major retailers — more than 60 — filed for bankruptcy in the U.S. in 2020. Major retailers announced plans to close more than 12,200 stores last year, according to CoStar. These closures will empty an estimated total of 159 million square feet of retail space, out of roughly 11 billion square feet available nationally, CoStar said. “What’s happening in the market is most definitely going to cause an overall devaluation of real estate across the country,” said Matthew Bordwin, principal and managing director at real-estate brokerage Keen-Summit Capital Partners LLC. Katharine Battaia Clark, a Dallas-based partner at law firm Thompson Coburn LLP, said on a panel during ABI's Winter Leadership Conference last month that she has seen “really aggressive negotiating tactics” being used by consultants hired on behalf of bankrupt tenants. The tenants’ position has been to “accept our terms or take a hike, we’ll reject your lease and then you’ll be an unsecured creditor and good luck to you, and you’ll have an empty space,” she said. Read more.
Occupancy issues are at the heart of many significant retail cases, as detailed in the ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available at the ABI Store.
