Landlord COVID-19 strategy
We mostly have retail, restaurant, and personal services tenants in our plazas.  We are expecting some tough times financially for specifically the restaurants and smaller retailers.  

Any thoughts or strategies on how to work with tenants or manage the risk through this time as a landlord?
[{"id": "fkpfmlg", "text": "Give them free rent for a couple months if they need it and roll the costs into next years rental rate. Just throwing ideas out there", "replies": [{"id": "fkpfuyu", "text": "Thanks. Yeah that\u2019s defiantly an option.  It\u2019s a bit tricky because you would want to amend the lease and lay out a timeline of free rent but you don\u2019t exactly know how long the impacts will last.", "replies": [{"id": "fkpgaha", "text": "Right, I\u2019ve heard 90 days as a starting point that many landlords and lenders will use for relief but obviously that could have to be extended. Will be very interesting to see what landlords start doing here", "replies": [{"id": "fkpgsuc", "text": "Yeah I mean, the tenant has every legal obligation to pay the rent under their lease. BUT if they default then the landlord is no better off kicking them out because most tenants will be in the same situation. To me it seems like there needs to be some compassion towards the tenant and potentially have the landlord share in the loss. The tenant also could walk away from the lease if things get really bad so there are some risks here.  I think for sure this should be a collective conversation with efforts to work together for a long term relationship.", "replies": [{"id": "fkpip6u", "text": "But would Force Majeure Clause come into play here? I guess depends on exact language in each contract, but just a thought.", "replies": [{"id": "fkpk8ac", "text": "Good point. Will have to look into this.", "replies": [], "depth": 6}, {"id": "fkqrihn", "text": "Force majeure doesn\u2019t relieve tenant\u2019s obligation to pay rent.", "replies": [], "depth": 6}, {"id": "fkr8b0l", "text": "FM isn\u2019t applicable here. Tenants and landlords have every ability to reserve cash when times are good to deal with such circumstances.", "replies": [{"id": "fkrhwnm", "text": "Plus business interruption insurance.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}, {"id": "fkqrnrp", "text": "I\u2019m interested to find out if tenant\u2019s business interruption insurance will pay claims under the circumstances, although I expect it only applies when there is physical damage to the premises.  \n\nWhat about landlord\u2019s rental loss insurance?", "replies": [{"id": "fkr0w0z", "text": "I am also very curious about this aspect.", "replies": [], "depth": 6}, {"id": "fkr8duo", "text": "It doesn\u2019t unless you have a specific rider for pandemics (most people don\u2019t)", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "fkpll1q", "text": "What if you put an amendment together with 90 days free rent (nnn's not included?) and have a reoccurring month extension that both the tenant and LL have to agree on. The time can be tacked on the to backend of the lease.", "replies": [], "depth": 4}, {"id": "fkr84ai", "text": "Curious why you think lenders should be waiving debt service? I assume when times were good cash flow got distributed up... and I\u2019m sure Borrowers negotiated for no cash management.\n\nI\u2019m a lender and I have no intention of recommending loan mods to my portfolio managers.", "replies": [{"id": "fkr8wcr", "text": "Sorry I wasn\u2019t specific. I saw that SBA loans were given a 90 day tax holiday or could apply for it, wasn\u2019t referring to commercial mortgage lenders was more referencing the time frame being used", "replies": [], "depth": 5}, {"id": "fks0kk2", "text": "If long-term, historically good customers aren\u2019t able to make loan payments because their tenants aren\u2019t able to make rent, you have no intention of working with them? I don\u2019t know you or your local market, but I don\u2019t see how this unwillingness to bend would be helpful where I\u2019m at. Maybe you lend to larger companies that are expected to have substantial reserves?", "replies": [{"id": "fkuw81v", "text": "When cash was flowing did they build reserves or distribute and take money off the table? Why should lenders absorb the pain, when borrowers make a ton of money, lenders don\u2019t participate in the upside. I expect to be paid contractual debt service and if you go into default, then default interest will accrue. If I have to foreclose and there\u2019s money left over after I recover, you can keep the rest.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "fm2167b", "text": "Best advice here!", "replies": [], "depth": 2}], "depth": 1}, {"id": "fkph1m3", "text": "Yes my boss is going to offer 3-6 months of no rent charges on all of our properties. Not only because it allows us to keep our tenants but because it is times like this we must do things that make us uncomfortable to save our countries future.", "replies": [{"id": "fkphigx", "text": "Agreed.\n\nAre you going to recover the lost rent in the following years? Or complete right off?", "replies": [{"id": "fkpqb5h", "text": "You've gotta expect whatever is abated to be added to the back of the term.  Very reasonable.", "replies": [], "depth": 3}], "depth": 2}, {"id": "fkpwaq6", "text": "If you have a loan on the property there\u2019s a good chance you\u2019ll need lender approval for something like this.", "replies": [{"id": "fkr7rmb", "text": "Bingo. Lender here- this would be a default under the loan documents.", "replies": [{"id": "fkrtegw", "text": "Wouldnt lenders be able to approve it, doubt lenders want to foreclose on property right now instead of just waiting", "replies": [{"id": "fks2lb3", "text": "Will be case by case. If the sponsor has significant equity and net worth, then why should lenders believe the borrower will walk away. Hell if there\u2019s significant equity, sure give me the keys. I have an equity team to operate. I made 3x my loan amount on a deal I took back in 06.\n\nIf it\u2019s truly in distress and there\u2019s a real risk the lender gets the property back, and it doesn\u2019t want the property, then will look to potentially waive principal amort or provide short term extensions on maturity. Suspend interest no. Unless it\u2019s default interest accruing at the existing rate + 4%.\n\nIn order to modify the loan docs and provide relief id at least want a lockbox and level 6 cash management. Your tenants pay rent directly to me, I will pay my debt fist, then opex waterfall and any excess cash gets trapped in a reserve.\n\nOn new business- Borrowers have been beating us up for years. I\u2019m still lending when many are not. I want to get PAID. I\u2019m providing liquidity to the market - that\u2019s worth everything in the world. Spreads just gapped out 300 bps.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "fkqsbup", "text": "How will you cover debt service?", "replies": [{"id": "fkr7u5i", "text": "Dig deep. Find those boot straps everyone has been talking about", "replies": [{"id": "fkr7xjz", "text": "Ha, the loan services will definitely accept pulled boot straps as payment!", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fkpmry2", "text": "First you want to make sure tenants dont close permanently. Offer they waivers or delays in rent payments, specifically letting them you know there may be issues and they may have to go after insurance as well, like any catastrophe. Basically punt until you can understand what is going on.\n\nKey is not to offer massive rent discounts and for now focus on deferrals with a clear understanding you will resolve later based on their losses.  Based on the type of tenants you have you can assume a year if crappy sales, so be prepared to move to percwntage of sales.\n\nCheck your insurance policies regarding business interruption.  Also may want to discuss mortgage payment timing because you can guarentee the bank doesnt want a billion sq ft of retail space to manage.", "replies": [{"id": "fkpot90", "text": "Thanks.  Insurance coverage is a great point.", "replies": [], "depth": 2}, {"id": "fkr8oqa", "text": "Lender here. Borrowers that come to me with request for relief are getting shot down unless they provide updated financials (which are warranted as true and correct by a CPA). If I see they have assets, I expect them to pay the debt service. Most of my deals have net worth/liquidity covenants well above my loan amount so if you don\u2019t want to deal with lender approvals, pay me off (with yield maintenance).", "replies": [], "depth": 2}], "depth": 1}, {"id": "fkpx7ff", "text": "Sure... Want to sell anything? I have a few 1031 buyers who are quite aggressive.... (Not joking)", "replies": [], "depth": 1}, {"id": "fkpy8ry", "text": "We have a force majeure clause in our lease and consider this an applicable event. Basically, the lease obligation is put on hold until business is able to resume normally and the term of the rent stoppage is added onto the end of the lease term.", "replies": [{"id": "fkrcl2l", "text": "Most Force Majeure clauses state that it does not apply to payments. Does yours not?", "replies": [{"id": "fkrcvd7", "text": "That is correct.", "replies": [], "depth": 3}, {"id": "fks2fx3", "text": "Sorry, this is a new concept to me, but if it doesn\u2019t include payments, what\u2019s the point?", "replies": [{"id": "fkuutpc", "text": "Upfit or construction is what I have seen the most.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fkpz25s", "text": "Be sympathetic.", "replies": [], "depth": 1}, {"id": "fkqfexa", "text": "Tenants should have business interruption insurance.", "replies": [{"id": "fkr11do", "text": "Does it cover this type of event?", "replies": [{"id": "fkr8rcw", "text": "No it doesn\u2019t", "replies": [{"id": "fkrpp69", "text": "What makes you say that business interruption insurance won\u2019t cover this? I was the under the impression that this is a great example of exactly what it is in place for", "replies": [{"id": "fks2f13", "text": "It doesn\u2019t. It\u2019s only related to physical damage - fire, quake, windstorm. Even flood requires a specific rider. Unless you have pandemic in a rider it will be excluded.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fkqfohu", "text": "I cut my restaurants rent in half. My dollar stores are doing great. My national tenants are fine. Location. North east.\n\n  \n\n\nAll evictions have been cancelled anyway , may as well wait for them.", "replies": [], "depth": 1}, {"id": "fkqm811", "text": "Whatever you do, I hope you consider the greater good and don't forget you will be thinking about this decision when you are alone in your thoughts at night.", "replies": [], "depth": 1}]