Tenant Lease/Rent - Medical Offices - State Closures?
With statewide forced closures in a lot of area's, what happens to commercial landlord/tenant lease/rent? There are a lot of brand new doctor offices (dental, optometry, etc) that are being forcefully closed by CDC. Are tenants still responsible for rent?
[{"id": "fksnd8i", "text": "I own shopping centers in cities where restaurants can only do take out/delivery now.  We are invoicing their rent with a letter suggesting that they contact their insurance broker to see if their business interruption insurance can supplement this.\n\nMy mortgage payments are NOT going to stop, so I must collect rent. It's a bad situation, and the insurance companies are not going to step up in all likelihood.", "replies": [{"id": "fksrxcn", "text": "Don\u2019t you think you\u2019re better off offering a base rent free period (with back end extension of lease term). Then seek to defer a mortgage payment or two with your lenders. Lenders may be willing and will save you possibly seeing your tenants close their doors entirely. \n\nEven without your lender cooperating, ALOT better to keep your existing tenants (even if it\u2019ll cause a bit of short term cash flow pain), then to replace them (lease up delay, agent commissions, fit out, TIAs, etc).\n\nIf you own shopping malls (emphasis on plural), surely you\u2019ve done well enough to weather a couple of down months. \n\nWill be better in the long run in my view to provide some care for your tenants now when they need it.", "replies": [{"id": "fksze8h", "text": "This is the likely move most landlords will take:\n\n1) Try to see if tenants can/will pay as per their lease\n2) If not, try to provide some temp free rent with them making it up later in the lease term. Trying to backfill a tenant right now would be difficult, especially bar/restaurants.", "replies": [{"id": "fkszr4c", "text": "aka get every dime you reasonably can and see how things go/work it out.", "replies": [{"id": "fkt03rt", "text": "Pretty much. That conversation is going to be playing out 100,000s of times across the world over the next few weeks and also with building owners and their banks", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "fkt03k4", "text": "I'm not sure if my insurance will cover loss of rents due to this situation, but even if it would I guarantee they'd require me to make a reasonable effort to collect what I can (e.g. from tenants' insurance).", "replies": [], "depth": 3}, {"id": "fkt3rps", "text": "I have learned not to negotiate with myself. We\u2019ll do workouts based on need and absolutely do what we have to to keep the tenants in occupancy. Initially you have to ask for 100% of the rents and do your best to collect and work with everybody. Many of these tenants have good credit like chipotle, Starbucks, noodles, etc., but not all. You have to drive those credit tenants harder so you can carry the mom and pop guys. Both of these centers are near major hospitals which seems like a place that\u2019ll stay busy and send customers to our tenants. One of them has 3 local tv stations within walking distance so those people will still be working I suspect. The other has a major federal office complex nearby which will probably be a ghost town. Who really knows?\n\nOne of these centers has CMBS debt and one has bank debt. The bank is great under these circumstances and likely to provide some form of forbearance if necessary.  The CMBS servicers and especially the special servicers are extreme assholes and will not even answer the phone. They will first try to get us into cash management on a DSCR trigger, and then rape us with fees.  I\u2019m just going to avoid them as long as possible and just keep them paid until this blows over. We are not a major loan in the Trust, so hopefully we won\u2019t draw that much attention. I went through 2008 with these guys and they can\u2019t be trusted to operate in good faith. \n\nWe have reserves but not forever, and we reserve for CAPEX stuff that we know needs to happen, not for shit like this. This level of government intervention seems very overbearing to me given the options. If you\u2019re older, you need to isolate and we need to look in on these people, but to shut down the whole country for 60-120 days or whatever seems excessive and it is going to destroy things people have been building their entire lives. \n\nI just pray this blows over in 60 days and the economy is spring loaded after that.", "replies": [{"id": "fkt6kro", "text": "This guy, froggy184, knows his shit.\n\nAnd yes, those CMBS guys and their minions are straight up asshats.", "replies": [], "depth": 4}, {"id": "fktlbw3", "text": "Have you had to deal with a DSCR trigger and cash management plan before? Just curious of your experience and what that led to. I recently ended discussions with a lender since I didn\u2019t want the potential acceleration risk due to a \u201cdefault\u201d based on that clause.", "replies": [{"id": "fkum4lj", "text": "We\u2019ve come very close. The way CMBS servicers like to calculate this is geared toward trapping you. For instance, we own an industrial business park that is 100% mom &amp; pop small biz tenants that is an incubator for these small biz\u2019 guys. These types of properties cannot be built in California now  because the rents are very low ($.80NNN = $1.10/ft) so land and construction costs would be too high. As a result, occupancy is very high as few of these exist anymore. But the CMBS servicers consider a lease with less than 6 months remaining on the term to be a vacancy for calculating DSCR even if the tenant has been in the space for 10 years or more. So these kinds of tenants don\u2019t have big cash piles and their planning can be somewhat haphazard. So if we don\u2019t have them inked +6 months out, then that rent income isn\u2019t considered for the DSCR calcs. We nearly got caught in cash management, but were able to show they were double counting an insurance premium on their spreadsheet which put us back above the line. Our dealings with these tenants had been very informal in the past, but now it\u2019s different. The point is these guys are complete loan sharks and are looking to trip you up. They are incentivized by fees if they can drag you into their controls. \n\nIt\u2019s a deal with the devil in a way. I agreed to this in exchange for 10 years interest only and a big cash out, but I pay on time and manage my properties well. I consider myself to be in a kind of partnership with my tenants as their success is required for mine. (Often tenants like to regard me as their actual partner when things are going bad, but that\u2019s another story) CMBS servicers are not hoping for my success, they are looking to exploit vulnerabilities and take me down if they can. They are 100% hostile in approach. \n\nIn the early 2000s, CMBS was an attractive option due to high leverage, low spreads, 30 year amortization (which was very rare at the time), and the negative aspects were lots of brain damage on the loan apps, monster legal fees to originate, and draconian prepayment penalties. It was always a trade off, but it made sense for the cash out. It has only gotten worse terms wise and the spreads, amortization, and leverage aren\u2019t that much better anymore. \n\nI have two of these and they will be the last ones. It\u2019s not worth it anymore.", "replies": [], "depth": 5}], "depth": 4}, {"id": "fktypx4", "text": "Agreed re the AAAs - they\u2019ll be fine and can cover. I do think you should reach out personally (probably over the phone and not in writing) to feel out the mom n pop shops - people are proud and may wait to ask until it\u2019s too late. If you have a good mix of AAA type tenants with these, your cashflow after financing can probably allow some level of assistance as a gratuitous offer to these types. Anyways, I hear your point about asking for full payment and letting them come back, just not sure I agree with the approach with respect to the mom n pop shops. You likely have a good sense of which tenants can and can\u2019t weather this (sounds like you\u2019re hands on - I presume the GP/Promoter in these Centers) and know who just needs a crutch.\n\nI\u2019m in Canada so not familiar with CMBS and would shy away from dipping into a capex reserve myself (agree re allocation to specific expenses that will arise). Are the deals structured with the same group (e.g. same owners/investors)? If so, maybe between your CFAF and relief on the non-CMBS deal, you can crutch some of the softer tenants through this anyhow!\n\nMaybe it\u2019s different in the US, but indications here are 30-60 days. While I don\u2019t think the economy is coming back to what it was (this has just been a catalyst exposing many deeper issues in the markets and economy), you will be fine!", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fkttzc1", "text": "we're all fucked.  for the time being.   expect tenants to not pay rent.  time to be a good landlord.  whatever that means to you.  stay healthy.", "replies": [], "depth": 1}]