Life Preservers
Sep 1, 2008 12:00 PM, By Mike Janssen
The most appealing option
An owner's past relationship with a tenant can bear on decisions regarding rent relief, as well as the tenant's line of business and its standing in the current market. Edens & Avant shies away from reducing rent for tenants whose fortunes are tied to the housing market, such as mortgage brokerages, says CEO Terry Brown.
Hardware or home furnishing stores likewise are less likely candidates for relief in the current economic environment, Brown says. Meanwhile, restaurants with strong track records at Edens & Avant properties stand out as better qualified for aid, he says. Some may be struggling as consumers eat out less because of inflation in food and gas prices. But that trend may turn around and, when it does, it is beneficial to have proven operators already in place.
North Plainfield, N.J.-based Levin Management Corp. assigns rent relief requests to an internal committee established even prior to the recent economic downturn. This committee includes leasing agents, property managers — who are valued for their close relationships with tenants — and other stakeholders, says Matt Harding, president. The committee asks the tenant for sales information, reviews the situation and recommends action to the corporation's senior management. The company generally grants relief over a yearlong term, reducing rates by as much as 15 percent during that time.
For a landlord entertaining a request for relief, deferring rent payments is the most desirable resolution, as it extends a guarantee that the discounted rent will be recovered in the future.
Levin has granted relief to four or five tenants this year, Harding says. That's more than in recent years when retail was humming and virtually no one needed relief. To put it in perspective, however, those tenants represent just a tiny fraction of the more than 1,000 tenants within Levin's portfolio of centers in Virginia, Pennsylvania, New York, New Jersey and North Carolina.
Besides outright rent reductions, there are other ways landlords can lessen a tenant's financial burden. For example, owners and managers can give tenants leeway by easing payments on common area maintenance (CAM) charges. These fees can vary market by market depending on factors such as the climate, whether the center is open-air or enclosed and what sorts of services and maintenance is required. Regardless of the costs at a specific center, Levin will work with tenants to soften the effect of high CAM costs by allowing tenants with strong payment histories to pay fees over several months, rather than in a single lump sum.
If financial assistance isn't enough, landlords can consider a more drastic option in helping tenants. For some stores, it might be appropriate to allow them to subdivide their space to bring in a joint tenant, according to Mall Properties' Salmon. Few retailers qualify for this option, however. “Very often, you find yourself in a position of all or nothing, unless you're dealing with a very large tenant who has a lot of frontage,” Salmon says.
Valets and “ambassadors”
Other strategies landlords can adopt to help tenants through hard times amount to simply doing more of what they always do: drawing shoppers with promotions, site improvements and special events. When the economy suffers, these efforts may take on added importance.
Owners cite upkeep and redevelopment as priorities, such as renovating facades, improving lighting and enhancing landscaping in common areas. Some are finding new uses for these common areas to draw shoppers. PREIT has renovated Voorhees Town Center in Voorhees, N.J., formerly Echelon Mall, by demolishing half the site and replacing it with a mixed-use “town center.” The new site features a dog park as an added draw for foot traffic.
Phoenix-based Vestar, meanwhile, has launched a series of weekly concerts to draw more shoppers to its properties, featuring harp music, acoustic performers, alternative acts and tie-ins with Radio Disney.
