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Exploring commercial real estate rent relief options

March 31, 2020 | by Jo Cipolla
Reviewed by real estate expert Jonathan Tootell

Unexpected natural disasters, system-wide technical and infrastructure failures, and terrorist attacks are a few of the tragedies that can affect entire communities (even entire countries)—not just emotionally, but economically. Some can even have knock-on effects that spread much further than expected. The results can mean mass casualties, huge job losses, sudden widespread homelessness, and much more.

How coronavirus is affecting businesses

The current global coronavirus pandemic is demonstrating how a health emergency can actually spread across the entire globe, bringing economies around the world to their knees. To help contain the spread of the outbreak, many businesses are having employees work from home, or closing entirely and retail businesses are no longer allowed to open their doors to customers because of local shutdown policies. Some restaurants in New York City, a city that has taken some of the most drastic isolating measures in the USA at this time, have already had to lay-off 80% of their staff.

With little to no income to depend on right now, how are commercial businesses supposed to pay their monthly rent? Especially in large cities, where rents can be high, a company is likely to struggle to keep up with rental payments if revenue has declined or even disappeared entirely. Given the severity of the coronavirus situation, which could continue on for many months, many businesses are in desperate need of commercial real estate rent relief.

Current examples of commercial real estate rent relief

Even in normal times, many businesses experience problems that make them anxious for rent relief. In those cases, the main avenue open to them is to get a loan to carry them through a difficult period. This could still be a possibility for businesses right now, but the fact that there is suddenly an enormous number of companies currently in distress could make it more challenging to obtain these loans – or to obtain an amount that could reasonably last through a pandemic that has no set end date.

In the early weeks of the coronavirus outbreak unfolding in the United States, landlords have already had to come up with their own solutions to the demand for commercial real estate rent relief. So far this has mostly meant allowing delays in payment. Yahoo Finance reporter Sarah Paynter spoke to real estate professionals who say that some landlords have agreed that tenants can pay later, or are looking at setting up plans for them to make up missed payments through incremental future payments. Although commercial real estate owners can’t be pleased about a rash of delayed rental payments, it may be better to offer rent relief than lose normally good tenants who are currently struggling through no fault of their own.

Some local and state governments have also been taking matters into their own hands by suspending evictions for set periods (e.g. 90 days), so that landlords are literally not allowed to turn out tenants. While it may not make commercial property owners happy, this strategy ensures companies aren’t kicked out of their retail or office spaces due to missed rent payments during this difficult time.

Although the COVID-19 pandemic is extraordinary in its scope, disasters do happen every day, often leaving businesses in need of commercial real estate rent relief. The U.S. Small Business Administration (SBA) offers disaster assistance loans, which can apply to flooding, tornado damage, drought, and other disasters. Currently their website shows COVID-19 as an SBA-declared disaster, and more details on how to apply for one of these loans can be found here.

Proposals for new types of commercial real estate rent relief

Politicians in Washington D.C. have been scrambling to come up with ways to keep people from losing their homes and to keep businesses from shutting down permanently. This is a process that will involve several new bills over time, one of the most consequential of which is the $2 trillion dollar stimulus bill. Some industry bailouts are being put into place that could help larger companies deal with any number of expenses, including those related to commercial real estate.

For small businesses, the main proposals have involved an expansion of business loan offerings, whether that includes more funds for SBA loans or new loan programs created to help businesses pay rent and other critical expenses. Many small business owners aren’t too enthusiastic about this type of rent relief, considering that they would normally still be expected to pay back the loans when many small businesses already have such slim margins for survival. However, some of these loans could be transformed into grants (which don’t have to be paid back) if the business keeps its employees on payroll.

Previous instances of commercial real estate rent relief

The Federal Emergency Management Agency (FEMA) has long been known as one of the most widespread forms of relief for people affected by disasters in their area. While FEMA does offer rent relief for individuals who have lost their home in a disaster, it actually uses the Small Business Administration as the primary way of helping businesses (through the aforementioned disaster assistance loan program). For businesses that have been rejected by the SBA, FEMA does sometimes offer grants.

Specifically in New York City, there were major efforts to provide commercial real estate rent relief in the wake of the 9/11 terror attacks that devastated the downtown NYC area. Perhaps the most notable of these came in the form of real estate tax abatements and commercial rent tax reductions (read more) which were meant to encourage businesses to choose to establish themselves and grow in Lower Manhattan. That is not the same as not having to pay rent, of course, but such exemptions can aid businesses in getting back on their feet following an economic disaster and can function like a type of rent relief in the long term.

Looking to the future

There is no way to ever be fully prepared for a pandemic of the proportions of COVID-19, but the worries – from paying rent to getting supplies – that many businesses are dealing with currently should inspire adopting some disaster preparation in the future. For instance, companies may want to look into getting business interruption insurance, which can help with expenses when unexpected disasters negatively affect business income.

In the near future, bills passed by Congress and by state governments in the coming months are probably the best hope for comprehensive commercial real estate rent relief plans. That said, it is clear that politicians, too, are really struggling to come up with good solutions for such an extensive and severe problem. There are no easy answers, but everyone is in this together. For more solutions and ways in which you can reduce your commercial real estate costs at this time get in touch with one of our expert brokers.

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