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Excerpt from roundtable during Tango’s virtual retail summit The Next Normal for Retail Location Strategy on May 19, 2020.

Landlord Relations in a COVID-19 World

Shannon Koenigsdorf – Region Lead, Client Service Delivery, PSC, Cushman & Wakefield:

“Pranav made some excellent points as it relates to how we’re advising our clients to form that strategy prior to addressing the entire portfolio with a broad sweep. It’s a really important point – as I spoke with both current retail clients and prospective retail clients throughout the month of March and even into April, the first question everyone had is: what are you seeing, what are other clients doing, what are other tenants doing?

“I think there was a little bit of reluctance for some retail tenants because of reputation, both amongst their clientele as well as amongst the large institutional owners, to take such a broad sweeping action as to not pay rent. We saw one of the large North American rates publish that for April, everything is being talked about in terms of essential and non-essential businesses. Of those essential retailers, 86% are paying full April rent, as opposed to 46% of non-essential businesses, and really as low as 13% when it comes to health and fitness clubs. So, the response has been vast and broad, and it’s been that vast really amongst the clients that we’re representing.

“So what we’re doing with clients is getting in and trying to understand the impact on their business. Some folks have been surprised in the response from institutional owners as it relates to COVID versus when we think about the global financial crisis. Landlords want to know, they want to see the impact, they’re asking for more information, more due diligence, more transparency from the tenants who are looking for relief right now. So, that was a little bit of an element of surprise for some tenants out there seeking that sort of a medium relief.

“We’re seeing much more of an appetite for partnership as we look to get through this crisis between the occupiers and the investors, to say, perhaps, “I, as a tenant, will pay a landlord to cover the note for the month and to take the profit out as rent relief” – so, some really interesting responses. And then we have some large tenants who are in a cash-friendly position who have taken this crisis as a chance to go really aggressively with some blend-and-extend offers, to say to their landlord, “You are getting so many calls today about not being able to pay rent. Not only am I going to pay rent, I’m going to extend term and look for concessions at the end of a five-year extension.” So, the response has been that varied. Each retailer has to really understand their business, their position, and form a strategy around, not only financially what’s important to you, but long-term what’s important to you. What are you willing to give for financial incentives perhaps?

“We’re entering a world where things like co-tenancy language and leases are going to start to be a thing of the past because of the uncertainty that this environment is creating. We’re seeing some folks really coming to the table saying, “I’m willing to trade what historically would have been some really important lease terms for me, for some financial incentives.” I think we’ll see more of that as we look forward when tenants start to really pivot towards looking to CapEx investments in stores for more permanent types of remodels to accommodate the retail footprint of the future. I think we’re going to see more lease re-trading to try to create some landlord investment in some of those remodels.”

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