Back in March, The Cheesecake Factory sent a letter notifying landlords that they would be unable to pay their April rents due to a “severe decrease in restaurant traffic.” In an effort to conserve limited cash reserves and keep paying staff, many other companies have followed suit. According to the Wall Street Journal, mall landlords consisting mostly of nonessential businesses have collected around 10% to 25% of rents, while those with more essential stores such as grocers and pharmacies have collected 50% to 60% of rent. When it comes to small businesses, a survey conducted by Alignable, a small business social networking company, suggests that 50% didn’t make their full rent or mortgage for April.
While missing rent payment might help businesses keep their employees on payroll and help them stay afloat, property owners and their bank could be in trouble. As stable properties no longer generate cash flow, landlords could default on their mortgages, dealing a big blow to the banks and causing an increase to the already record high commercial mortgage debt.
To date no national rent relief programs have been announced. Yet, some cities and states have started to take action on their own. Several local governments have declared moratoriums on commercial tenant eviction, including Oregon, New York, San Francisco, Los Angeles, and Seattle. In Seattle the passed legislation requires landlords to work out a payment plan with their small businesses without any late fees, interest, or other additional charges.
In some places, even property owners are taking steps to protect their tenants. Bedrock, a real estate firm owned by Quicken Loan founder Dan Gilbert, owns over 18 million square feet in Detroit and Cleveland, is not charging its small retail and restaurant businesses rent for the next three months.