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Landlords, Tenants Share Boat as Bills Roll InLock Icon

6 min read

Commercial landlords have been as susceptible as others to the COVID-19 economic upheaval.

Social distancing has led to businesses closing or drastically reducing operations, which led to employees being laid off or furloughed. More than 30 million Americans have filed for unemployment benefits, and the jobless rate in Arkansas jumped more than 35% (from 3.5% to 4.8%) in March, with much worse expected in April’s statistics.

For landlords, reduced business activity and unemployment growth threaten to affect rent collections, either from commercial enterprises or from residential tenants. So far, the pain hasn’t been too severe, but the longer the pandemic restrictions last, the more that could change.

“The folks who have been in the [restaurant] business for eons have never been through anything like this; nor have the landlords,” said Burke Larkin, senior vice president with Whisinvest Realty. “The service industries have taken a serious hit. Some retail is doing all right. When the government asks you very nicely to shut your doors, you kind of do that.”

Whisinvest manages the District at Pinnacle Hills in Rogers, a 55-acre shopping plaza that has 45,000 SF of retail space and 75,000 SF of office space. It is a signature development that sprang from Joe Whisenhunt’s $19 million purchase of 375 undeveloped acres in 2012.

Larkin said Whisinvest’s tenants are partners and friends, and the company tries to work with each to figure out how to navigate the pandemic’s effects — the chief of which is revenue. A closed restaurant or one whose sales have been drastically curtailed might have trouble paying its rent.

Whisinvest — like other landlords — also has bills to pay, such as mortgages, property taxes and maintenance and utility fees for the properties.

“We have had tenants who have reached out to us because they have been told to not do their business in the near term,” Larkin said. “We have taken every request we have been given by our tenants on a case-by-case basis. We want to work with them the best we can because we have long-term leases with a lot of those folks.

“We don’t have to remind anybody because everybody in business knows we have obligations on those buildings as well. Everybody is being real transparent with each other. It seems to be working out pretty well right now.”

Smaller Firms Hit Hardest

Marshall Saviers said the commercial landlord-renter relationship should be mutually beneficial. Saviers, president of Cushman & Wakefield/Sage Partners of Rogers, helps his company oversee 5 million SF of office and retail space in the state.

“We are working to defer rent where we can and where it is needed,” Saviers said. “We do require they show us how this has affected them. We want to make sure they have gone through all the proper avenues of applying for [Paycheck Protection Program] money, and they have done everything they can to get their business in as good of footing as they can. Once we understand that situation, we come up with some sort of solution if it is needed to defer rent or extend the lease out or capture the rent back at the end of the year.”

Unfortunately, Saviers said, the pandemic is hitting smaller businesses and landlords much harder than the larger corporations. Cushman & Wakefield/Sage Partners has a lot of exposure in health care and banking, and about 10% of its properties are restaurants, whose dining rooms will be allowed to reopen with restrictions today.

“It is really unfortunate that this is more of a small-business-type recession,” Saviers said. “I wish that wasn’t the case, but you don’t want to see anybody struggling. It is the people who own small restaurant buildings that are really being affected by this.”

Commercial landlords can’t just sit back and organize new payment plans. Many of the office spaces managed or owned by companies such as Whisinvest or Cushman & Wakefield/Sage Partners are still in operation with employees and customers.

Neither Larkin nor Saviers has heard of a tenant’s employee testing positive for the virus. Regular janitorial services have been upgraded.

“This [virus] is extremely contagious. Getting back to the real estate part of it and managing office spaces that have a lot of people coming in and out of them, we have to set pretty strict guidelines on how that operates,” Saviers said. “Everything has to be ramped up to make sure people are safe. We haven’t heard anywhere in northwest Arkansas of any building that has had any cases. If there is, we would go in and do a deep clean.”

Residential Woes

The economic distress has certainly affected the employees of the businesses, whether those businesses are small or large or have problems paying their leases or not.

Workers suddenly out of work or working reduced hours still have bills to pay, in many cases rent for their apartments. Trinity Multifamily of Fort Smith has more than 9,000 units in Arkansas, many of them housing service and restaurant workers.

President Dave Pinson said April collections were down only a couple of percentage points from March. Lyndy Lindsey of Lindsey Management in Fayetteville also said rent collections did not decline significantly in April.

“Our bread and butter, the brunt of our portfolio in Arkansas, is what I coin as workforce housing,” Pinson said. “That is where the guy at the convenience store lives, the server who works at Chili’s lives. A majority of our tenants are your normal everyday workforce. That is why we have tried to stay on top of the income so well to look for those anomalies early on.

“We are working with people absolutely as much as possible right now.”

Pinson said he hopes he’s not being too optimistic because May could see a bigger hit; he just doesn’t know. So far, though, he is pleasantly surprised by the relatively modest blow felt by Trinity.

A report by the National Multifamily Housing Council, which surveyed more than 11 million units, found that rent payments, either full or partial, were made by 91.5% of renters by April 26. A year ago the percentage was 95.6%.

Pinson said Trinity is working with unemployed renters to waive late fees and restructure payment plans as needed. The company is also restricting its workforce’s exposure by doing more of its vetting and application process online and giving virtual tours of its available units to prospective tenants.

Lindsey oversees more than 12,000 apartment units in the state. He said he is very thankful the collections haven’t been as bad as he may have feared, but he is concerned about the pandemic lasting into the summer and affecting the reopening of colleges.

“If school doesn’t open up, we are going to have us a problem because we are in a lot of college towns,” Lindsey said. “I hope school is open — that’s all I can say. This just needs to go away. This is a bad thing and it just needs to end. That’s really the bottom line.”

Lindsey said the important goal is keeping his employers and tenants safe. Many Lindsey properties have golf courses and clubhouse facilities, which are closed and will probably remain so even after Gov. Asa Hutchinson lifts restrictions for gyms.

“We may be trailing a little bit there,” Lindsey said. “If we had that thing run through one of our clubhouses and make our whole staff sick and then run through another clubhouse and get another staff sick, we’d be hurting. I know we have to open everything back up, but there is a point here where the safety and our health are also very, very, very important to us.”

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