Business was off from the coronavirus pandemic. Commercial rent collection suffered
The coronavirus pandemic took a devastating toll on businesses when Gov. Brad Little ordered them closed, or forced them to keep customers outside.
The revenue loss made it hard for many businesses to pay their rent. Nearly half of the locally owned retail clients of a Boise company that manages commercial real estate have sought rent relief.
That was slightly above the 45% of regional or national retailers who asked for concessions from Boise’s Thornton Oliver Keller Commercial Real Estate, and double the overall rate for the 1,000 tenants of properties the company manages between Ontario, Oregon, and Idaho Falls. Smaller businesses tend to operate on smaller margins.
“Local small businesses had the least ability to withstand the storm, and they needed help,” Michael Ballantyne, TOK’s managing partner, said by phone.
Ballantyne urged owners of the properties to work with their tenants but also required businesses to apply for federal Paycheck Protection Program funds and any other available state and federal relief to lessen the financial impact.
At the same time, building owners had to go to their bankers to get three to six months of relief on their mortgages.
“Without the relief, there would have been tenants who couldn’t pay their rent, landlords who couldn’t pay their mortgages, banks foreclosing on buildings, landlords declaring tenants in default and kicking them out of buildings,” Ballantyne said. “It would have been a terrible domino effect.”
The crisis caused by the pandemic was different than the difficulties brought on by the Great Recession in 2008, a crisis caused because people weren’t being good stewards of their money, Ballantyne said.
“This was created because of a health issue, a global pandemic,” he said. “And even for the best businesses when the governor says you’re closed, you’re closed. “
Building owners weren’t interested in evicting tenants who temporarily couldn’t pay their rent. Besides, he said, the Idaho Supreme Court issued a moratorium on evictions because even courts were shut down.
But most building owners of properties serviced by TOK sought something in return for granting rent concessions, he said.
“I’m glad to give you three months of free rent, but your lease expires in a year,” Ballantyne said he explained to tenants. “How about if you agree to extend your lease for an additional year, so we have some security knowing you’re going to be there?”
Nationally, nearly half of all retail rents went unpaid in May. Companies such as Gap, Bed Bath & Beyond, Famous Footwear, movie theater chains Regal and AMC and gym company 24 Hour Fitness stopped making payments, according to a report obtained by the Washington Post from real estate research firm Datex Property Solutions.
Coffee giant Starbucks paid its May rents but sent a letter seeking breaks from landlords of many of its 8,900 company-owned stores.
“Effective June 1 and for at least a period of 12 consecutive months, Starbucks will require concessions to support modified operations and adjustments to lease terms and base rent structures,” Starbucks Chief Operating Officer Roz Brewer wrote in the letter, the Seattle Times reported. “This is the worst recession since the Great Depression and far more devastating than the global financial crisis.”
R. Christopher Whalen, owner of Whalen Global Advisors, said in an investor blog that commercial real estate will be “really, really dreadful” in the next several years. Default rates, he said, could exceed peak losses from the 1990s by a large margin.
“Social distancing means financial Armageddon for commercial real estate and municipalities in coming months,” he wrote.
Frank VanderSloot, CEO of Melaleuca Inc., an Idaho Falls wellness-products maker, wonders whether businesses will need as much office space in the future. Many companies, including Melaleuca, have employees working from home because of the pandemic.
He said his company has not decided whether it will continue to have them work from home in the coming months or bring them back to the office. Employees are able to work at home just fine, as long as they have a good Internet connection, he said, but VanderSloot worries about a loss of camaraderie and the pride that goes with feeling you’re part of a team.
“I wouldn’t want to be investing in office building spaces and high-rises,” VanderSloot said by phone. “In the big cities, I think some of them are going to go empty.”
Ballantyne doesn’t believe that is going to happen in Boise. He said April was one of the best months in company history, reflecting sales and leases that had been in the works for up to six months before the pandemic reached Idaho in mid-March.
Only 5% of those buyers and leasers backed out of transactions because of the pandemic, Ballantyne said. There were, however, several deals where the parties asked to for three- to six-month extensions, because banks were focusing on Paycheck Protection Program loans and not commercial financing.
The pandemic, Ballantyne said, helped accelerate office trends that were already happening. Some companies had already moved some of their employees to work from home.
But he said some of his company’s workers have found it challenging to work from home. They might not have space to create an office. There may be children and pets causing distractions.
“Maybe they can’t be productive even when you have all the technology,” he said. “It makes it hard for some people.”
He foresees some decrease in the number of people working in offices as more from home. But he believes those who still work in offices will need more room in the post-pandemic world.
Twenty years ago, Ballantyne said, the average office worker had 250 square feet of space. Today, it’s 150 square feet. Cubicles became smaller, fewer people had offices, and more workers were crammed into smaller spaces.
“Well, that’s going away,” he said. “We’re going back to larger cubes with high walls and private offices with doors. It’s all about protecting your people, with more common areas, larger restrooms, larger lobbies, larger break rooms, all that type of stuff.”
Ballantyne holds a monthly meeting with his staff to let them know how the company is doing, what the priorities are for the next month and to exchange birthday greetings and the like. Since the pandemic, those meetings have taken place online on Zoom.
“It’s not the same,” he said. “How do you maintain corporate culture and morale and energy? Just managing people is harder: I don’t know if that person’s plate is full or whether their plate is empty.”
This story was originally published June 29, 2020 at 10:53 AM.
