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Have Retailers and Landlords Turned a Corner in Clash Over Rent?

The battle between retail landlords and their store-based tenants has been contentious this year, but new data shows they’re collaborating to weather the coronavirus crisis.

The National Retail Federation (NRF) and financial services firm PJ Solomon surveyed U.S. C-level executives at large American chains, finding that at the height of the virual outbreak, 73 percent had closed at least three-quarters of their physical stores, including those in enclosed malls and outlet centers. Less than one-third of respondents paid at least 75 percent of June’s rent, a figure that nearly doubled to 65 percent by July.

Major mall operators seeking to recoup owed rent, such as Simon, have sued specialty chains including Gap and Brooks, which ended up in bankruptcy court, only for the REIT to acquire its assets in a joint venture with Authentic Brands Group. Brookfield said in its second quarter earnings report that it collected just 34 percent of the rent owed during that quarter, and is now laying off 20 percent of its retail division workforce. Brookfield is also reportedly in arrears on some property mortgages that might be put up for sale, the Financial Times reported.

The NRF-PJ Solomon survey, which polled 48 C-level executives at retailers with sales last year of $100 million or higher from July 15-28, found that retail tenants and landlords are working together to forge a path forward.

“The most common trade-offs for that relief came in the form of reduced co-tenancy rights and delayed kick-out clauses for the retailers. Less than 10 percent have yet to reach out to their landlords about potential rent relief options,” the study found.

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The majority, at 73 percent, of retailers that missed payments plan to pay back at least half of their outstanding rent, and more than 50 percent said landlords gave them sort of break on their lease payment. Most were able to defer rent to late 2020 or into 2021.

“If you’re a retailer with an extensive store footprint, effectively managing these fixed costs has been critical to preserving cash while brick-and-mortar sales remain under pressure, even as online sales surge for many,” said Jeff Derman, managing director at PJ Solomon. “Genuine rent relief through this unprecedented period, whether it is landlord- or government-driven in the future, will hopefully provide sufficient runway for many of these retailers to maintain liquidity long enough to continue serving their customers and paying their employees until the pandemic’s most severe effects have retreated.”

More than two-thirds, or 67 percent, of respondents believe retailers that have absorbed a pandemic-induced financial blow should receive assistance to pay their June-through-August rents. Another 33 percent said any relief program should also shield retailers from any credit rating downgrades that are the direct result of missing rent payments during the Covid crisis.

“We started to see some encouraging signs for the retail industry with June’s positive sales growth and within the backdrop of a gradually reopening economy,” said David French, NRF’s senior vice president of government relations. “The influx of stimulus-driven consumer spending and negotiations with landlords has helped keep retailers afloat. As retailers look ahead to cover rent and other expenses in the coming months, more federal government relief is needed to ensure the industry can continue to rebound and fuel the economic recovery.”

Whether additional governmental relief will be forthcoming is uncertain.