There are three types of bad actors among retail center tenants not paying rent, said DLC Management Corp. CEO Adam Ifshin. There are the ones that don’t communicate, the ones that don’t pay because they’re shut down, and the ones that are completely capable of paying and don’t want to.
The last group, he said, is entirely composed of national chains.
“Eighty to ninety percent of tenants not paying rent were the national brands,” said Ifshin, whose company owns 85 mostly outdoor centers in 24 states. DLC collected 73% of total rents in April and 65% in May.
“The mom and pops, meanwhile, are trying their best to pay. They’ve borrowed, they’ve dug into their life savings, and we’ve given them a three-month deferral program and are doing everything we can to support them,” he said.
Supply chain software provider Datex reported last month that only 42% of May retail rents had been collected by May 8. Companies that had paid zero rent were mostly nationals, including 24 Hour Fitness, AMC Theaters, Bed Bath & Beyond, Dave & Busters, Five Below, Foot Locker, H&M, Old Navy, and The Gap.
Ifshin is not the only landlord losing patience. The nation’s largest mall owner, Simon Property Group has filed a suit against The Gap for nonpayment of $66 million in rent during the COVID-19 crisis.
Many national chains --The Gap being one-- are claiming that the pandemic gives them force majeure rights to hold back rent when an “act of God” closes their businesses. Most courts and legal experts that have weighed in on this since the coronavirus hit say that Covid-19 did not qualify as an act of God in the way that Hurricane Katrina did.
“My guess is that force majeure will be fought over in court,” said Michele Maresca, a real estate lawyer at Robinson+Cole in Hartford, Conn. “The issue of whether a pandemic or essential business orders qualify as force majeure has never really come up before, and it’s going to take a long time to work this out.”
Ifshin and DLC have focused all their aid on independent businesses without stockholders or deep credit lines. The company offered a standard plan to tenants with five or fewer stores not exceeding 5,000 sq. ft. each. These tenants received 50% rent deferrals in April, May, and June that could be paid back in November and December. In return, they had to pay rent through debit or Automated Clearing House transferral and report sales for the length of their leases.
“We offered everybody the same deal because, with the number of tenants we have, we had to be able to do this fast. You pull the application down online and fill it out as is. No changes, no negotiation, and we can get it all done,” Ifshin said.
He reserved little sympathy, however, for delinquent national tenants. “The theater guys, the gym guys, they have some excuses,” Ifshin said. “But I don’t get companies that have raised hundreds of millions of dollars, or even a billion, and say they need help.”