Coronavirus: Big Picture Approach for Businesses Not Paying Rent

[Kim Hopkins]

Hello!

We own several commercial industrial/flex buildings across Oregon, Washington, Utah and Texas. Some are multi-tenant. Many tenants are  small businesses (e.g catering, CrossFit gyms, contractors), and some of the single tenants are also small businesses as well (manufacturers, event companies, etc.)

We are heavily leveraged on most of the multi-tenant properties, 75% LTV for the most part.

We have already received a message from one of our small business tenants in a multi-tenant property that they expect all their catering to be cancelled and they don't think they can pay April rent.

I expect we're at the start of a recession or at least a bad time because this will last for awhile and we have not personally been through a recession before. 

For those with experience, what is your big picture approach / policy / advice for how we should handle our tenants and these requests for reduced or no rent as they come in? I expect this could last for many months and for tenants who  lose their entire spring/summer busy season, I imagine they may not be able to pay rent or full rent for the rest of the year. 

Thank you,
Kim

[Greg Dickerson]

Originally posted by @Kim Hopkins:

Hello!

We own several commercial industrial/flex buildings across Oregon, Washington, Utah and Texas. Some are multi-tenant. Many tenants are  small businesses (e.g catering, CrossFit gyms, contractors), and some of the single tenants are also small businesses as well (manufacturers, event companies, etc.)

We are heavily leveraged on most of the multi-tenant properties, 75% LTV for the most part.

We have already received a message from one of our small business tenants in a multi-tenant property that they expect all their catering to be cancelled and they don't think they can pay April rent.

I expect we're at the start of a recession or at least a bad time because this will last for awhile and we have not personally been through a recession before. 

For those with experience, what is your big picture approach / policy / advice for how we should handle our tenants and these requests for reduced or no rent as they come in? I expect this could last for many months and for tenants who  lose their entire spring/summer busy season, I imagine they may not be able to pay rent or full rent for the rest of the year. 

Thank you,
Kim

First off don’t worry or panic. Everything will be ok and work out. You are correct that this will continue to escalate as we are only in the beginning of the shutdowns. Your tenants will likely be facing several months of missed payments if not going out of business altogether. Some of them just will not be able to survive or reopen. Be prepared to work with them as much as you can.

That being said the best thing you can do is communicate with your lenders as they are all putting contingency plans in place to help you and other property owners like you. First thing to remember is you are not in default for 90 days so you have a three month grace period that you can be behind on your payments but you don’t wanna do that without communicating to the lender. They will work with you to defer payments and add it to the back of the loan and possibly even readjust interest rates. They do not want to foreclose and will likely work with you to refi or modify your loans.  Everybody is in this together and prepared to do whatever it takes to work through this so don’t worry you will not be loosing your property and do not deplete your reserves trying to make up any deficits.