Should commercial landlords forgive rent during the shutdown?

Here in the Bay Area (and I’m sure it’s happening all over the country) there’s a news story nearly every day about another restaurant that’s permanently closing its doors because they can no longer pay their rent after either being closed completely for months or not making enough money on carry-out alone.

It’s a terribly difficult situation with no easy answers, but… If you own a commercial building and are leasing space to a restaurant or retail store, what good does it do you to evict them if they cannot pay the rent? Absolutely nobody else is going to move into that vacant space right now; maybe not for a long time. You get nothing. But if you can arrange to suspend rent collection from your current tenant until they can be fully operational, at least you know you’ll begin collecting again much sooner than if they closed permanently.

It’s not exactly a win-win, but at least it’s less of an everybody-loses. Why aren’t we seeing this happen?

Depends on if the landlord has a loan to pay on the building. Will the bank not collect on the mortgage for a while?

If the situation you are describing is where the landlord truly “owns” the building outright, then yeah why not just delay/forgive rent for a while.

That’s a good point. The bank would pretty much be in the same boat as the landlord, though. If they foreclose, who the hell is going to take that property off their hands right now?

But it’s less likely to think a bank will be willing to think outside the box this way.

PPP was available to commercial landlords.

To a certain extent i think that is some logic that, OK we had a good tenant but there is this highly unusual covid thing going on, and so, like many aspects of the economy, I, as landlord, am gonna have to eat some losses. But once we get through this, i’ll have my good tenant back.

But everything is interconnected. Tenant pays Landlord…Landlord pays the Bank… Bank pays Bondholders. Bondholders pay whoever they pay, and so on and so forth. Its like a hot potato or musical chairs. Ultimately someone isn’t gonna get paid.

So do I, as a Landlord, want to risk my business to support another business that is gonna come out this situation in debt up to its ears, or do i evict them and hope some other well capitalized business takes over the space when the eventual recovery occurs?

Ya, I think this is the point. As the landlord you are going to have to come out of pocket for some period of time. Do you want to bet on you current tenant coming back strong at the end of this a being a good tenant moving forward or would you bet that the new upstart at the end of the pandemic is going to be the one in a stronger cash position plus getting that new restaurant boost.

I can say that my company is still fielding 1-2 new distillery inquiries per month which while down from the 1-2 per week we normally have is still showing a decent new group of people who will be open to the public in the next 18 months. and as for who would buy the properties I’m looking to get back into the distillery game and I’ve identified a property that’s been on the market for 8 months now and I’m mainly waiting for the price to come down since it will be and ideal restaurant/distillery location but I’m not planning to have that place open to the public for 4-5 years. The market isn’t dead I think people are just looking for a bargain and then take advantage of the upswing.

I think it basically comes down to can they rent out the spot to someone else? They might very well have a prospective tenant chomping at the bit ready to go.