As the COVID-19 pandemic continues to wreak havoc on the retail sector by impacting in-store traffic and sales at physical stores, smaller-sized retailers are especially vulnerable now as the initial portion of the Small Business Administration’s Paycheck Protection Program, which was doled out in April, is now likely exhausted.
The PPP allowed businesses to use 40 percent of those funds for rent. Without that money, Kenneth S. Lamy, founder, president and chief executive officer of The Lamy Group and founder and ceo of DataPoint International LLC, expects landlords to seek “more effective approaches for deferring partial rents into the fall.”
The international financial management consulting firm if these smaller-sized companies also negotiated a three-month rent deferral with their landlords, “they shortly are coming up to full rents being due, even if they are conducting a fraction of their normal business, if any at all.”
In other words, this is a make or break moment for many retailers.
The company said in a report this week, that given the “underperforming conditions” triggered by the pandemic recession, “the typical rent structure — minimum rent plus obligatory contributions by tenants for the shopping center’s property taxes, insurance and common area expenses prorated in accordance with the tenant’s occupied space — simply doesn’t work.” Lamy noted that landlords need the rent income “so they can pay their own obligations.”
As a result, Lamy said retailers and landlords “will once again need to negotiate a way for both to survive and, eventually, thrive again.”
“Just as the COVID-19 virus itself seems to be coming in waves so, too, are the resulting retail casualties,” the ceo said. “For many tenants, especially entrepreneurs, the first round of assistance has been exhausted. But landlords have operating costs and mortgages — and a lease that requires at least some rent to be paid.”
For retailers and landlords looking to negotiate a rent restructuring, Lamy has an equitable model for both parties: collecting, analyzing and then verifying sales. DataPoint International LLC offers a solution to help with its Exeter Retail DataHub, a software-as-a-service or SaaS.
While restructuring rental agreements can take on various shapes and sizes — from deferrals to forgiveness — Lamy said the only way to “have an honest and productive partnership” is via data that will “allow landlords to evaluate the health of the retailer and allow them to assess the amount and type of assistance that can be offered.”
Lamy said they need information “that will allow them to determine a fair rent that the tenant can afford during the period of decreased revenues.” Lamy also noted that the data is readily available. “Many retailers and restaurants are required by lease to report sales to landlords on a monthly basis so that percentage rent, in addition to fixed minimum rent, can be determined,” Lamy explained. “Those tenants that are not required by lease to report sales are likely to see this new requirement in a future lease amendment if rent relief is granted by the landlord.”
Lamy said the real-time data collected can be combined with historical data to then get a clear picture of a retail location’s overall health.