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March 25, 2020

COVID-19 Real Estate Update: Tips for Lowering Occupancy Costs

How to conduct productive discussions with landlords

by Mark Hefner, CEO of MGO Realty Advisors

Over the last 10 days, the COVID-19 pandemic has turned the world on its ear. In these uncertain times, we are helping our clients – companies and government institutions that use all types of commercial space across the country – create solutions to keep business moving forward. Conserving our clients’ cash while maintaining honest and fair relationships with the landlords who are essential to long term operations is where we can add additional value in times like these.

Below are some strategic tips to consider when conducting discussions with your landlord regarding your plans moving forward, specifically any changes to near-term rent payments, and long-term plans for the space.

Remind the landlord who you are, provide specifics:

  • Reference your specific lease and date of the lease;
  • Mention the length of your time in the space, your close relationship (if applicable), your rent payment performance and any additional benefit your occupancy has delivered to the property or the landlord.

Describe your business situation:

  • Quantify your current hardship, and provide specifics: e.g., % drop in sales (for retail tenants), “Shelter in Place” Order, and closure of customer seating, supply chain failures, etc.;
  • Provide the new math on this specific rent as a percentage of same-store sales before and after the “Shelter in Place” Order, if applicable in your state. That may help you frame your request in logical terms. Even in a crisis, injecting logic and math into a tense conversation can calm nerves and deliver a positive solution.

Provide the proactive measures you’re taking to get business back on track:

  • Describe the active steps you are taking to secure additional funding sources (private and public) to avoid extraordinary layoffs, vendor layoffs, honoring contracts for goods and services, like payment of rent;
  • Reinforce the notion of your history as an excellent partner to your landlord in the landlord/tenant partnership. As a small business owner, it wouldn’t hurt here to state how much rent you have faithfully paid this landlord over how many years before you request rent deferral. If you pre-paid rent large sums of rent in the past, remind them now!
  • Make a specific request of this landlord in dollars and time and provide the answer to their expected question: “How quickly will I get paid back?”
  • Close with a suggestion that you are looking forward to feedback and partnering with the landlord to weather this market disruption.

Ultimately, business is still about personal relationships. Being direct, friendly, and patient while delivering specifics is the best path to a shared understanding with your landlord.

As always, please review your intended action with legal counsel before doing anything that impacts a legally binding contract—and a valuable relationship.

In many cases, MGO Realty Advisors is taking the lead in engage communications with landlords. If you would like support or a consultation, please do not hesitate to reach out.

Tagged:
real estate
COVID-19
commercial real estate