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How Smart Retail Landlords Are Managing Uncertainty
Let’s face it, the current state of retail is not something that either landlords or tenants could have predicted or planned for. So how are some making positive strides, creating lemonade from the lemons so to speak?
About the Author
Per the National Restaurant Association, there are over 1 million restaurant locations in the U.S. and 3% of those are already permanently closed due to the impact of the shutdown. It is expected the number of permanently closed locations will increase to 11% by the end of April. Should the shutdown continue through the end of May or longer, the impact to some restaurants will be almost insurmountable.
Restaurants
Stream Realty Partners
3161 Michelson | Suite 100
Irvine, CA 92612
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Michelle Schierberl
Senior Vice President
949.203.3060
michelle.schierberl@streamrealty.com
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*Quick Serve Restaurant retail will be less impacted than sit-down restaurants as drive-through options remain the consumer’s choice of consumption.
However, a shining light in the retail world, grocery anchored shopping centers, remain the safest investment option. Sales at grocery stores have increased 27% over prior month as consumer spending patterns shift from meals in restaurants to meals at home. To combat slumping sales, some restaurants shifting to include the sale of grocery staples like flour and milk.
With the strength of grocery sales, we anticipate we’ll begin to see greater discrepancy in cap rates between grocery anchored retail and the rest of the retail playing field with grocery anchored retail expected to outperform at a higher rate most other retail products.
Interested in learning more on the state of retail, trends and retail investments? Connect with our team. We can help analyze your leases, tenant sales, and market rents.
Grocery Stores
Restaurants
Per the National Restaurant Association, there are over 1 million restaurant locations in the U.S. and 3% of those are already permanently closed due to the impact of the shutdown. It is expected the number of permanently closed locations will increase to 11% by the end of April. Should the shutdown continue through the end of May or longer, the impact to some restaurants will be almost insurmountable.
Grocery Stores
However, a shining light in the retail world, grocery anchored shopping centers, remain the safest investment option. Sales at grocery stores have increased 27% over prior month as consumer spending patterns shift from meals in restaurants to meals at home. To combat slumping sales, some restaurants shifting to include the sale of grocery staples like flour and milk.
With the strength of grocery sales, we anticipate we’ll begin to see greater discrepancy in cap rates between grocery anchored retail and the rest of the retail playing field with grocery anchored retail expected to outperform at a higher rate most other retail products.
Interested in learning more on the state of retail, trends and retail investments? Connect with our team. We can help analyze your leases, tenant sales, and market rents.
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Request past and ongoing sales reporting in addition to financials including a current balance sheet and estimated forward looking cash flows 6-12 months. This information is crucial in evaluating the tenant’s burn rate and overall viability, and also allows the landlord to make educated decisions and craft custom tailored solutions if necessary. In addition, ongoing sales reporting is a helpful tool when planning for the disposition of a retail asset.
Utilize any request for rent relief as an opportunity to renegotiate any tenant favorable clauses such as “co-tenancy” or “exclusive use” provisions.
For tenants that were already underperforming prior to COVID-19, consider adding a landlord lease termination right with 90-day notice and providing the same right to the tenant but with a termination penalty. This provides flexibility for both parties in an effort to find the highest and best use for the space.
For financially viable tenants with near term expirations or capital requirements, now is an opportune time to negotiate a lease extension in exchange for rent relief or tenant improvement allowances.
In a lease modification that provides any forbearance of rent, include a waiver of the automatic stay in the event of a bankruptcy which may help minimize the risk and allow for a quicker recovery of the space.
Here are some considerations.
Michelle Schierberl serves as a Senior Vice President in Stream Realty Partners’ Greater Los Angeles office. Along with Donald Ellis, Michelle leads the retail investment division for Stream in Southern California, specializing in the sale of retail shopping centers. Michelle’s clientele ranges from private clients to institutional owners of shopping centers.
Many landlords are adapting during this crisis by improving leasing flexibility in order to stabilize assets and create a path towards recovery. For landlords, achieving better insight into sales performance and financial viability of your retailers is a wise move. Clear and consistent communication with tenants on the challenges they’re facing can lead to long-term, collaborative solutions that benefit all the stakeholders.
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