It’s now June and the month of reckoning for retailers and their landlords has come and gone. Nearly half of commercial retail rents were not paid in May, according to the Washington Post. Companies as big as Starbucks say the financial devastation from the shutdown has left them unable to pay their full property bills on time. Some companies warn they will not be able to pay rent for months.
In Tucson, perhaps due to the additional month of shutdown, retail brokers are saying the number of retail tenants not paying rent last month is even greater, somewhere between 80% to 90% brokers are reporting in some retail centers.
The problem for the broader U.S. economy is that when businesses like Ross Stores and T.J. Maxx stop paying rent, it sets off a chain reaction. Landlords are now at risk of bankruptcy, too. Commercial real estate prices are falling. From property management companies to landscapers are all facing job cuts. Banks and private investors are unwilling to lend to most commercial real estate projects anymore, and cash-strapped city and local governments are realizing the property taxes they usually rely on from business properties are unlikely to be paid this summer and fall.
“While we’ve seen some pressure relieved through the additional flexibility granted to the PPP programs, landlords, tenants, and lenders for retail and hospitality properties must work together to address changing real estate economics in certain markets.” ~ Cameron Carter, RLG Partner and Director of the Transactional Department