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Posted 27 Apr 20 By: No comments yet

Broad rent strikes would be disastrous

By Riley McKee, NAI Maestas & Ward Industrial Real Estate Advisors
An article featured in the executive desk of the 2020 Albuquerque Journal, Edition 4.27.2020

In an open letter addressed “To our landlords,” the CEO of The Cheesecake Factory announced that the restaurant chain would not be making rent payments in April due to extraordinary challenges the company has faced since the outbreak of COVID-19.

Other prominent retailers like Subway, Dick’s Sporting Goods and Staples have made similar pronouncements in recent weeks, as virus containment efforts have halted “nonessential” business activity. The justification provided is understandable. Closures mandated by state and local governments have all but eliminated the ability to generate revenue, a fundamental problem deserving of sympathy.

But glaring defiance of lease obligations is certain to inspire copycats. Tenants across the spectrum of property types — from well-known retailers to local apartment renters — now have justification to do the same. The nascent but very real threat of a widespread rent strike places our long-term economic future on a knife’s edge.

While the virus has felt allconsuming thus far, its negative impacts can be contained.

Medical professionals have become national heroes through tireless care for those infected.

Millions of Americans have willingly complied with social distancing guidelines. And thousands of business owners have put their life’s work on the line by yielding to emergency restrictions. These sacrificial efforts have resulted in a plateauing rate of new cases and deaths putting a gradual return to normal life in view.

On the economic front, relief efforts like the Paycheck Protection Program, direct payments to individuals, and expanded unemployment insurance have been tailored to offset losses.

These measures can be likened to storing the economy in a giant freezer, preserving and protecting it for a later date.

If the economy can be effectively “frozen” while the war against COVID-19 is waged, a brief thaw, so to speak, is all that will stand between the hardship of today and the prosperity of tomorrow.

But if healthy economic activities — and for that matter, the rule of law — are cast aside amidst the current panic, we face a difficult road ahead.

The most effective means of preserving economic health is to honor existing contractual obligations.

Growth and profitability benchmarks can be amended. Payroll concerns can be addressed by emergency loans. Furloughs and layoffs, though lamentable, are accounted for by expanded unemployment insurance and direct cash payments. Executives and senior managers — those most equipped to handle short term losses — can ride out an interim pay cut.

But the economy cannot survive a suspension of good faith, which is why The Cheesecake Factory’s decision is uniquely troubling.

Without minimizing legitimate challenges that tenants currently face, what is a better response? In a word, conciliation. Landlords are keenly aware of ongoing circumstances and the vast majority are willing to help. They have a meaningful interest in their renters’ survival beyond the crisis and know pushing too hard would be foolish. But they also have burdens and as May 1 approaches, grow increasingly nervous.

April rent figures were down, but a full month of virus containment measures since then portends an even lower collection rate. And a potential domino effect of disaster as one default triggers another.

Much has been said recently about “getting through this together.”

It’s an encouraging sentiment, but only to the extent it’s actually upheld. The Cheesecake Factory failed the test by unilaterally reneging its obligations in times of trouble, when many of its landlords would willingly have sought a mutual arrangement.

So for tenants who are able next month, pay your rent. For those struggling with a sudden loss of revenue, pursue relief programs to help bridge the gap. If your or your business is ineligible or still facing budget constraints, pay what you can. And if you find yourself out of options and out of cash, have a candid conversation with your landlord and work toward a bilateral solution.

By doing so, we can preserve the blessings of an economy — and society — built on trust.

Riley McKee is an industrial real estate adviser for NAI Maestas & Ward Commercial Real Estate. 

The executive’s desk is a guest column providing advice or information about resources available to the business community in New Mexico.  

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