Property managers take case-by-case approach with commercial tenants affected by pandemic

Property managers take case-by-case approach with commercial tenants affected by pandemic
Left to right: Jason Wheeler, Dave Levitt, Kyle Sischo

GRAND RAPIDS — Facility owners and property managers are working with their commercial tenants during a time when most retailers and restaurants have had to severely cut operations.

To curb the spread of the coronavirus pandemic, Gov. Gretchen Whitmer issued a stay-home order for Michigan for at least three weeks through April 13, bringing non-essential business to a halt. The move excluded retailers like grocery stores, as well as restaurants that offer take-out. 

Some businesses have created public fundraisers for their employees. Some have laid off their staff to allow them to apply for unemployment benefits. In the meantime, the owners of commercial properties are discussing options with their tenants. 

“We’re working with commercial tenants in the most affected services, like restaurants and service-based retail,” said Jason Wheeler, communications director for Grand Rapids-based Pure Real Estate Management. “We’re working with them to develop plans on things like rent, and how we can help promote their business within their limited services. If people had to shut down, like our restaurants, we’re working plans out on a case-by-case basis.”

Property owners and managers who spoke with MiBiz said they are identifying specific strategies tailored to particular commercial tenants. This could mean allowing tenants to pay April’s rent over the rest of the year or making a rent credit or exchange with the business, among other options. 

“We’re open to creative ideas on how to have it be mutually beneficial,” Wheeler said.

Grand Rapids-based Third Coast Development LLC has a mix of commercial tenants, from large-scale manufacturing operations to new small businesses. Some of these tenants are considered “essential” under Whitmer’s shelter in place order, so they will continue to operate as usual. 

Other tenants in Third Coast’s buildings are struggling with the effects of the shutdown, especially the health clubs and restaurants that lacked a robust take-out system. 

The firm’s residential tenants have the same varied situations: Some are getting paid and working from home, while others are not, said Dave Levitt, a principal at Third Coast. While Levitt empathizes with tenants, he noted that property owners also have ongoing costs to cover amid the pandemic. 

“The biggest thing we’ve been asked about is, ‘Do we have to pay rent on April 1?’ We’ve been trying to look at the economics of the building in question and say what, if anything, can we do?” Levitt said. “Our expenses go on. There hasn’t been relief on utilities and taxes. We have to make sure we collect enough in aggregate that we don’t put the buildings at risk.”

Levitt said Third Coast has received calls from two or three tenants who are concerned about not making rent. “Some concessions have been made” for those who need it, and there’s been “goodwill on both sides,” Levitt said.

“It’s just understanding your client, what their situation is,” he said. “A few days or a few weeks — everybody can kind of slog through it. It depends how much longer it lasts, where we’ll start seeing more concerns from tenants.”

Small businesses can access options for relief. On March 19, the state announced the creation of two funds totalling $20 million to support grants and low-interest loans to small businesses that had to close or have been disrupted by the pandemic.

The Michigan Small Business Relief Fund will “assist those businesses facing drastic reductions in cash flow and the continued support of their workforce,” according to the Michigan Economic Development Corp

The West Michigan office of Colliers International manages 9 million square feet of real estate for property owners. Kyle Sischo, managing director of real estate management services at Colliers, has been busy communicating with tenants and landlords. Colliers is keeping track of tenants that have informed the firm of closings or reduced sales, as well as sicknesses that could be related to COVID-19.

Sischo said commercial and residential tenants are being handled on a case-by-case basis, but the most common solutions include spreading rent over the remaining term of a lease, or forgiving the abated rent in exchange for a term extension on the lease. Colliers looks to the landlords it represents to make those financial decisions. 

“In the end, I think this is a perfect reminder for individuals and businesses alike to curb expenses right now as much as they can, but beyond this situation in the future to curb their expenses until they have a safety net,” Sischo said. 

Pure Real Estate also is working with its commercial tenants to develop plans for promoting their businesses with limited services. 

“Hopefully if there’s any silver lining to the cloud, our residents and commercial tenants will start to realize there is something deeper than the leases and agreements they sign,” Wheeler said.