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| DATE | 2021-01-20 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [Hangout - NYLXS] Death of NYC businesses
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NYC Landlords and Retail Tenants Team Up to Survive
Anne Kadet
7-8 minutes
Kelly Wang’s new store almost didn’t survive the pandemic. Five weeks
after opening Rue Saint Paul, her Brooklyn sustainable-fashion and
beauty boutique, the lockdown forced her to close for three months.
Because the store was new, it didn’t qualify for a federal PPP loan. “I
was just panicking. It was my first commercial lease and I was nervous
and timid about my options,” she says.
Thank goodness her landlord—a retired woman who lives upstairs—said she
didn’t have to pay rent until the spring lockdown ended. In July, when
Ms. Wang asked about the back rent, the landlord said she’d only have to
pay half, spread over the remainder of the lease.
“We wanted to make sure Kelly had the opportunity to be successful in
the space,” says Salvatore Licata, the landlord’s son. “And in turn, my
mom hopefully would have a long-term tenant that she would benefit from
as well.”
Ms. Wang, meanwhile, decided against requesting additional discounts.
Sales are strong and she’s able to pay the full $3,800 monthly rent on
the 550-square-foot space, she says.
For those of us concerned about our city’s mom-and-pop shops and retail
strips, it’s heartening to hear about landlords and small-business
tenants working in good faith to ensure each other’s survival. And it’s
not as rare you might think.
“Our strategy has been to go as far as we can to keep spaces occupied,”
says Josh Goldberg, co-principal with his wife, Deborah Reich, and son
Xan at the Goldberg Group, which owns several dozen storefront
properties in Manhattan, Brooklyn and Queens.
“The cost of replacing a retail tenant is very high and there is a lot
of uncertainty as to how long the space will be empty,” says Mr. Goldberg.
Given this reality, he’s offered many of his tenants—which include
restaurants, drugstores, nail salons and dry cleaners—short-term rent
reductions of 30%-100%.
“I’d rather see a tenant open for business, paying nothing, than have an
empty space,” he says.
As a result, his vacancy rate is roughly 5% compared with rates topping
20% along many Manhattan retail strips.
One option employed in some cases by the Goldberg Group that has become
increasingly popular among city landlords during the pandemic:
percentage of sales deals.
These lease arrangements typically reduce the rent by 25%-100%. In
exchange, the store or restaurant tenant pays the landlord a cut of its
sales, often 5%-20%.
Amish Tolia, co-CEO and co-founder of Leap, a business that rents
storefronts that it then manages for various brands, is delighted with
the percentage deals he’s negotiated with his Manhattan landlords.
“If you have a really good month, you pay more; a slower month, you pay
less,” he says. “You give up a little bit on the upside, but it protects
you on the downside.”
And while landlords have been leery of such deals for obvious reasons,
new technology can provide a full accounting of a tenant’s receipts.
“They don’t trust each other, but we like to say we are referees in the
sandbox,” says Jay Norris, the CEO of Guesst, a third-party sales
verification platform.
Sometimes the lawyers have to get involved in a thorny lease
negotiation, of course. But William Mack, a Manhattan business attorney
with Davidoff Hutcher & Citron, says that in 90% of the cases, the
parties strike an agreement allowing mutual survival.
“Given where the commercial real-estate market is in New York City right
now, you’re better off making a deal, and there are a lot of creative
ways of doing that,” Mr. Mack says.
In many cases, he says, landlords forgave the rent during the spring
lockdown, or agreed to tack it on to the end of the lease.
Many deals also include a renewable rent reduction for a specific
duration—typically four to six months—or one tied to a government
action, such as reopening indoor dining at full capacity.
The Month Coronavirus Unraveled American Business - A WSJ Documentary
0:00 / 44:18
22:09
The Month Coronavirus Unraveled American Business - A WSJ Documentary
The Month Coronavirus Unraveled American Business - A WSJ Documentary
When the coronavirus tore through industry, commerce and society in
March 2020, the U.S. economy came to a screeching halt. Top executives
relive the tough decisions they made as they scrambled to weather the
storm. Photo Illustration: Adele Morgan/The Wall Street Journal
The pacts typically create an agreement that both sides kind of don’t
like, says Mr. Mack: “Everyone is sharing the pain.”
On the bright side, the pandemic is creating opportunities for
entrepreneurs looking to open new stores.
While asking rents for storefronts across the metropolitan area fell by
just 4.5% last year, according to information provider CoStar Group,
that doesn’t reflect what’s happening behind the scenes.
Commercial landlords don’t like to drop face rents on their properties,
and some are prevented from doing so by mortgage agreements requiring a
minimum rental income, says CoStar Associate Director of Market
Analytics Rachel Johnson.
So rather than dropping the rent 20%, for example, a landlord might
offer a year’s free rent on a five-year lease, or fund a custom space
renovation.
Entrepreneurs scouting storefront spaces, meanwhile, tell me that many
landlords are entertaining offers at a sharp discount to their asking price.
Hemant Chavan, co-founder of Brik + Clik, a retailer offering
merchandise typically available only online, says that in past years, he
would have had a hard time nailing a first-class retail space in New
York City, given his relatively unproven concept.
But last fall, he landed a high-profile slot in an upscale Manhattan
mall, and he is now closing in on a percentage-of-sales deal on a prime
Midtown location.
“They wouldn’t be talking to us before the pandemic,” Mr. Chavan says.
He then offered a view that sounds nutty, but may very well prove
prescient: “It’s a very good time to get into retail.”
Write to Anne Kadet at Anne.Kadet-at-wsj.com
--
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that Brooklyn, like Atlantis, reaches mythological
proportions in the mind of the world - RI Safir 1998
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