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NRF Reports Collaboration Between Retailers and Landlords

Interior of Neiman Marcus at Hudson Yards (courtesy of Neiman Marcus)

With close to zero revenue coming in the door for many bricks-and-mortar retail operations during the COVID-19 stay-at-home orders, retailers and their landlords are working together to address outstanding rent obligations, the National Retail Federation and PJ SOLOMON reported.

“We started to see some encouraging signs for the retail industry with June’s positive sales growth and within the backdrop of a gradually reopening economy,” said David French, NRF’s senior vice president of government relations. “The influx of stimulus-driven consumer spending and negotiations with landlords has helped keep retailers afloat. As retailers look ahead to cover rent and other expenses in the coming months, more federal government relief is needed to ensure the industry can continue to rebound and fuel the economic recovery.”

A recent survey of C-level executives at large, U.S. retail chains conducted by NRF and PJ Solomon found that at peak closure, 73% had closed at least three-quarters of their physical store locations, including those in enclosed malls and outlet centers. While less than a third of respondents paid at least 75% of June’s rent, by July, that figure had nearly doubled to 65%. Further, 73% of retailers who missed payments said they would pay back at least half of all rent owed, and more than 50% said they were able to get some form of rent relief from landlords, with back-rent deferrals to late 2020 or 2021 being the most common concession. The most common trade-offs for that relief came in the form of reduced co-tenancy rights and delayed kick-out clauses for the retailers. Less than 10% have yet to reach out to their landlords about potential rent relief options.

“If you’re a retailer with an extensive store footprint, effectively managing these fixed costs has been critical to preserving cash while brick-and-mortar sales remain under pressure, even as online sales surge for many,” said Jeff Derman, managing director at PJ Solomon, a financial advisory firm. “Genuine rent relief through this unprecedented period, whether it is landlord- or government-driven in the future, will hopefully provide sufficient runway for many of these retailers to maintain liquidity long enough to continue serving their customers and paying their employees until the pandemic’s most severe effects have retreated.”

When asked about potential rent forgiveness programs (RFP), 67% of respondents agreed “retailers that are economically impacted by the pandemic should receive assistance to pay their rents for a three-month covered period” (June to August 2020), while 33% said RFP should “protect retailers from downgrades in credit ratings and scores due to any missed rent payments during the COVID-19 crisis.” As a condition to RFP, half of the respondents agreed that “tenants receiving assistance must demonstrate economic harm from COVID-19 (e.g., shuttered business, layoffs and furloughs) and certify it will use RFP proceeds only for purposes of paying rent for obligations incurred during the ‘covered period.’”

The survey of 48 C-level executives of retailers with 2019 sales of $100 million-plus and at least 10 store locations was conducted July 15 – 28. Click here to view the full survey results.

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