Chicago retail brokers talk rent reductions in the age of coronavirus

Chicago’s retail brokers were already scrambling to adjust to the new reality coronavirus has created when Gov. J.B. Pritzker imposed further limits on crowds statewide — no more than 50 can gather — severely hampering fitness centers, bowling alleys, private clubs and theaters.

Over the past several days, property showings have been canceled but brokers are still working to get new leases signed and to close on pending sales. It has not been easy.

Greg Kirsch, head of Cushman & Wakefield’s Midwest retail operations, said his team has been reaching out to landlords on behalf of their clients, hoping to strike deals on rent abatements or reductions as sales plummet amid the widening governmental restrictions.

Some landlords have already made concessions to offset tenants’ declining sales, he said. That will become a necessity as retail tenants reduce hours or shutter stores entirely, he added.

“A crisis like this makes landlords and tenants into true partners,” Kirsch said optimistically, adding that landlords don’t want to find news tenants in such a volatile market. As of Monday, Illinois’ confirmed coronavirus cases had climbed to 105, state officials.

Several retail brokers interviewed for this story say they expect some pending lease and investment sale deals will fall through or at least hit the pause button, as investors and tenants sit on the sidelines, waiting to see what happens in the coming weeks.

If Monday was any indication, it could be a jarring ride. Stocks continued their downward fall Monday, nearly a day after the Federal Reserve unleashed another rate cut, and measures to prevent the economy from further spiraling. The Dow Jones Industrial Average plummeted nearly 13 percent — almost 3,000 points — and the S&P 500 fell 12 percent, the worst drop since 1987. The Nasdaq also plummeted over 12 percent.

John Vance of Stone Real Estate talked about the sense of “limbo that I think will run through at least the end of the month, until things solidify.”

Marcus & Millichap broker Mitchell Kiven, who specializes in multi-tenant retail investment sales, hasn’t listed any properties in the last couple of weeks and has had two deals fall out of contract. But the news hasn’t been all bad: Kiven has also brokered a couple of other deals that are now under contract.

And Kiven added there is also opportunity in Chicago’s retail market — especially given the low interest rates — for investors to buy core-stabilized, high barrier-to-entry properties that will yield solid returns. He added that some prospective tenants could also take advantage of reduced competition from other retailers looking to lease space.

But most of the news has been anything but good for retailers, especially for the food and beverage industry, which had been enjoying a renaissance. The coronavirus outbreak has disproportionately affected that industry, market pros said. It has seen a major sales slowdown in the last few weeks from cautious consumers, and will likely be further affected by Pritzker’s recent order for all restaurants and bars to close to dine-in customers through the end of the month. But Vance said nimble restaurants that can navigate around the limitations and take advantage of food delivery and pickup should be able to survive.

“I think people should be very cognizant, in an instance like this, of how important brick and mortar is to our way of life,” Kirsch said.