Beleaguered owners of chain stores in New York City are asking for permanent or temporary rent reductions through deferred payments, reduced payments or leases based on a percentage of retail sales, several retail brokers said.
“Virtually every national chain has a rent reduction program that [will] affect metro New York real estate,” said Patrick Smith, executive vice president of the northeast region of Staubach Retail. “Performance is down so significantly they are trying to bring their four-wall occupancy costs to an acceptable rate.”
Tenants and landlords are negotiating over a wide spectrum of options that include simply not paying rent in a given month — equaling as much as an 8 percent reduction over the year — to rent deferments of up to 20 percent. In the deferment cases, the amount saved would be tacked on to future years.
The retailers seeking relief include local sports chain Modell’s Sporting Goods, as well as national retailers such as Borders, CVS and Big M, the owner of women’s clothing retailer Mandee, according to various brokers who asked not to be identified.
Lon Rubackin, managing partner with GFI Capital Resources Group, explained how a rent deferment plan might be structured.
Property owners “might say, ‘for a period of three to 12 months, you can pay a 10 or 20 percent discount,’ and whatever that savings is might get tacked on at the end of the lease, or two or three years from now,” he said.
Street retailers, or those stores not in malls, are also seeking a leasing option more often seen in malls, in which rents are based on a range between 8 and 12 percent of gross sales. The corporate office of Urban Outfitters made such a request in recent weeks, said one broker, who asked not to be identified.
Modell’s, CVS and Borders declined to comment. The other retailers did not immediately respond to a request for comment.
The move to reduce rent payments is part of a national trend by tenants to save money in a weakening economy and to stave off going belly-up, said Robin Abrams, executive vice president at Lansco.
Chain-store tenants are contacting landlords irrespective of whether the location is performing well or poorly, she said, arguing that times are tough and they want a rent reduction for every site.
Henry Goldfarb, a retail broker and vice chairman with Grubb & Ellis, said he knew of two chains seeking rent reductions in two buildings, but declined to identify them.
“Two owners called me for advice” about how to deal with the tenants’ requests, he said.
In addition to chain stores, landlords are being badgered for rent reductions from local shops. “Right now it is a small percentage, but we feel it is going to grow,” Goldfarb said.
He said such requests were unheard of a year ago but had occurred in the economic downturn of the late 1980s and early 1990s. Today, landlords remain skeptical and at times demand a look at the books for proof that the company is in a very weak financial situation and not simply seeking to increase profitability.
In recent months, “a few of the chains are sending out actual form letters … that say because of the economic situation they are looking for rent reductions of 20 to 25 percent from all owners,” Goldfarb said. He did not identify which retailers were involved.
This story was originally published on The Real Deal’s daily blog.