PUMMELED IN MARCH, MISSISSIPPI RETAILERS BRACE FOR HISTORICALLY BAD MAY
By TED CARTER
The period through the end of May is likely to determine the course commercial property landlords take in addressing tenants tardy on rent after government-ordered shutdowns over the coronavirus pandemic.
“The next 40 days are absolutely critical,” said Brian Estes, a Jackson real estate investment specialist whose Estes Group manages its own properties as well as area restaurant and retail locations and office buildings.
Most retail business tenants paid rent in March, but a never-before-seen plunge of 8.7 percent in retail sales nationally that month has put collections beyond the end of May in doubt. Disturbingly, some national tenants have told Estes it could be several months more before rents can be paid, let alone caught up on.
By June, landlords could be confronting a truck load of troubles of their own, Estes said, chief of which are their own mortgages and commercial loan balloon payments.
Retail analysts say much of the deep nationwide fall off occurred the last two weeks of March. Some of that fall off could be showing up in Mississippi Department of Revenue sales tax collection transfers to the state’s general fund. Sales tax transfers in February totaled $163.6 million, a 2.8 percent increase over the same month last year. But March transfers fell to $159.4 million, slightly below the $160.4 million in March 2019.
Estes said landlords and banks are working with retailers and other business owners in a myriad of ways. “They’ve given them a little reprieve,” he said, and noted they will try to recoup the tardy rents in the months that follow.
“Landlords recognize it is not the tenants’ fault,” Estes said of the state-ordered shutdown of all non-essential businesses.
Landlords aren’t yet thinking about evictions, he noted. “It doesn’t’ do the landlords any good to evict tenant because they can’t pay for April and May.”
The economic pain of the state’s cvoid-19 shutdown is hardly across the board, according to Estes. “It’s business by business,” he said.
Some restaurants, he said, have made “decent” money through take-outs and deliveries.
On the other hand, many of the other commercial tenants “are starting to blow through their reserves” – if they had any to begin with, Estes said.
On the residential side, the Estes Group racked up a better-than-expected 87 percent collection rate through April 10 on the 1.300 apartment units it manages.
It is the uncertainties of the May collections on retail, restaurants and office tenants that unsettle Estes at this point. “Even some of the national chains have told us they don’t intend to pay for the next three to five months,” he said.
“Just because you’re a national tenant doesn’t mean you have got the money. Some are more exposed than the mom-and-pops. They are getting hit terribly hard.”
But five months is too long for resumption of rent payments, Estes said. “Landlords can’t wait that long without a rent check.”
Pat Fontaine, executive director f the Mississippi Hospitality & Restaurant Association, says landlords around the state aren’t forgiving rents but are giving tenants more time to catch up on arrears. “Some are even reducing payments,” said Fontaine, whose association represents 1,200 restaurant and hotel/motel locations in the state.
Flexibility and patience may not be enough, if national projections on restaurant-survival rates pan out. A recent survey from the National Restaurant Association, Fontaine said, found that 40 percent of U.S. restaurants are closed and 3 percent of owners have decided to close for good. “They are projecting that by the end of the crisis that could be as much as 11 percent, and possibly higher,” Fontaine said in a Wednesday interview.
In Mississippi, Fontaine noted, “so many of my members are operating week to week. They are not able to sustain this.”
Fontaine received some encouragement this week with congressional approval of a new $450 billon economic rescue package that seeks to put substantial amounts of forgivable loan money in the hands of genuinely small businesses, unlike the previous Paycheck Protection Act which watchdogs say allowed large banks to give priority to their large national business clients.
“Other industries have gotten the lion’s share,” Fontaine said, lamenting that restaurants received only 9 percent of the money banks loaned in the previous rescue.
“It is our hope that smaller, independent operators” will fare better in the new round, he said.
A slightly better outcome came to members of the National Federation of Independent Businesses’ Mississippi chapter, according to Dawn Starns, state director of the NFIB chapters in Mississippi and Louisiana.
Mississippi members, she said in an interview Tuesday, received 20 percent of the Paycheck Protection Act money banks loaned to Mississippi businesses. But that percentage is still worrisomely low, she said, and called for giving recipient businesses more latitude on spending the funds.
Loan provisions do allow some freedom to cover non-workforce operational expenses, including mortgage interest, rents and utility costs. But the loans specify payroll and compensation levels must be maintained over an eight-week period in order to gain forgiveness of the loan.
First, the eight-week life of the rescue loans must be extended, said Starns. “Members are saying they can make it a month or two months, but past that they can’t do much.”
The reality, Starns said, is that it “is not going to matter if they make their payroll and can’t keep their leases.”
So far, Starns has not received calls from any of her 3,000-plus Mississippi members about difficulties with landlords.
Landlords likely will continue in a tolerant mode, largely because lenders are maintaining tolerance as well, said Jeff Speed, broker and principal of Speed Commercial Real Estate in Ridgeland. “I don’t think banks are going to start foreclosing on a bunch of commercial properties,” he said in an interview in mid April.
He emphasized, however, that it is too early to make a lot of assumptions other than the more liquidity a business has, the higher its odds for survival.
He said commercial building owners with substantial equity in their properties will get more forbearance than ones with lesser stakes. “If a bank has a loan on a property that is 8 percent leveraged vs. 50 percent leveraged, are they going to treat the owners differently?”
They are, he said.
Not all commercial real estate segments are hurting, Speed noted. “Right now, obviously retail is greatly impacted, both nationally and locally,” he said.
But that has not trickled down so fast to metro Jackson’s office and industrial, according to Speed. “Office has not been greatly impacted; The warehouse market is actually strong,” he said.
Just where the breaking point among tenants, landlords and lenders rests is a big unknown, Speed said. “If I knew a simple answer to that question, I’d be on Hannity tonight,” he said, referring to Sean Hannity’s Fox News television show.
What is known, Speed said, is that when the light returns to green for the Mississippi economy, consumers will be eager for the things they’ve gone without. “I do think pent-up demand is going to generate a lot of revenue for a lot of businesses,” he said.
“Everybody wants to get out and spend some money – if they have some.”
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