
U.S. retailers plan to stop paying rent to offset virus closures - JumpCrisscross
https://www.bloomberg.com/news/articles/2020-03-24/u-s-retailers-plan-to-stop-paying-rent-to-offset-virus-closures
======
joe_the_user
The economy is effectively frozen. But you have to distinguish the production
process from the monetary, contractual and ownership relations that normally
control the production process. We can continue to produce _necessary_ ,
_essential_ good during this crisis and let the rest of the economy stay
frozen 'till the end of this mess.

The situation should be the equivalent of a war or a different natural
disaster. Essentially, the processes of finance will need to just stop for a
while and then be restarted in a reasonably orderly fashion.

I'm not even sure what everyone howling for immediate and potentially restart
of the American economy is even thinking, obviously they aren't thinking much.
The economy previous are essentially on life-supports but life supports for
the only the rich. Now we basically need literal and metaphorical life
supports for everyone but once the situation is _stabilized_ , the
negotiations begin.

Just think, a robust restart of the economy would be far easier once an entity
to deal with the virus is constituted and can act effectively.

The US economy has recovered from war and terrorist attacks quite well (better
than a lot of times). The government directed the lions share of production
during WWII and things turned out fine. Come on folks.

~~~
nostromo
You can't turn off and on the economy like a switch.

People need to pay rent and mortgages, or loans will not be repaid. If loans
don't get repaid, banks fail. If banks fail, we have another financial crisis.
The last one took a decade to recover from and there weren't even that many
bad mortgages (as a percent of all mortgages).

Businesses right now are eating a bunch of costs. That can't last for very
long before they run out of money, fire everyone, and throw in the towel. They
will not have savings to restart after the closure.

~~~
wegs
Sure you can. You stop rent. You stop mortgage interest. You pause mortgage
principal. You do that across the board for every rental, contract, and debt
obligation in America. In 90 days, it expires, and everything starts back up
again.

[https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3Sjhs...](https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3SjhsZ0ztpG5bMzA3WNbVNhU/edit)

~~~
humanrebar
And how do people who make incomes on collecting on obligations (landlords,
pensioners, etc.) buy _new_ things, like food and medicine?

~~~
ForHackernews
Maybe landlords will need to get a real job. I hear Amazon is hiring warehouse
staff.

~~~
imtringued
That joke isn't funny because it's at the expense of the tenants. A broke
landlord will prioritize living in his own property instead of renting out.

Also, general hate of landlords only hurts tenants because there are actually
quite a lot of very forgiving landlords. My mother owns property and when her
tenant couldn't pay she offered the tenant the option to remodel the apartment
(she paid for the materials) while the tenant was looking for a new job. Well,
3 months/missed payments later the tenant just disappeared and didn't do any
remodeling at all. Needless to say, my mother won't make this mistake twice.

I've met some landlords that are willing to offer special discounts to
families instead of just renting the 100m² apartment out to some single tech
dude who is guaranteed to pay rent. (in rent controlled markets like Berlin
the tech guy always wins)

And those were just the private landlords. Housing association here are
municipal and they basically offer you 10+ year leases where you do everything
yourself, including the floors and kitchen and in exchange the rents are very
low.

Hating landlords and abusing goodwill just makes that goodwill disappear.

~~~
ForHackernews
A broke landlord who lives in his or her own property is also known as a
homeowner.

------
dugmartin
My wife and I just bought a small commercial building 6 months ago (great
timing). We have already offered rent deferment to our tenants (a restaurant,
a bookstore and a few professional offices) with a gradual payback. We are all
in this together.

~~~
sporkland
Honestly curious, but I'm sure it will sound accusatory. They (your tenants)
permanently lose the business for the months the economy is shut down. But you
as a land lord expect to be made whole just over a longer timespan. How is
that in it together? In it together feels like you'd lose some portion of the
rent you are charging or all of it and expect some amount of relief from the
government.

I mostly ask because I'm not fully sure what should be fair for all parties
involved. Restaurants, bookstores and offices shouldn't fail because they can
survive a once in a hundred year plague. Neither should property owners who
are leasing said property. But I don't understand the rules in this situation.
You may be preaching about how you're in it together, but if your tenant goes
under you may be screwed on your loan payments.

~~~
bawolff
There is no magic solution here, all parties are going to get somewhat screwed
by this.

Its not like defering the rent is neccesarily in the best interest (from a
purely ecconomic perspective of the landlord). If you defer rent for many
months only for tenant to go under when this ends (and lets be real, many
tenants are going to go under when this is all said and done), the landlord
would be better off being heartless and not defering rent

~~~
viklove
Sounds like they're not in it together

------
refurb
I'm not sure how widespread this will be, but it will be interesting to see
the impact on commercial real estate in SF and NYC where empty storefronts are
already a major issue.

I'm imaging a lot of businesses were barely scraping by before the shelter-in-
place.

We might see a huge increase in empty storefronts after this passes.

~~~
captncraig
Hopefully the landlords realize there is not going to be anybody lining up to
take over these leases if they evict. Forgiving a couple months so a business
doesn't have to close is almost certainly the shrewd business choice as well
as the moral one.

~~~
digitaltrees
The problem is many REITs don’t care. They are so large and so far removed
from any one property that they would rather it sit empty for years than lower
prices and have that affect the market rate and pull their portfolios average
price per square foot down.

------
zaroth
Epidemiologists have terms like R0, CFR, and IFR to describe the spread and
deadliness of a virus. Similar terms could be used to describe _economic_
contagion.

When parts of the economy seize up, there are systemic risks that can spread
through the system as debtors fail to make payments, causing creditors who
rely on those payments to default themselves to higher level obligations. When
the vast majority of an economy the size of the USA seizes up... we are in
uncharted territory.

The lessor of a commercial storefront can't just "defer" taking rent payment
for a month or two just because they're holding property versus, say, a
corporation that has to make payroll. The lessor has monthly payments of their
own, likely interest payments and property taxes at the very least.

While there are no shortage of estimates (arm-chair or otherwise) for the
ultimate fatality rate the world will see from COVID, there have been far
fewer attempts to analyze the economic fallout of wide-spread suppression
measures like state-wide shelter-in-place orders.

Trillions of dollars in acute losses suffered in just a few weeks will
propagate through an economy, like a virus, and magnify the ultimate damages.
Restarting an economy that has suffered such a shock, like restarting an
electrical grid from a wide-spread outage, is something that requires
tremendous care and effort.

Speaking anecdotally, a SaaS business I work with which runs around ~$1
million in ARR has gone from effectively $0 in Accounts Receivable
historically to over $100k in AR just this month. Every customer with a
payment due has simply stopped paying their bills, as they wait to see how
this will all shake out.

A typical small business will have ~3 months of expenses in the bank. By the
end of April, if customers haven't started paying their bills, the average
small business will no longer exist. The total economic impact of small
business is no less than 50% of all US employment. Experts are predicting we
could see _30%_ unemployment next month, which equates to roughly half of all
small businesses caving.

------
henrikschroder
“The court system is just going to get flooded with a million of these
disputes between tenants and landlords,”

I'm absolutely not a big fan of collectivism, but sometimes, individualism
just doesn't work. Sometimes, you have to step in and solve problems
collectively. No, it won't be fair, yes it will be one-size-fits-all, no you
can't please everyone. Suck it up, buttercup.

Whether you like it or not, we're in this current shit together, all of us.

~~~
wegs
No, there is a one-size-fits-all solution.
[https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3Sjhs...](https://docs.google.com/document/d/1YbtJGn7ida2IYNgwCFk3SjhsZ0ztpG5bMzA3WNbVNhU/edit)

Stop interest on all loans for 90 days. Defer principal on all loans by 90
days. In 90 days, payments start up as before (and just end 90 days later).
Same thing bubbles for all contracts. Leases and rents are free for 90 days.
Contracts switch from net 30 to net 120 terms. Etc.

You pause the cycle of debt.

It works for home mortgages, small businesses, airlines, and almost everyone
else. And it avoids the need for a 2 trillion bailout / stimulus package. It
allows much more targeted aid at a fraction of the cost.

It ain't rocket science.

~~~
nostromo
This is a recipe for bank failures and a financial crisis.

~~~
wegs
Why?

Banks get payments 3 months later. They can also get 0% interest loans from
the fed.

Why do they fail?

~~~
imtringued
You just said there should be no stimulus package. Why did you suddenly change
your mind and say "We can shift the problem to the banks and then give the
banks a stimulus package"?

It feels very weird. Why does it matter whether businesses or banks receive
the 0% interest loans? It's just a shell game. You didn't solve anything but
yet you make your own solution sound better.

------
charia
I used to criticize the big tech companies for stockpiling dozens of billions
of dollars instead of investing them into their businesses, but it's only now
I can see why a move like that was wise.

If at all possible, businesses, like people, should keep a rainy day fund. I
wonder if all the companies that used their money for stock buybacks are
kicking themselves in the foot right now.

~~~
JMTQp8lwXL
It's easier to stockpile billions of dollars when you have no idea what to do
with it. The typical business does not have this luxury. Some tech companies
are worth more than some country's GDPs. This advice is analogous to a
billionaire telling a minimum wage employee to save more.

~~~
thaumasiotes
> Some tech companies are worth more than some country's GDPs.

This doesn't mean much. Plenty of people are worth more than some countries'
GDPs. Wikipedia's list of countries by GDP goes down to US$42 million.

~~~
wyre
>This advice is analogous to a billionaire telling a minimum wage employee to
save more.

------
Wowfunhappy
Realistically, who else is the landlord going to rent the space to right now?
Seems to me it's in the landlord's interest to corporate. All lessees are
going to be in more-or-less the same boat.

What surprises me is that they didn't just work this out quietly...

~~~
avalys
Yes, this is a critical point. It’s one advantage of the fact that this is
happening simultaneously across the whole nation. The entire commercial real
estate market has no choice but to work out a single solution of some sort.

“If you owe the bank a million dollars, you have a problem. If a million
people owe the bank a million dollars, the bank has a problem.”

The problem is, the landlord probably has a mortgage, and their mortgage has
been securitized just like everything else. So modifying the terms probably
has more of a ripple effect than you’d think. And who knows who is left
holding the bag when thousands of commercial mortgage-backed securities
suddenly get down-rated and start to default.

------
naveen99
Real estate is next to fall. The bailout will need to be like 10 trillion
there. Too much leverage out there on a useless resource (congested land) in a
world of remote knowledge work and people scared of physical contact due to
ubiquitous viruses. Let all the leverage / bags go to the fed and let it
slowly deleverage itself over 10 years.

~~~
naveen99
With real estate, places like India are much less leveraged and their economy
more resilient. Most people own their land outright because they didn’t want
to get a loan and have to pay tax on it.

------
nickpinkston
For commercial landlords, we should probably let them stop paying their
mortgages, etc., and then the Fed can give 0% loans to the banks who hold the
other side of those loans.

It's the ciiircle of cash!

~~~
digitaltrees
That’s an awesome idea. You should write a more concrete proposal and send it
to the fed. I have a few friend there and and some of the larger REITs. I’d be
happy to help get it in the right hands.

~~~
ficklepickle
It is concerning to me that employees of the fed and REITs operate in the same
social circles.

~~~
novok
Finance industry people know other finance industry people, news at 11!

------
anonsubmit2671
Corporations should keep paying to entities who don't have as much wealth as
them. For some people who aren't extraordinarily rich, it maybe their only
source of income.

~~~
charia
You realize that the retail business can be quite difficult and that a
monthlong shuttering can and will drive many into bankruptcy. Rent payments
without income will put the nail in the coffin for many businesses.

I do agree with your sentiment. Paying their workers who are probably
struggling significantly at the moment would be ideal. I don't feel that
landlords need the $'s as much as those workers.

~~~
XMPPwocky
> a monthlong shuttering can and will drive many into bankruptcy.

They should have saved up- a decent emergency fund is three+ months of
expenses, or so I'm told.

In a better world...

Didn't save up? You lose your business. Either it goes under or you sell it at
fire-sale prices to somebody who has the assets to keep it afloat until things
stabilize (possibly the government).

Your workers? Of course, the government will support them as individuals. And
you, too! You won't be homeless or starving, even if your business fails
completely. You just won't have your business anymore.

"But what about startups or very small businesses who haven't had time to
accumulate enough capital to survive this?" Then you do what you usually do to
turn a rare risk into a predictable expense: buy insurance.

~~~
digitaltrees
But everyone will end up poorer if we let mass bankruptcy to wash over the
economy. Many of these SMBs and large corps took years to establish and have
domain knowledge, trained work forces, supply chains that can’t just spin up
easily. A little collective sacrifice and collaboration goes a long way when
everyone is sinking together.

~~~
XMPPwocky
> Many of these SMBs and large corps took years to establish and have domain
> knowledge, trained work forces, supply chains that can’t just spin up
> easily.

And the value of all that will help get them a higher price when they sell the
company.

Investors too scared to snap up these bargains? Cool- the government buys it
and nationalizes it.

A little collective sacrifice and collaboration goes a long way _all the time_
\- not just when you get run over by the steamroller you were picking up
pennies in front of.

~~~
digitaltrees
In normal times we have the bankruptcy courts to facilitate an orderly wind
down and prevent fire sales. Its called the automatic stay, it prevents
creditors from taking any action against a company in the zone of insolvency
to seize assets, restrict credit or in any way gain a first mover advantage.
In a crisis of the current scale, the normal system can not handle the volume
of bankruptcies.

I would be ok with the government buying companies to preserve value but most
American leaders are morally opposed to this type of intervention so it is
basically impossible to do what you're suggesting.

------
whelming_wave
Since we're seeing business in a rent strike, I wonder how well a rent strike
would work for the average citizen.

------
x2f10
Is it the government's job to hold the proverbial hot potato in events like
this?

~~~
toomuchtodo
Requires Congress to act, as they have fiscal policy authority (versus the
monetary policy authority granted to the Federal Reserve).

If neither are assisting, you have to play hardball yourself. Banks and
commercial REITs have more to lose right now than retail tenants, hence why
those businesses are firing the first shot and putting their offer to
landlords on the table. “Pray I don’t alter the deal further”

This does not work for residential leases.

~~~
lainga
Did the recent money-market bailout fall under the Fed's remit? Yes, the
mechanism was different, but they were basically acting like the FDIC in that
they were rescuing household savings.

~~~
toomuchtodo
In times of crisis, folks are going to argue any actions the Fed takes are
within their remit [1] (accepting equity securities as collateral for short
term cash through a primary dealer facility?). The vast majority of households
do not use a money market fund; their savings are in FDIC deposit accounts or
credit unions.

If you want government insurance, use a government insured account, or let’s
do away with the idea that some types of assets will be allowed to fail; the
Fed will simply step in and backstop the entire economy with “unlimited
support”.

[1]
[https://www.federalreserve.gov/newsevents/pressreleases/mone...](https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm)

------
toomuchtodo
Off topic: @JumpCrisscross I love these economic related posts you continually
submit, please continue!

~~~
JumpCrisscross
:)

------
LAGalNYStyle
My bff’s store stopped paying rent. We were surprised when her landlord said
that she can pay when taxes are due.

------
aaron695
> U.S. Retailers Plan to Stop Paying Rent to Offset _Virus_ Closures

I see clickbait titles are having to battle filters

------
_bxg1
All rent should be suspended, across the board, for everyone. Rent is a
passive expense that businesses and individuals alike who are not getting any
income right now will have no hope of paying.

~~~
arkades
Not all rent is giant corporations. My mother is a retiree who basically pays
her living expenses every month by renting out the first floor of her two-
floor home. "All rent should be suspended" would drive her into bankruptcy,
and ultimately leave both her _and_ her tenant without a place to live.

~~~
bsanr
Under the circumstances, the only living expenses should be gas and food. If
someone who _owns hundreds of thousands of dollars worth of capital_ doesn't
have enough money set aside to weather a bad month, hopefully they've been
kind and fair enough to their tenants to receive help, or have supported
community efforts to help feed those in need and can receive support in turn.

Like, this is why people need to be active participants in their interests,
and in the things around them.

~~~
arkades
Calling it "hundreds of thousands of dollars of capital" somehow makes it
sound like massive wealth, as opposed to the single accumulated asset of a
lifetime of lower middle-class labor.

~~~
bsanr
It's not pennies, and it's supposed to be evidence of fiscal sophistication.
That's what Capitalism is marketed as: the people who are most responsible and
talented gain the most wealth. Are you telling me it's not true?

------
bsanr
>Offered

>Deferment

>We are all in this together.

Not quite sure how these square.

~~~
marcus0x62
It seems like a pretty reasonable offer — if you understand how rental markets
work.

Landlords take on the substantial risk of long-term ownership, maintenance,
and uncertain market demand for their product. Operating costs —- that’s
excluding financing costs — typically run 45% of rents. Tenants usually, but
not always, pay a higher rental rate than the equivalent ownership cost but
have no obligations and no capital commitment beyond the term of their lease.
Think about the tenants the OP listed — a bookstore and a restaurant. Do you
honestly think someone would start a bookstore or a restaurant if their only
option was to buy a building to operate in? The time option is of a huge
benefit to the typical tenant and, of course, like anything it costs
something.

Of course, there are some terrible landlords out there, but if they were all
so bad, tenants would band together and jointly purchase property as a co-op.
That this doesn’t happen on a broad basis in the commercial property market
even in markets where there is availability of small to medium spaces at
relatively low cost tells me the tenants _are_ getting something valuable out
of the arrangement.

~~~
bsanr
The business 101 was unnecessary.

What matters in this scenario is that these businesses are under government
order not to operate. They are unable to make money. Deferment, then, amounts
to a catch-22: pay now and go bankrupt; defer, have finances hampered well
into the future, and still go bankrupt; or break the lease, shutter the
business, and start up elsewhere. The building owner loses a tenant should any
of these scenarios play out, and only receives income in the first (wildly
cynical) two.

The proper thing to do would be to either waive rent, ask for a percentage
relative to the business that could be completed, or to automatically defer
payments if they don't arrive on schedule.

You can understand why some would find it unconscionable to insist on anything
resembling business-as-usual during this time. Capital owners should be
expected to be active supporters of their community interests. If not, I'm
unconvinced that they shouldn't simply be chucked out with whatever charity
proffered; what good are they?

