As Stores Close, Landlords And Retailers Consider How Best To Stop The Bleeding
Retailers across New York City are closing, and amid the uncertainty and the layoffs, landlords are now faced with the choice of cutting their tenants loose, forgiving the rent or putting their faith in the government and insurance to pay them back down the road.
Restaurants and bars in New York City can now only serve takeout, while gyms, movie theaters and casinos have all been ordered to close. Thursday, Gov. Andrew Cuomo announced a new rule that requires companies to only allow 25% of their staff in the office, with some exceptions for businesses he has deemed essential.
Stores, though not legally forced to shut their doors, have been closing across the city — putting both landlords and retailers in a precarious position. Both are hoping that insurance companies will pay out or the government will step in with some sort of relief in order to blunt the economic pain.
"We are listening and tell them we are in it with them," said Marx Realty CEO Craig Deitelzweig, whose company owns about 200K SF of retail space in the city. A few tenants have reached out, he said, but it is too early to say what course of action the company will take.
The retail market was already deeply strained in New York City, with widespread vacancies and multiple bankruptcies forcing closures. Retailers and landlords had been banking on a brighter 2020, with rents starting to come down and experiential and digital-native brands entering the market.
But the impact of the pandemic has been as brutal as it has been swift. Major national retailers like Macy's, Nordstrom, Bloomingdale's and Saks Fifth Avenue have all announced they will temporarily close.
Tuesday, Related closed its 1M SF mall at Hudson Yards, which opened a little over a year ago. Downtown’s Westfield World Trade Center — connected to a large public transit terminal — is still open, though its website notes most of its stores are temporarily closed. Brookfield Place, connected to Westfield via underground walkway, is still open, but with reduced hours.
Most of the stores at Staten Island’s Empire Outlets are now closed, and a spokesperson told Bisnow the new shopping center is “now evaluating how this new measure impacts our outdoor spaces.”
Landlords are facing a complex conundrum: Do they let their tenants off the hook for rent, with the hope it will keep them alive until the pandemic subsides? Or do they force them to meet their obligations, so they can meet their own commitments to lenders?
“I think pragmatic landlords that have long-term tenants with value are willing to work with tenants in the short-term,” Compass Vice Chair Robin Abrams said. “I think we all certainly understand the ramifications, and many tenants are requesting rent waivers, reduction or deferral.”
Most are hoping any landlord and retailer with business interruption insurance will have a claim, though multiple sources said it could come down to nuances in the wording of policies.
Deitelzweig is hoping that if the insurance companies refuse to pay, the government will step in and either provide loans or provide financial relief in the companies’ place.
“We don’t really know the right response at this point. We are listening — but we want to see what is available to [retailers] through other means,” he said. “They are responsible for the rent, but we want them to be successful. We ultimately will have a conversation with them and do what is right.”
The Trump administration signed an emergency aid package aimed at providing support to people affected by the crisis. The federal government also revealed details this week of a $1 trillion stimulus package that would potentially offer $5B worth of cash payments to taxpayers and $300B worth of help for small businesses.
“Basically, there are going to be two options for the landlord — have a tenant in place for after this crisis, or not have a tenant in place,” said one broker, requesting anonymity. “I’m saying [to landlords] there has to be some sort of support.”
Rosenberg & Estis attorney Michael Lefkowitz said that business interruption insurance is generally triggered by physical loss or damage, so it is unclear if landlords or retailers can rely on insurance to cover pandemic-related losses.
“With the current situation with COVID-19 there is no physical loss or damage to the insured property … It comes down to the language of the policies,” he said.
He has reviewed multiple policies in recent days, he said, and hasn't found many where he thinks businesses would be able to mount a case.
“I’m not going to say there’s no chance — but arguably [a health crisis] wasn’t intended to be covered,” he said.
If the government makes a directive, he said, similar to California’s shelter-in-place rule, that may open the door to other claims. So far, Cuomo and Mayor Bill de Blasio have resisted such measures. However, Lefkowitz admitted this is completely uncharted territory for all involved.
“As a firm we were very involved in assessing the insurance in connection to losses suffered downtown as a result of 9/11,” he said. "Never have we had any dealings of anything close to insurance loss and insurance coverage for a global pandemic."