Doing the Right Thing

Published May, 17, 2020

Holly Gardner, President

We hear it all the time… “Just do the right thing.” It sounds so simple, but it’s not always black and white. Sometimes the right thing for one person, is not the right thing for another. I think many of us in commercial real estate are facing that dilemma on a daily basis right now. Contrary to popular caricatures of our industry, we are not soulless greedy individuals.  We care – about our communities, our cities, our employees, our constituents. However, the problem is, the needs of our constituents do not always align. What our tenants need right now and what our investors need right now are two very different things. But each need is just as important as the other. So how do we do the “right thing” for both?

We have an obligation to do everything within our power to deliver returns to investors. They have entrusted us with their very hard-earned money and it’s our obligation to safeguard it. We are a fiduciary first and foremost.

We are also a Landlord. We have tenants whose businesses are struggling to survive in this economy. They’re turning to us for assistance when they can’t find any other way. Some have been lucky enough to receive government funding to help them survive in the short term. Others were not so lucky and they’re in a position of ongoing expenses with limited-to-no income.

So, what’s the answer? What’s the right thing to do? How can we help?

For those of you holding your breath in anticipation of finally learning the secret to solving this dilemma, you can exhale. I don’t have the answer. At least not ALL of the answers. Each and every circumstance is unique. There is not a one-size-fits-all approach.

As with all problems that need solving, it should start with communication. Pick up the phone and talk to your tenants. How are they doing? Where and how are they struggling? What are their plans? Be sure to also keep your investors informed of your actions and positions. Lack of communication breeds fear and uncertainty.

Once you have that information, search for the balance. Without tenants, there is no income and the building and investment fails. Without investors, there is no money to support the investment. We need to find ways to support one another and encourage mutual success.

I’m seeing a number of creative solutions being put into motion. Some are offering rent forbearance and plan to apply reasonable repayment plans or defer the outstanding balance to the end of the lease in the form of additional term via an amendment. Others, that do not have mortgage or distribution obligations, are temporarily forgiving rent to help their tenant’s stay as strong as possible. There is some contemplation about amending leases to lower base rent and include percentage rent. There are so many creative approaches being utilized, and it’s inspiring to see the industry working together to come up with the best approaches.

For The Schuster Group, that balance means a little bit of everything. Every tenant has unique circumstances and needs, and we are working with them one-on-one to find a solution that works for their situation. Tenants are not being punished for an inability to pay right now and we are letting them know that we are here to help them succeed. If they can pay, even if it’s just partial, we’ve asked them to contribute what they can, and they are.

Our tenants understand that we care, but we also have an obligation to protect the building and that requires funds. Utilities, taxes, insurances and mortgages are not being waived or forgiven right now. Landlord expenses continue with little relief. We’ve been upfront about that and they understand. I’m shocked at how much they care. I see so many stretching themselves to pay us whatever they can so we can pay our obligations.

By taking this approach on an individual level with our tenants we’ve created community investment in the building and its occupants. We all have a common goal. As we slowly reopen our economy, the building will still be in excellent condition, positioning our tenant’s businesses for success as they rebuild. Whatever debt tenants have accrued will be dealt with over a long-term repayment plan or at the backend of their lease term.

With this approach, we’ve created a situation where we are receiving as much income as possible during this crisis, have furthered our relationship with our tenants, created every possible opportunity of success for tenants to rebuild their strength as the economy reopens, and ensured that all of the outstanding obligations will be paid back to investors in time.

This is just one example of finding that balance and doing the right thing by as many of our constituents as possible. This particular scenario works for our current portfolio and tenant base. It may not be the right solution for everyone, but hopefully in sharing our approach, we’ve encouraged creative thinking from others as we all work to solve unprecedented dilemmas without a rule book to follow.

Drastic times do not always call for drastic measures. Sometimes they call for empathy and collaboration. I choose to believe in the communities we’ve created and the constituents we’ve chosen and bet on them. In turn, I hope they will continue to bet on us. We WILL get through this together. By doing whatever version of the “right thing” we can find.

1 Comment

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