The COVID-19 pandemic caused unprecedented economic disruption, as all but the most essential commerce was shut down overnight. The sudden unemployment and business cessation triggered by the shutdown left many residential and commercial tenants unable to pay their rent.
Apartment residents in major metros nationwide have gone on rent strikes, with thousands of renters on the West Coast refusing to pay rent. Mitigation policies were quickly enacted to lessen the impact, including rent abatement and deferral, eviction moratoriums and unemployment benefit enhancements, but more draconian measures such as outright lease cancellation continue to be promoted.
While rent collection is a major concern of property owners, landlords can be proactive in diffusing tension and working toward solutions. Collaborative strategies are an integral part of building better tenant relationships – ultimately securing increased rent collections and sustained occupancy in the future. Here are three ways that landlords can help ease tensions and respond to tenant concerns:
#1- Building Proactive Partnerships
For property owners, collaborative landlord-tenant partnerships are crucial to easing pressure and addressing financial hardships suffered as a result of the pandemic. Communication should be frequent and strive to find a win-win solution for both parties. When warranted, this can include deferring a portion of the rent payment and establishing a re-payment plan in advance or modifying the lease agreement with either a new lease rate, term or both. In some instances, retaining occupancy might be more cost effective than the process of finding a new tenant.
Landlords that took proactive steps to connect with tenants early in the pandemic are seeing stronger total rent collections, and data from Lease Lock shows that while partial rent payments increased, collections were only down 10% and 6% in May and June. Remember, rent deferrals are not permanent, but can help both you and your tenant survive through the pandemic
#2- Invest in Tenant Loyalty
The pandemic is also an opportunity to form stronger relationships with existing tenants that could translate into long-term retention and leasing activity in the future. In the office sector, some businesses may want to forgo office space permanently, but most will need to adjust real estate and workplace strategy. That could mean a large headquarter location turns into several smaller offices, for example. This is an opportunity to partner with tenants to retain that business. Similarly, retail tenants will need to change strategies, as well. Following the recovery, retailers that succeed will be in an expansion mode once again. In all product types, owners with strong tenant relationships are preparing today to have a competitive advantage in the future.
#3- Paying Close Attention to Future Changes
The financial crush of the pandemic catalyzed rent cancelation legislation and eviction moratoriums at the federal and state levels. Apartment eviction moratoriums implemented at the onset of the pandemic, are now being considered for application to commercial properties. SB 939 in California was officially defeated in mid-June under pressure from local industry organizations. The bill would have banned all commercial evictions during the COVID-19 emergency and allow tenants to terminate the lease agreement or renegotiate the lease rate. While rent cancelation measures have yet to be enacted, public support is growing.
SB 939 is a recent example that owners aren’t without a voice. Good business requires active involvement at every level of government. Real estate owners should participate in the process to ensure that any new legislation represents both parties’ needs. Supporting relevant industry organizations will also play a critical role in addressing legislative responses to the pandemic.
Final Thoughts
Real estate is fundamentally a relationship business- even in a pandemic. While there are certainly bad actors in these types of situations, most stakeholders are looking for a solution that, to the greatest extent possible, meets the needs of all concerned.
Communication and collaboration will diffuse distrust, anxiety and help curate solutions that will bridge the shutdown and preserve the landlord-tenant relationship.
Provided By
John Cha
Director of Research
206.248.7338
john.cha@kidder.com