Help for Landlords amid the COVID-19 Crisis

Being a landlord and property owner is not for the faint of heart, and this is especially true amid the COVID-19 crisis. There is hope and solutions available to meet the challenges facing many property owners in today’s landscape. The team at Cerron Commercial Properties & Appro Development has prepared a list of action items and a summary of tools you can use to navigate these uncharted waters. 

How a landlord can respond

As businesses across the country close their doors in compliance with the response to the COVID-19 pandemic, we are starting to see tenants approaching landlords about their rents. If a business if forced to shut their doors, even temporarily, they are having a hard time generating the revenues they once did, and therefore cannot produce rent. In turn, the landlord may have a difficult time paying the mortgage (if there is one), or taxes, or any of the other costs associated with building ownership. No one wants to be in this situation, and all feel the hardship. According to a recent article published by the CCIM Institute, “Guidance for Rent Relief Requests and Other Commercial Real Estate Tenant/Landlord Issues” a variety of options are available for the landlord to implement in situations like the COVID-19 crisis. You may want to consider these options. 

Handsome concentrated bearded waiter swiping credit card through the computer terminal in cafe

Rent Reduction

The landlord can reduce the tenant’s rent for a portion or all of the term left on the lease. The usual forms of rent reduction are to reduce the base rent, operating expenses, or both. In regard to retail, it is possible to convert base rent to percentage rent.

Rent Deferral

In this case, the landlord can defer a portion of the tenant’s rent but would require them to repay the rent deferred at a later time, either in a lump sum or by increasing subsequent payments. A variation of rent deferral could be to cap or set a base year to operating expenses for a short or extended period of time.

Rent Abatement

If a tenant is significantly past due on rent payments, a landlord may agree to forgive a certain amount of the past due rent if the tenant remains current thereafter.

Loan Conversion

Rather than abating past due rent, a landlord may agree to convert the past due rent into a loan payable over time. The tenant would, however, continue to pay the current rent. The loan is then evidenced by a promissory note that is cross-defaulted with the lease.

Application of Deposit

If the landlord holds a deposit, this amount could be credited against the tenant’s current obligations.

Subletting

Bringing in a new tenant (for part of or all of the rented space) could reduce or eliminate the rent obligations while replacing revenue for the landlord.

Data Source: https://www.ccim.com/rentrelief/?gmSsoPc=1s 

*** Keep in mind – a landlord giving any of these concessions should surely be given some consideration as well – so an extension of the length of the lease term is often considered.***

Young female businesswoman in the office

Additionally, we have discussed this situation with many of our clients who own properties and have started a proactive approach to having a conversation with their clients. Some have sent letters to tenants stating some of the following:

  • Acknowledge the times we are dealing with and their value as a tenant
  • Offer solutions, which may include discussions with their insurance company – possible business interruption insurance and similar  experts in their team of advisers
  • Include summaries provided by local Chambers of Commerce or municipalities
  • Discuss what you as the landlord are doing to try to minimize your costs
  • Request that the tenant, after exhausting all options (government programs, savings, lines of credit, etc.), provides documentation to explain their situation

These times are indeed challenging, but as with all successful relationships, keeping the lines of communication open and respectful can be the key to navigating these tough conversations.

Additional Resources

The following are a few additional resources you may find helpful as you work with your tenants. 

Our team is available to help in any way we can. Please contact us with any questions, comments or concerns you may have!

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 Image Credits: Business person with key and business owner in shop via Shutterstock. 

 Disclaimer: Appro Development, Inc. and Cerron Commercial Properties, LLC have compiled the above information from multiple sources and make no warranty or representation regarding the information shared above. You and your tax, and/or legal adviser(s) should conduct your own investigation and research regarding the best course of action for you and your unique business.

Trading Up: The Basics of a 1031 Tax Exchange

Trading Up: The Basics of a 1031 Tax Exchange

A Commercial Real Estate Topic Review of the purpose, rules & options in a 1031 Tax Deferred Exchange

1031 Exchange How to by CERRON Commercial PropertiesI’ll start by saying you should consult with your tax and financial advisors for information on whether a 1031 Exchange is right for you and your financial goals. I can help you find the new property and also help you sell the old property.

A 1031 Exchange can be a great tax benefit for someone that wants to stay invested in commercial real estate and would also like to trade up and improve their commercial investment. Maybe that office warehouse with the low ceilings and dated office finish has become increasingly expensive to keep up and to lease out. Maybe a newer, high clearance warehouse with a beautiful office space and state of the art cabling and communication capabilities is just what your renters are looking for. You’ve just hit on the perfect 1031 exchange scenario. Sell that old building and buy one that fits your goals without having to give Uncle Sam any of your hard earned commercial investment profit.

There are a few things you need to know about 1031 exchanges before you take my advice and call Cerron for your property solutions. So what is a 1031 Tax Exchange? In this article I’m talking about a 1031 (also called “like-kind exchange”) being used to swap one commercial property investment asset for another and not losing 15 to 20 percent to the government in tax liability. In other words, you can change the form of your investment (trade up) without cashing out and being liable for capital gains tax, the tax is deferred.

Sorry, you can’t use a 1031 exchange for personal use. If your spouse would like a bigger, nicer, more expensive house, that’s a personal problem and a 1031 isn’t going to work to solve it. It’s for commercial investment property. There are other rules that apply also. You need to identify your property that you’re selling for a 1031 exchange before you close on it. Then you must submit the replacement property to a qualified intermediary in writing within 45 days. The qualified intermediary will hold the money from the property you sold until you purchase the new property and will facilitate the transaction. You must also close on the new like-kind property within 6 months of the sale of the original property. The IRS gives like-kind property a surprisingly liberal meaning so it may be possible to sell a farm and buy a shopping center. To get the full benefit the new property should be of equal or greater value.

There’s a quick lesson in 1031 Exchanges. Any one of us at CERRON Properties would be glad to help you get more information and help you find the perfect property for your 1031 Exchange.

Thanks,

Dan Huntington

Office Warehouse Space Apple Valley Business Campus

Office Warehouse Space Apple Valley Business Campus

Office Warehouse Space Apple Valley

Office warehouse space Apple Valley Business Campus is a new project in the heart of Dakota County’s thriving city of Apple Valley, MN. The focus for this office warehouse space Apple Valley is as follows:

This project will consist of four (4) industrial buildingd designed to appeal to a broad range of industrial, showroom, office/warehouse and manufacturing businesses.

The product is very flexible and will provide size options from 1,500 to 60,000 square feet. The target market is a business requiring 3,000 to 10,000 square feet.

The owner of this project has had significant experience with this product and has found that this product meets a broad market need. The owner has placed tenants in close to 300,000 square feet of similar product. This type of quality product is not readily available today in the Apple Valley marketplace.

Apple Valley’s strong demographics, public transportation, sound infrastructure and curent lack of this type of product makes Apple Valley an ideal location for this project.

Industrial buildings located at 14607 Felton Court & 14608 Felton Court in Apple Valley, MN, are the first two buildings at this project site. The 14607 building is at two-thirds capacity and the 14608 building has just two spaces remaining.

Response to this project has been tremendous! The uses for these spaces are abundant and could include meeting the needs of: Office/Warehouse, Instructional Athletic, Manufacturing, Distribution, Show Room, Appliance/Small Engine Repair, Assembly /Fabrications-Light, Research Labs, Sign Shop, Storage in Building, Trade Schools, Machine Shop, Millwork, and Cabinets.

Additional building features include:

  • I-2 zoning
  • Drive-In Doors – 12’ wide X 14’ High
  • Dock Door (14608 available in the 5,000 or 10,000 SF options)
  • Built Out Office
  • 120/208V of 200Amp Power Service
  • 14608 Felton Court equipped with 480V Power Service
  • State of the Art Communications
  • Several Size Options Available
  • 18’ 6” Clear Height
  • Forced Air Heat
  • Office – Heat and Air Conditioned

Additional information including a virtual tour of this space, flyers, and a contact form may be found at our CERRON listing page for Apple Valley Business Campus.

This office warehouse space Apple Valley project is developed, built and managed by Hebert Properties and is marketed and leased by CERRON Commercial Properties, LLC who may be contacted by email at brucer@cerron.com or phone at 952-469-9444.