The coronavirus pandemic is creating unforeseen challenges for companies across the world. Amid this global shutdown, companies have been forced to move their employees to home offices temporarily and lay off employees — leaving companies with significant financial exposure to underutilized real estate obligations. The impact will shift the long running, landlord-controlled real estate market in favor of tenants as landlords battle to keep their real estate leased, stabilize cash flow and keep current on their loans.
There are several strategies to implement quickly if you want to reduce your real estate cost exposure and take advantage of the negotiation leverage that tenants will have in the near-term. To help you understand some of the options, Site Selection Group has identified five strategies that you may want to consider. Our experts can assist you with the evaluation and implementation of these strategies to help you reduce your real estate and operating costs now while tenants have the advantage.
1. Apply for a federal disaster loan under the coronavirus stimulus plan ASAP
The U.S. Small Business Administration (SBA) is about to get significantly more funding authority in order to help businesses affected by the coronavirus pandemic. If you have less than 500 employees, then you may be eligible. You will need to be prepared to apply for this SBA loan quickly. The funds will be available on a first-come, first-served basis. This loan is expected to allow for deferred loan payments for about three months of either payroll and/or operating costs. This could be a huge lifeline to help offset your real estate costs during these challenging times.
2. Negotiate short-term rent reduction
Landlords are just as nervous as tenants right now. If your company goes bankrupt, then the landlord is left with empty space receiving no rent in the middle of a recession. Now is the time to negotiate a short-term rent reduction while you have the leverage. You need to act quickly while the negative market conditions are peaking.
3. Re-negotiate an early renewal of your lease
A more palatable option for the landlord can be to re-negotiate the terms of your current lease in order to reduce your rental rate, receive free rent, and/or reduce your square footage. Tenants will typically request these items in exchange for a longer lease term. These negotiations can yield immediate savings.
4. Access economic incentives such as cash grants, tax abatements, tax credits and training subsidies
Economic incentives are available in most locations. They are typically available at the municipal, county or state level. These economic benefits include inducements such as cash grants, tax abatements, tax credits, sales tax rebates and training subsidies. These are typically offered by economic development organizations in exchange for new jobs, job retention and capital investment. The key items will be job retention in a recessionary economic climate. Our experts can help you to determine if you might be able to obtain these economic incentives by retaining your workforce during these difficult times.
5. Stop paying rent
The last option to consider is to simply stop paying rent. This is a high-risk option that can result in default of your lease and legal fees to protect yourself during the process. We have had clients successfully achieve results from this approach; however, it has to be carefully done. This is an extreme tactic that can work in the right situation, but it is critical to be aware of the risks.
The coronavirus pandemic will change a company’s real estate strategy. The economy is quickly headed into a recession, so it is critical that you are prepared with a real estate strategy that is aligned to your budgetary and business objectives. Our experts are here to provide advice and to help you formulate the optimal strategy to minimize your exposure in these challenging economic times.