RentPrep Podcast #308

With malls collecting on 10-25% of rent what does the retail atmosphere look like in 6-9 months?


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Show Transcription:

Eric Worral: (00:00)
Hey everybody! Welcome back to another episode of RentPrep for Landlords. It’s episode #308 and I am your host Eric Worral. And this week we’re going to be talking about some recent news focusing around Coronavirus and its impact on landlords and real estate. And we’re also going to be doing a little bit of a dive into the status of rent payments for April and what the data is telling us for that. We’re going to get to that right after this.

Voice Over: (00:26)
Welcome to the RentPrep for Landlords podcast and now your host Eric Worral.

Eric Worral: (00:30)
So I’d like to start off by talking about the status of rent payments in April. So as a recording, this is April 21st so we have had time for people to pay their rent, also to pay their rent a late and just kind of wanted to get an a, a kind of feel for what’s going on out there based on our own evidence and what we are reading up on in other articles as well. So if you’re a part of the RentPrep for Landlord’s Facebook group, you can get to that by going to facebook.com/groups/RentPrep or just searching for RentPrep for Landlords on Facebook for that community. I pinned a post and asked how has rent collection been for April, most of this in April 8th. As of right now about 69% of people said that they had been paid on time. So that was a, let me look at my numbers here. 234 people out of the 338 that answered that poll said that they had been paid on time. So I found that interesting because of that 69% that lines up pretty well with what I’m reading online here. So there was an article by therealdeal.com.

Eric Worral: (01:35)
It’s New York real estate news and it said that rent payments have risen to 84% on this survey as of April 15th. And it’s citing that at the beginning of the month that they found in the first week of April, just 69% of rent payments were made. But those numbers have improved. So, the posts that I put out was on the first week of April and the number came in at 69%. But it’s saying by the second week of April, rent payments Rose to 84% compared to 90% at the same time last year. So typically there seems like there is a 10% that don’t pay on time or pay it all and that they’ve reached 84% for April. I think that may is going to be an interesting month to see what happens just because obviously a lot of things have happened, right? People will have stimulus checks and we’ll talk about that in a minute. They will also potentially now be on unemployment if they didn’t have that set up before. And obviously the unemployment it was pretty generous. But at the same time, if they’ve lost their jobs and they’re looking for months out, realizing that, that federal unemployment is going to run out, they may be thinking about what to do.

Eric Worral: (02:43)
So a little more information on the stimulus checks. So this was brought to my attention by one of our members of the rent prep for landlords Facebook group. Thank you to Joan. And what she said that was happening out in her area in Oregon is that she had, cause she talked with both tenants and landlords. She’s an advocate for both. She does run some educational programming out there and she said that some of the landlords are illegally spying on tenants’ stimulus check statuses. So if you don’t know, you can go to the IRS website and check on the status of your stimulus check and see where it’s at, which I did for myself. And that’s been a mess because I ended up having my bank account hacked last summer. Completely forgot that they’re probably gonna pull your bank account information for the stimulus check to do a direct deposit.

Eric Worral: (03:38)
So that did not go through for me. So now I’m waiting to see if I get a mailed check or not. And there’s no obvious way to contact anybody to ask questions because the government doesn’t want to deal with 100 million questions, which literally they could maybe get 100 million questions. So that’s just a personal aside, but through this tool at the IRS they the get my payment tool, you can enter your social security number and a little bit of information about yourself and see what the status of your stimulus check is. So landlords who are just really, it’s, you know, it’s always the, the few bad apples of the bunch are using this tool to see if their tenants have gotten paid cause they have that information on their rental applications all the information they would need.

Eric Worral: (04:27)
And I’ve seen text exchange where the landlord’s like, Hey, I know you got your stimulus Jack and the person’s like, well how would you know that? Well I’ve checked on this website. You got it. Like on the website it’s asking you those questions to verify your information that you are who you say you are and the fact that landlords are going on irs.gov website to commit fraud, to check a stimulus check a is ridiculous. And it’ll be interesting to see what kind of fines come out of this. I mean I heard one that was seven figures. I can’t imagine that would happen. But if you listen to a previous episode, we talked about a landlord who got a discrimination private landlord, just a few rental properties got hit with $150,000 fine for discrimination. So you never know. But if that is something that has crossed your mind, it probably hasn’t.

Eric Worral: (05:20)
Cause I like to think that people that listen to this podcasts are doing the right things and trying to build their portfolio and work on being a landlord the right way, but don’t do it like so dumb. Please don’t do it. Just don’t do it. Talk to your tenants, communicate with your tenants. Don’t go behind their backs and commit fraud to check on their stimulus jacks high. That comes from forbes.com. Also, there’s an article on there that I’ll link to that is talking about this in further detail. It’s from April 19th, but also shout out to Joan who pointed this out in the Facebook group and private message for myself. All right another article, I won’t go into too much detail, but it’s LA times. I’ll link to it in the description of today’s posts. It’s talking about an editorial. It’s not just runners and landlords need help to if you’re looking for somebody championing for landlords outside of, you know, the Facebook group and this podcast this is a pretty good article. It does kind of rehash on some things that I’ve already talked about on why canceling rent obligations is a bad idea. And as far as the idea that you can have longterm implications, but I just wanted to make mention of it. If you’re looking for some good articles to read it’s a good one. That’s a pro-landlord. Now, what I thought was interesting the real deal is talking about another article from them. Retail landlords are Creating a Blacklist of Tenants Who Are Not Paying Rent.

Eric Worral: (06:41)
So this was posted April 14 and it’s saying that mall owners may declare non-paying tenants to be default after grace period. So I thought this was interesting because we kind of got those numbers around 69 to 84% of private landlords are getting paid, or I just should say my residential tenants are paying. So 69 to 84%. This is saying that a bigger companies such as malls and shopping centers have found that the April rent collection has ranged from just 10 to 25% for mall owners with higher concentration and nonessential tenants to 50 to 60% of landlords with essential tenants such as grocery stores and pharmacies. That’s pretty shocking. When you’re saying that residential tenants are paying at 69 to 84% and that retail tenants in malls are 10 to 25%. So it’s saying that large retail tenants have failed to pay rent and in full include Burlington Stores, Petco Animal Supplies.

Eric Worral: (07:44)
I’m not even sure what that one is. Hennessy Louis Vuitton. I can’t imagine that as one brand. It says LVMH, Moët Hennessy Louis Vuitton, maybe it is one brand Victoria’s secret and Staples. Staples, which has been able to keep many stores open in areas where it is considered as essential as told landlords that it will not pay rent because of a drop in sales. Dick’s sporting goods will not pay rent. It’s stores that were closed due to government orders, but will continue to pay Ryan for stores that are closed voluntarily. So the mall owners have indicated that they planted, declared, non-paying tenants and default and smaller landlords may be more hesitant to confront big tenants over rent payments. So retailers appear to recognize that they have the upper hand, but things could get messy. The retailers think they have leverage here and they’re trying to use it. I have green street advisors, analyst’s Vince to Bowen said, I see it potentially becoming a fight and going into litigation.

Eric Worral: (08:38)
So this is gonna be very interesting to see what the landscape of the malls look like in six months, nine months, whatever the timeframe is. Because we are seeing such a high percentage, very early on of tenants in malls not paying rent. And a lot of them are saying that they’re keeping this blacklist and that they’re gonna, you know, come for their money when the time comes to this. This isn’t necessarily as of right now that you just don’t have to pay that rent. It’s just that you don’t have to pay it for now, but you’re going to have to pay it eventually. So malls have obviously been on the decline for years as e-commerce has risen. And what we’ve seen is that Amazon has had an increase in sales and users during this period as well. And I know I’ve mentioned a lot, Scott Galloway, a professor NYU, I follow his stuff and he said that in a time like a crisis, like this right now is what you see is that things don’t change, but things are accelerated.

Eric Worral: (09:33)
So if there was going to be a push towards remote work, well, something like this accelerates that transition. So maybe what would have taken five, 10 years just like accelerates it and all of a sudden in six months, like you’re like, wow, like 20% more of the workforce is working remotely. Well, I think that’s what’s happening right now is what we’re going to see with these malls is that there was a trend towards people shopping online for the last decade. But you’re gonna see that trend accelerated because when we get out of this, you’re not going to have all those tenants there. So the mall isn’t going to be as attractive to go to cause who wants to walk around a mall that has half of the stores, you know, boarded up and some of the good tenants that you might have wanted to go to, aren’t there.

Eric Worral: (10:20)
And then you’re going to see creative ways that online shopping is going to become even better and better able to suit your needs. So I don’t know what that’s going to create any kind of opportunity for investors. I’ve seen things locally here where they’ve tried to take malls and to kind of convert them into these like, you know, co-living spaces with, you know, these you know, I might have a local market for fresh produce and you know, they’re trying to do these weird, like almost like flea market kind of feel to it, but it’s like these little popup shops, I really don’t know what they’re going to do. It’s just going to be a really large infrastructure that’s half empty. And I mean, it’s just going to be interesting. It kind of reminds me of if you’ve ever read any stories about what happens with the Olympics, if you want to have like, say the Olympics or maybe even FIFA come into your country.

Eric Worral: (11:08)
I know this happened in South Africa. I believe they had FIFA world championship and they built like nine stadiums and now these stadiums, they don’t know what to do with them and they’re, they’re really hard to upkeep cause they’re really expensive. I believe the same thing happened in Montreal for the winter Olympics where they had to build these stadiums and now they’re like, well, what do you, what do you use them for? You know we might have experienced something similar with malls where you just have these massive structures that are really hard to figure out how to use them. But I’m sure they will figure out something. Right. so it’ll be interesting to see what happens with that and how that plays out. And what it looks like in the future. Who knows, maybe you know, people who don’t have garages but have driving cars need somewhere for them to park.

Eric Worral: (11:54)
So they’ll park in these mall parking lots overnight and you pay the owner of that parking lot 10 bucks a month. Who knows anything’s on the table. Right. But I just thought it was interesting to share the statistics on April rent, what’s going on and how much lower it is for retail, especially malls. Hopefully, you’ve gotten your rent paid on time. Like I said, in the Facebook group, we’ve seen about 69% of people say that they’ve been paid fully with a good portion of people saying that some have paid on time, some paid late. So that number is actually even higher than 69%. But it’s tough to kind of dig through that data when people are putting in, you know, multiple options. So just kind of interesting if you guys have feedback on what’s going on with you, what you’ve been seeing with your renters.

Eric Worral: (12:37)
And maybe you have any trends where maybe it’s, you know, different types of renters are paying on time versus others. If I could see it being something where, you know, it’s it, depending on where your location is, you know, I know in the Buffalo market there are areas where it’s common for people who work in restaurants to be renting in that area. So obviously some areas like that are going to be hit harder than other areas where people still have their jobs. So yeah, I’d just be really interested in see how this all shakes out, but always interested to hear what’s going on in your guys’ world. Feel free to hit me up to eric@rent-prep and yeah, look forward to catching you on the next episode of RentPrep for Landlords. Have a great week guys, and take care of them.

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