As the year begins to come to a close, many commercial landlords in Texas and across the nation are still coming to grips with how they will be able to make ends meet. Many commercial tenants are not making timely rent payments, and with the holidays fast approaching it is unlikely that any government relief will come prior to 2021. Now landlords are facing another pertinent issue – whether or not they will be able to make mortgage payments to their lenders through the winter months.
Commercial Landlords Face Difficulties with Both Tenants and Lenders
While landlords are often depicted as large conglomerates eager to squeeze struggling tenants for funds, this couldn’t be further from the truth – especially in 2020. To the contrary, a great deal of commercial landlords are actually small mom-and-pop operations that rely on the proper and timely payment of rent from their much larger tenants.
Unfortunately, the ongoing COVID-19 pandemic has spared no industry in terms of its effects on businesses and their ability to remain in operation. These stakes are extraordinarily high for small commercial landlords, as many have been struggling with tenants who either stopped paying rent or abandoned their leases altogether. Now, with the holiday season around the corner, many commercial tenants that were able to make rent payments through the use of government stimulus packages like the Paycheck Protection Program (PPP) are reaching the end of their stimulus funds. This fast approaching reality will leave small commercial landlords out in the cold, as it is unlikely that a new aid package will be available before the end of the year. Because of this, many landlords have turned to taking loans from relatives or dipping into their personal savings in order to meet mortgage payments, as it is unclear whether or not lenders will be able to continue to support their growing financial needs.
Although some landlords have been able to work with their commercial tenants by allowing for more flexible lease terms or dropping rent rates, the continued effects of the pandemic are costing them. In August, hotels had a nearly 23% rate of delinquency (or 30 days overdue) on their loans, while the retail industry had a 14.9% delinquency rate. In September, the Commercial Mortgage-Backed Securities (CMBS) Delinquency Rate fell to 8.9% and the Special Servicing Rate designed to help commercial loans rose to 10.48% that same month.
Commercial Landlord and Lender Relationship Amid COVID-19
Typically, a commercial landlord serves two entities when entering into a new lease – the tenant and the lender. The tenant serves as the economic driver of the lease, as the rents they pay provide revenue from which the landlord and lender are compensated and operating expenses, taxes, and insurance are paid. Essentially, the income from the commercial property serves as the funds to pay off the mortgage with the landlord’s lender. The stream of rental income provides the overall basis for valuing a commercial property and the underwriting of it by the lender. Without this consistent stream of income from tenants, however, the landlord cannot pay the lender, making for an unfortunate situation amid COVID-19.
Additionally, most commercial landlords have mortgage loans, which must be paid off in order to avoid foreclosures. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provided no mortgage loan payment moratorium for commercial landlords unless their loans were federally backed. Because of this, many small commercial landlords are stuck with tenants who won’t pay rent and lenders who require timely loan payments.
As these trends are likely to continue into the New Year, it’s pertinent that commercial landlords who are struggling with obtaining timely rent payments from their tenants consult a commercial lease dispute attorney.
Commercial Lease Dispute Attorneys
Commercial landlords have faced countless challenges throughout the coronavirus pandemic. As businesses continue to wrongfully forgo making timely rent payments or abandon their leases, commercial landlords are forced to struggle with lenders to make mortgage payments and provide for themselves. Because these instances are so complex yet becoming so common, they require the knowledge and experience of a commercial lease dispute attorney.
At Raizner Law, we understand the plight that commercial landlords in Texas and across the nation are facing. We have years of experience representing commercial landlords and will help you fight for the compensation you deserve. If you are a commercial landlord dealing with a large national tenant that is refusing to make rent payments at the expense of your business, contact our office today to see how we can help.