Published by Amy Wolff Sorter with GlobeSt
DALLAS-A March 11 report in the Wall Street Journal noted that locally based Blockbuster Inc. sent letters to property owners, hoping rents could be reduced by as much as 30%. But for a lot of property owners, it’ll take more than a friendly request from Blockbuster, or any other tenant, to consider slashing rents or offering concessions, even in a recessionary economy.
“The initial response to a landlord getting that kind of request is to push back,” comments Reed Sexter, a real estate attorney with the Washington, DC law firm of Shapiro, Lifschitz and Schram, PC. “They want to be shown that the rent reduction is needed. They want financial statements and cash flow projections going forward. They want to see how bad things are, in actuality.”
Weingarten Realty Investors’ Kristen Gandy says the REIT’s MO when receiving a tenant request for some kind of break on the rent is exactly what Sexter describes. Gandy, the company’s director of investor relations, says Weingarten requires three years of sales and tax returns and bank statements for the past three months. Once in hand, all of that is evaluated against the original lease proposal to determine what, if anything, can be done.
Blockbuster, which has stores at approximately 50 Weingarten-owned shopping centers around the United States, was asked for the financial statements following a visit to Weingarten from a representative. The result? “We haven’t heard back from them yet,” Gandy tells GlobeSt.com. Nor does she expect it will happen. “Typically when we ask for that information from tenants, we don’t hear from them again,” she remarks. Blockbuster didn’t return a call seeking comment by deadline.
Sexter, who works on negotiating leases between troubled tenants and property owners, says the landlords aren’t trying to be nasty when asking for financial information. They want to understand that other expenses are being reduced as well. “The landlord doesn’t want to be the easy way, or the only way, out,” he says.
This doesn’t mean that the landlord is unwilling to offer a way out, however. “Landlords are willing to have the discussions. Whether its panic over the idea of losing a tenant or income, those discussions are happening,” remarks Don Edrington, senior vice president with SRS Real Estate Partners’ Denver office.
In some cases, like with the mixed-use Victory Park near downtown Dallas, the owners will actually approach the tenants to determine if a deal can be cut. A spokeswoman with Victory Park says cutting deals with tenants has been on a case-by-case basis. She also acknowledges that for some tenants, cutting rent costs may not be enough to save a business.
Gandy and Sexter agree. Gandy explains that for many tenants, rent is such a low factor in an overall operating platform, concessions aren’t likely to help in the case of serious monetary troubles. Furthermore, “if a rent reduction is just a Band-aid remedy, the landlord won’t be inclined to allow a reduction,” Sexter says.
Blockbuster, which has been closing stores in an effort to boost liquidity, is eyeing some debt maturity later in the summer, which could be what drove the writing and sending of the letters requesting a break on rents. Edrington says he doesn’t necessarily blame the company for trying to cut its overhead through a rent reduction, even though the company isn’t in nearly as bad a shape as other retailers. “It would be a poor business decision for them to ignore the possibility of trying to reduce their rent, especially in this economy,” he adds.