How can a business pay its rent when the state orders it to close its doors in a pandemic?
The reality is many can’t in Rhode Island. It falls on landlords, then, to try to work with their business tenants on a realistic plan, according to commercial real estate specialists and property owners.
Commercial property owners and managers say discussions are happening across Rhode Island. In some cases, landlords
are agreeing to defer payments for the next several months, with the understanding that the balances due will come later in the year.
In other cases, landlords expect the rent will be paid, particularly if the business remains open.
In many cases, banks who hold mortgages are providing leniency to the property owners themselves, in the form of a three-month grace period.
Joseph R. Paolino Jr., the managing partner of Providence-based Paolino Properties L.P., has several hundred business tenants leasing space within his properties. While every discussion about a rent reduction, or not paying the rent at all, is a case-by-case situation, he said he is sympathetic to small-business owners.
“This is when as Rhode Islanders, we need to show our compassion,” Paolino said. “For the mom and pops, that small-business person, if they have a restaurant, a beauty salon, a nail salon, a dry cleaner, a pizza parlor, an art gallery, whatever it may be, they are not in business. So we need to understand that.”
‘My feeling is if you are a national tenant, I have a little less compassion.’
JOSEPH R. PAOLINO JR., Paolino Properties L.P. managing partner
Paolino recently hired Bill White, former CEO and president of Coastway Community Bank, to help his tenants complete the application for the federal Paycheck Protection Program, which can allow small businesses to maintain their payrolls during the COVID-19 crisis. Applications have to be made through banks, and not all of them have made the process easy for small businesses, he said.
Barring immediate federal help, Paolino said he’s telling small-business tenants to not let the rent keep them up at night with worry.
“I’m going to the restaurants,” he said. “I’m telling them, ‘Don’t let your rent to Joe Paolino keep you up at night.’ ”
For national tenants, or for businesses that remain open for business, he is less sanguine.
“I have a national tenant in one of our shopping centers who’s open. And they don’t want to pay the rent. I said to them, that is a problem,” Paolino said. “They’re a national tenant. My feeling is if you are a national tenant, I have a little less compassion.”
One of his tenants is Barrington Books, owned by Stephen Shechtman. In business for more than 30 years, the independent store has two locations, the original site in Barrington Square, and a store in Garden City Center in Cranston.
In both cases, the landlords have worked with him, Shechtman said. He called both proactively, including Paolino, who owns the site in Barrington.
While Shechtman would not disclose specifics, he said the resolution doesn’t involve a rent forgiveness, but rather a deferral. In the case of Garden City, the landlord is a large national management company.
For the bookstore, the state-ordered closure has meant business is largely conducted online. It’s now beefing up its website and is taking orders from customers for delivery and for pickup via a drive-up system.
Jennifer Massotti, general manager of Barrington Books, has worked through the crisis. She said the business is almost more customer-focused than it was in the past. She spent a day texting photos of puzzles available in the store to one customer.
For Easter, traditionally a big sales weekend, the store created individualized Easter baskets with a book, a game and a plush animal, and then put them up for sale online. They sold 74 of them.
“In some regards, it’s refreshing. We’re going old school,” Massotti said.
Shechtman said he has had to furlough staff but hopes to bring them back. He has applied for the PPP program. A survivor of multiple recessions, he’s worried for small businesses in the state.
Despite the online sales, and the continued sales to institutional clients, such as schools, store sales are down about 65% since the pandemic appeared, he said. “The retail environment is challenging for small business without COVID-19. Very challenging. This is really, I think a lot of small businesses aren’t going to survive this,” he said.
Given that the rent and utilities are, beyond payroll costs, the most significant monthly bill for employers, landlords need to be realistic, said Neil Amper, vice president of Capstone Properties.
The company manages dozens of commercial properties in Rhode Island.
Some tenants are continuing to pay the rent, as agreed, and others have stopped entirely, he said.
“We have tenants on Thayer Street,” he said of the popular commercial strip in the College Hill neighborhood of Providence. “And the majority of the tenants depend on the students. The students are gone. And … they depend on the school year to get them through the summer, when it’s slower.”
Some landlords have been more generous than others, he said, when giving flexibility on rent payments.
Manufacturers who are Capstone clients are still open, he said. Many retailers are shut down.
[caption id="attachment_328082" align="alignright" width="210"]
THE HANDOFF: Jane Lawton, left, receives a curbside delivery from Barrington Books employee Bill Hartnett in Barrington. / PBN PHOTO/MICHAEL SALERNO[/caption]
Whenever businesses ask for a rent accommodation, Capstone refers them to the landlord. “It depends what type of business you have,” Amper said. “Some restaurants have drive-up. Even with the drive-up, some of them have said, ‘Can I get a reduction in my rent?’ Even if they’re in business. Business may be down, but they’re still doing business.”
One client has a plaza of retail shops in Cranston, Amper said. “He has maybe 15 tenants,” he said. “There are only two paying. Some have called him. Others are not paying.”
Some landlords have the flexibility to accommodate this disruption for months, he said. Others may not. But property owners know that it can be expensive to replace a tenant. And in the current environment, rents for a new tenant will likely decrease. Most landlords will try to keep their tenants.
So far, the discussions over rent that Amper has been a part of have remained calm in a time of crisis.
“There’s no people yelling at each other,” he said. “It’s a period of time where if you don’t have some understanding of it, you’re not very bright.”
Mary MacDonald is a PBN staff writer. Contact her at Macdonald@PBN.com.
