As retailers and other businesses seek relief from landlords, one potential long-term fix to rent woes is on the horizon.
Michael Phillips, who leads real estate investment manager Jamestown, told the Wall Street Journal that the days of reliance on standard long-term leases with fixed payments in retail are done.
“The days of being the landlord as an overlord to collect rent are over,” he said. The landlord said he expects to see more revenue sharing agreements and short-term leases as stores reopen when social distancing measures are relaxed. Phillips said Jamestown, whose holdings include Industry City and One Times Square, has set aside $50 million for loans and aid to its tenants.
Revenue-sharing models aren’t new, but they aren’t the norm either. That’s largely due to lenders offering better loan terms for properties with fixed-term leases, as those types of investment are considered more stable.
In recent years, some co-working companies including WeWork and Industrious have shifted from traditional fixed-term leases to revenue-sharing agreements, as have some retailers, hotel and mall operators. At Hudson Yards, many retail tenants, including Neiman Marcus, pay Related Companies a percentage of sales in lieu of a fixed rent.
While some are skeptical, others believe that coronavirus has shown a need for flexibility when it comes to leases. Though rent is a fixed cost, revenues can drop dramatically — as the economic shutdown has made apparent.
“Most epidemiologists don’t believe this is the last” pandemic,” Naveen Jaggi, president of retail advisory services at JLL, told the Journal. “You better build your business plan to accommodate future disruptions.” [WSJ] — Erin Hudson