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» » Virus Impact on One Landlord: 80% of Its Retail Tenants Missed Rent - The New York Times

Virus Impact on One Landlord: 80% of Its Retail Tenants Missed Rent - The New York Times

In Brooklyn, a nightclub has been closed for two months. In Manhattan, a travel agency says it is unlikely to ever reopen. Both have not paid rent since the coronavirus shutdowns began.

As a result, their landlord, Jane Lok, collected roughly 50 percent of her monthly rent from her six commercial tenants in April and May, a drastic drop-off from normal times. She owes a $20,000 insurance premium this month and a much higher annual property tax bill in July, both of which have caused her to lose sleep over how she will pay.

“I’m just running my numbers and seeing when I will run out of money,” Ms. Lok said. “We are already dipping into savings.”

Across New York City, commercial tenants are falling behind in rent at unprecedented rates as the coronavirus outbreak has caused a nearly complete lockdown of the city for two months.

Residential rent collections have also declined as tenants who lost jobs have stopped paying. But the erosion of commercial rents, so far, is worse and has stripped landlords of their largest source of income every month, especially for smaller property owners, and has started to jeopardize the health of their own businesses.

The cascading impact of the coronavirus pandemic and stay-at-home orders on New York City have reached a breaking point, property owners and developers say. Two months into the crisis, the steep drop in rental income now threatens their ability to pay bills, taxes and vendors — a looming catastrophe for the city, they warn.

If building owners cannot come up with enough money to pay their next property tax bill in five weeks, a deadline the city has refused to postpone, the city will be starved of an enormous revenue stream that helps pay for all aspects of everyday life, from the Fire Department to trash pickup to the public hospitals. It could lead to a bleak landscape of vacant storefronts and streets sapped of their energy.

While landlords have been unnerved by tenants’ rights groups and community nonprofits that have rallied around residential rent strikes, they said that companies with offices or retail spaces have been far more aggressive in skipping rent.

“They are missing the big part of the picture,” said Ms. Lok, referring to the dire conditions in New York City’s commercial real estate market.

The Community House Improvement Program, which represents around 4,000 landlords of rent-stabilized apartment buildings, said this week that among its members who also have commercial tenants, two-thirds of those tenants did not pay rent in April and May.

Nearly 25 percent of its members’ residential tenants did not pay rent in May, up from about 20 percent in April, the group said. Before the pandemic, the figure was around 15 percent in a given month, said the group, whose members it surveyed collectively own more than 100,000 rental units in the city.

“Unless the federal government steps in to help renters and owners in a big way, we are going to see a housing disaster the likes of which we have never seen,” said Jay Martin, the group’s executive director.

Over the past month, some of the largest commercial landlords in New York City have reported steep declines in rent payments from its tenants.

Vornado Property Trust, one of the city’s biggest commercial landlords, said that nearly all its retail clients with the exception of grocery stores and other essential businesses have sought financial relief, such as a deferral on rent payments. About 80 percent of its retail tenants did not pay rent in April and May, its chief executive, Steven Roth, said during an earnings call this month.

Among the company’s office tenants, roughly 60 percent were able to pay rent in April and May, Mr. Roth said. Vornado declined requests to comment for this article.

The company warned investors this month that the drop-off in rent, along with the uncertainty about when the economy will reopen, could create untold consequences for Vornado. Some tenants may decide to vacate their spaces, and the value of its buildings might drop, the company said.

The numbers were nearly as stark at Empire State Realty Trust, another major real estate company that owns the Empire State Building and eight other Manhattan properties. More than a quarter of its office tenants and more than 50 percent of its retail tenants did not pay April rent.

Anthony E. Malkin, the company’s chief executive, said in a recent interview that the company was working with its tenants to find other ways for them to pay rent, such as deferring it to the end of their leases or using their security deposits.

But Mr. Malkin said he was struck by the number of office and retail tenants with healthy finances that simply have not paid. He declined to name the companies.

The Coronavirus Outbreak

  • Frequently Asked Questions and Advice

    Updated May 20, 2020

    • How many people have lost their jobs due to coronavirus in the U.S.?

      Over 38 million people have filed for unemployment since March. One in five who were working in February reported losing a job or being furloughed in March or the beginning of April, data from a Federal Reserve survey released on May 14 showed, and that pain was highly concentrated among low earners. Fully 39 percent of former workers living in a household earning $40,000 or less lost work, compared with 13 percent in those making more than $100,000, a Fed official said.

    • What are the symptoms of coronavirus?

      Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.

    • How can I protect myself while flying?

      If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)

    • Is ‘Covid toe’ a symptom of the disease?

      There is an uptick in people reporting symptoms of chilblains, which are painful red or purple lesions that typically appear in the winter on fingers or toes. The lesions are emerging as yet another symptom of infection with the new coronavirus. Chilblains are caused by inflammation in small blood vessels in reaction to cold or damp conditions, but they are usually common in the coldest winter months. Federal health officials do not include toe lesions in the list of coronavirus symptoms, but some dermatologists are pushing for a change, saying so-called Covid toe should be sufficient grounds for testing.

    • Should I wear a mask?

      The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.

    • What should I do if I feel sick?

      If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.

    • How can I help?

      Charity Navigator, which evaluates charities using a numbers-based system, has a running list of nonprofits working in communities affected by the outbreak. You can give blood through the American Red Cross, and World Central Kitchen has stepped in to distribute meals in major cities.

“They think of this as some sort of field day,” Mr. Malkin said. “I’m shocked, candidly.”

Ms. Lok, who owns two buildings and manages another with two market-rate apartments, said she asked her bank about refinancing her mortgages to lower the interest rates and her monthly payments.

But the bank said no, citing the continuing economic turmoil and the risk of nonpayment by tenants during the state’s moratorium on evictions, which has been extended through the second half of August.

“Our bank is being very cautious right now on commercial real estate lending,” a bank representative told Ms. Lok in an email. “Landlords’ ability to enforce the legal terms of their lease has been completely kicked out from under them.”

Two of her tenants, the nightclub and travel agency, which together pay about 45 percent of what she typically collects every month, did not pay in April. May looks worse, she said, as she is on pace to receive only 45 percent of a normal month’s rental income.

There are alarming signs elsewhere in New York City’s real estate market.

In April, New York City and State collected a combined $78.5 million in tax revenue on the sale of commercial and residential properties, a steep decline from $217.5 million in March, according to a report by the Real Estate Board of New York, or REBNY, a trade group.

Real estate brokers are prohibited from showing homes in person to potential buyers during the lockdown, and just 1,660 residential properties were sold in April, about half of what were sold the month before and in April 2019.

The taxes collected on the sale of properties contribute heavily to both city and state coffers, helping to pay for everyday services like the police and road repairs. The sharp decline illustrates the upheaval in the real estate industry, a significant driver of the region’s economy, and the deepening financial crisis for the city and state.

While rent collections have plummeted, landlords have scrambled in recent weeks to find money to pay the annual property taxes on their buildings, which are due in July. Some say they will not be able to make the payments.

“The real estate sector is the city’s economic engine,” said James Whelan, REBNY’s president. “The pandemic has caused that engine to stall, and we should expect such alarming trends to carry through May and June in the best-case scenario.”

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