Rent negotiations

Dr. Buck Willis stands outside his RightSize Weight Loss clinic at 6217 Central City Blvd. in Galveston on Wednesday, April 22, 2020. With persistence, Willis has negotiated rent deferral from his landlord, Weingarten Realty, after loss of revenue during COVID-19 shutdowns.

$20 billion question: Retail rents are due. But shopping center tenants have seen little or no revenue for weeks because of pandemic closures and say they’re not in the position to pay them. So, now what? That’s a question landlords and tenants across Galveston County have for weeks been trying to answer, leading to some tense negotiations and hard-won resolutions.

About $20 billion in retail rents were due May 1, according to Forbes. Pandemic or not, landlords say they can’t shrug it off and forgive payments. Nonpayment of rents at shopping centers will jeopardize the repayment of roughly $1 trillion of secured and unsecured debt held by property owners, according to the International Council of Shopping Centers.

“The subsequent foreclosures would result in empty storefronts and vacant shopping centers across our country, leaving an indelible stain on communities,” according to the council, whose membership includes retail and real estate professionals.

Under this harsh reality, tenants and landlords across the county and nation up until even Friday were hashing it out, they said. Although many property owners and tenants declined to comment for this column, here’s a snapshot from those who did:

Two-way street: At The Plaza on Galveston Island, owner Craig Clark is working with retailers, he said. Clark is president of Houston-based Harold A. Clark and Co., which owns the center at 6327 Stewart Road — anchored by retailers Ross Dress for Less and Marshalls. Tenants have asked for everything from paying April, May and June rents over the next six months to not paying for those months at all, which wasn’t an option, Clark said. One retailer wants to spread payments out through 2021, he said.

Clark didn’t want to divulge details about specific retailers and rent resolutions. But he said he has worked to be creative about how and when retailers pay April, May and June rents and has come to agreements with tenants. But flexibility and understanding are a two-way street, he said. He expects retailers to begin paying full rent again by the end of July, he said.

Clark, like other property owners, has his own financial obligations, and the bills haven’t stopped coming in, he said.

“All these decisions have to be run through the lender,” Clark said. “Documents of the loan say we can’t forgive rent without lender approval.”

Luckily, Clark’s lender, Galveston-based Moody Bank, has been willing to work with him, which helps all parties, he said.

“They’ve been really good,” Clark said.

Landlords could take a hard-line approach and demand rent as if the pandemic never happened, but that wouldn’t be wise, Clark said.

Filling shopping centers with replacement retailers isn’t easy, especially as some big-box operators before the pandemic were retreating in a battle with online behemoths. Clark’s family developed the shopping center in 1968. Kmart left in 2003 as it reorganized under bankruptcy protection, Clark said. Ross Dress for Less and Marshalls didn’t move into the subdivided Kmart shell until 2007, he said.

Nothing in the lease covers a pandemic, Clark said.

“They can’t legally not pay the rent, but these are interesting times we live in,” he said.

Meanwhile, it was Clark’s understanding Marshalls and Ross Dress for Less were preparing for Monday openings, he said.

Tense talks: After weeks of strained negotiations, Friendswood attorney and developer Jerome Karam and Houston-based Stage Stores, the parent company of Gordmans, resolved disagreements over the retailer’s request for a steep reduction in rent for the remaining five years of its lease at Mainland City Centre, 10000 Emmett F. Lowry Expressway in Texas City. That was out of the question, Karam said. But on Friday, Karam and Stage Stores agreed on rent payment resolutions both could live with, Karam said.

“I agreed to work with them,” he said. “There was compromise.”

Gordmans will replace Palais Royal stores in Texas City and in Galveston and League City. Karam, who owns Mainland City Centre, a shopping and entertainment complex with a wide range of tenants, including his own businesses and franchises World Gym and Altitude Trampoline Park, declined to give details of the rent resolution.

Stage Stores didn’t immediately respond to requests for comment. Stage had planned June debuts of the Gordmans concept, but last month confirmed the pandemic had delayed openings.

Agreeing to the Houston-based department store chain’s initial rent reduction request would have made it difficult for him to meet mortgage obligations and would have put him in violation of loan covenants, resulting in his lender demanding immediate repayment of principal and accrued interest, Karam said.

Covenants can include such requirements as maintaining adequate levels of insurance, furnishing audited financial statements to the lender and financial ratios that must be maintained, such as a maximum debt-to-asset ratio.

Karam’s lenders are working with him, for which he was grateful, he said.

“I’m happy to work with tenants, but they have to be reasonable, too,” he said. “This isn’t an opportunity to pile on the landlord. There’s not that much margin left — I’m already renting at 50 percent of the market. I have 1990 rents, which is the reason people come to me.”

Elsewhere at Mainland City Centre, Cinemark, which operates a 12-screen movie theater at the property formerly known as the Mall of the Mainland, paid its May rent and will return, Karam said. Cinemark executives have said they were aiming for July openings of theaters, some industry trade publications reported in mid-April.

A weight off: Late last month, Dr. Buck Willis was getting worried. His business RightSize Weight Loss, 6217 Central City Blvd., in Galveston had been closed by the pandemic since mid-March. New patients weren’t walking in the door, which meant new revenue wasn’t walking in either. Willis could tend to existing patients online, but the pandemic closures prevented new consultations and necessary blood work, he said.

He twice asked his landlord Weingarten Realty for rent deferral for April, May and June and twice was denied, he said. On April 17, he sent a letter to Weingarten Realty CEO and President Andrew M. Alexander asking for help. Willis also called state Rep. Mayes Middleton, who made inquiries.

“Weingarten Realty cannot speak to the specifics of a tenant’s lease agreements,” the company said in statement to The Daily News. “However, we are doing our best to help tenants navigate through this difficult time by providing resources and funding programs available to them regionally and nationally. We are also working on a case-by-case basis with our tenants to find a mutual agreement that works best for all parties involved.”

Much also is at stake for Weingarten Realty. The Houston-based shopping center owner, manager and developer owns or has under long-term leases — either directly or through its interest in real estate joint ventures or partnerships — a total of 170 properties in 16 states.

Willis applied for help through federal emergency loan programs but was been denied, he said.

But his persistence finally paid off and this week he reached an agreement with Weingarten Realty that allows him to pay his April and May rent at the end of his lease. Though he had wanted to defer June, he was happy with the compromise, he said.

Willis recommends other tenants work with their landlords.

“Let them know you need help and be persistent,” he said. “We don’t need to burn landlords, either. They’ve got to make their numbers, and we need to communicate for the best outcomes for everyone.”

Coming soon: What’s the return status of Galveston Premiere 11 movie theater? Read all about it and more in next week’s Biz Buzz.

Laura Elder: 409-683-5248; laura.elder@galvnews.com

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(1) comment

Nick Saum

Looks like Palais Royal is dead... https://www.chron.com/business/article/Stage-Stores-Files-for-Bankruptcy-Protection-in-15261132.php?cmpid=hpctp

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