A Message to Landlords

By David Helbraun
on April 24, 2020 in
HEY, LANDLORDS & LEGISLATORS… LISTEN UP!
Dear HL Clients,

Our voices must be heard.  We are too big and too important to be silenced or marginalized. If we can’t get landlords to work with us or legislators to take us seriously, we are going to have to take it to the streets.  No more essays or webinars or Zoom meetings with industry leaders.  We will need to march and strike and protest and shut down our delivery service and take over the news cycle until the government helps us out in meaningful ways that will save us from drowning. 

In the meantime, we are starting to get into it with landlords and we need them to understand where we are coming from so we are at least speaking the same language.  So, landlords and your attorneys and our dearly elected, here is the restaurant and bar industry.  Raw and unplugged.

We kept you all anonymous:

“I have been a tenant for years, never late, never an issue and now that I was forced to close and have no income you are going to break my balls. Get your head out of your ass.

“Our landlords need to start organizing the real estate industry to support our industry. Based on current federal aid, we aren’t going to be able to pay rent. It’s just a fact. Let’s stop fucking dilly dallying around and do something about it. Our landlords have three choices: 1) let us not pay rent, eat the loss, and hope we are in a position to remain viable to reopen 2) let us default and leave, which means they still need to eat it, since they aren’t going to find new tenants for years, or 3) put everything on the line and support our efforts for SUBSTANTIAL governmental aid which can be used to pay rent. The real estate lobby is very powerful. They need to wake up and realize that commercial properties are going to lose tens of billions, if not hundreds of billions, in rent over the next few years unless there is government intervention.”

“Your best bet is me especially as I have been running a place in your location for 7 years, your safest bet would be gambling your money on me, give me a chance to survive this year and then it’s back to normal, no one will rent this place out for the rest of 2020 if we are gone.”

Let’s cut the crap and get real. We are all in this together and for the good of being a human and our community let’s talk about being fair, this is not our choice!I hope and pray that you (and all other NYC landlords with hospitality industry tenants) will stand up and face the music NOW. You have a clear choice: either treat us restaurant and bar tenants like long-term partners so we can survive and evolve together over the coming months and years to whatever the future of our industry looks like, OR suffocate us now, send us into insolvency in hordes, and prepare to have your ground-floor spaces vacant for God knows how long. If you don’t man (and woman) up to the new economic reality now, then you’ll be in for a rude awakening several months down the road, when it’ll be too late. So save yourself the pain and do the right thing now, for yourself and for us.”

“The rent needs to be a % of our seating capacity. If we are only allowed takeout, no rent. Once we are at 20% capacity, that’s the amount of rent we should pay. We cannot be expected to make ends meet with a brand new business model we did not budget for.”

“GFY (go F**k yourself). At this point, they used the usual “muscle” playbook to intimidate me – (1) We need to see your PPP financials so we can secure our portion. (2) We will gladly take you to court when this is over (3) We definitely want to see your personal financials so we can secure the difference that is owed to us. (4) You bounced back after Hurricane Sandy and this will be just like that. My honest response was – “go ahead and take me to court, you can happily join the huge backlog of cases and I’ll gladly wait for you to tell a judge that I’m fleecing you. Additionally, if you think this is comparable to Hurricane Sandy, you’re more dumb than I thought.”

“Would you consider doing food barter in exchange for rent for the next 3- 12 months?”

“Why shouldn’t you suffer like us? If I am losing more than half of my revenue for the year, why shouldn’t you? Why do you feel like you deserve 50% now (while I am closed) and the remainder before the end of the year? Crazy!”

Please work with us to accept 10% of our gross sales once we are able to reopen for a year to two years and take the current rent we are all behind on and amortize it over the last two years of our leases (extend the leases those two years if needed). This will mean we are in this together and if sales go back to normal many will make more than the current rent but stay in line with what’s manageable for restaurants and bars.”

“The current commercial real estate environment in New York demands a new value proposition. Win-Win – Landlords have to accept percentage rent that is fair and data-based. I am ready to enter into that and work hard to restore revenues. In order to work hard in an environment of such severe uncertainty, the burden of good guy personal guarantees, and threats of litigation must be put aside. If that is not acceptable, then release my business from ongoing rent obligations, and we move on.”

“I would like the landlord to be a Good Guy allow me to be able to exercise my Good Guy guaranty without the fear of being personally liable for costs like the total sum of rent that would have been due to the landlord for the remainder of the lease term, the landlord’s attorneys’ fees, or brokerage commissions. Now that’s what I call relief!”

“I want my landlord to know that I, in good faith, agreed to personally guarantee the lease when I was in control of my own business, in control of it’s success, in control of our revenue + our ability to pay rent. I am no longer in control, I have no ability to change what’s happened or how to recover. I want to ask “will you really come after my family and me personally after all of this?” I want to ask “do you understand I am giving up a dream, one I’ve worked at for years, do you see the pain on my face, the disappointment in my posture? Do you see the utter fear in my eyes that not only will I lose something that had a real shot of succeeding, but I’ve put my family at risk by believing in it”. I want to beg: “please forgo the personal guarantee, keep the security, keep the last months rent + up front rent paid, let me walk away head down but back to my family, let me look them in the eyes and say “we will be ok”. I beg of you to please not take the only think I have left, my personal life, please, I beg you.”

“Take your keys back!”

“I see no reason to speak anonymously and only to speak frankly. It’s not like there are any secrets as to the climate in here or out there. This is maybe a one-off case (with NY landlords) where our honest and direct message will speak the loudest. We recognize our obligation to our landlord – and it gets tougher everyday. My best path is direct, diplomatic, to the point, offering alternatives to our current lease obligations, sharing the facts and making clear that without their willingness to bend a little, they’re gonna have a set of keys sitting on an empty table. As the famous concert promotor Bill Graham said, “It’s not the money, it’s the money”.

“In the next few weeks and months, this will really be a 100% renters market. Happy to stay and try to soften the blow for both of us, but we need to work together 100%. Here is the only thing we can do. 7%-8% of sales until there is a widely available treatment or vaccine and things return to a resemblance of normality.”

“If I’m taking a hit by being closed and having my occupancy limited by the city, why the hell are you not taking a hit on rent. Clearly the sq footage you rented me is only half usable space. why am I making you whole for lost revenues over the next year, nobody is making up my lost revenues for being closed.”

“I get it. You have all the leverage. But that doesn’t mean you need to use it all. I could wax poetics about how you need us and how were all in this together, but frankly, if you cared, rates wouldn’t be what they are, good guys would actually be good, deal structures would be different, escalations would be more favorable, and more than just insurance, you’d actually be responsible for your asset and not pass it all through to me. My Request: On the other side of this there is an infinite amount of possible outcomes. For the sake of all of us in NYC, I hope that you choose one of rebuilding together and not one of deeper applied leverage. Leverage over us and leverage over your finances stretching you too thin to make better long term deals. I hope that leases get shorter and less punishing. I hope that when we add value to the neighborhood, and thus your building, that we get some of that value as an offset of future rent so we can actually see profits go up. I hope that you’ll also take a chance on a small businesses that won’t be able to provide a corporate guarantee. Small businesses are going to need you. To restaurant people: You are not picking a space, you’re picking a person. If you don’t want to have asshole kids, don’t marry an asshole. If you want a good outcome in your lease, pick a better landlord. You actually have a choice in this next time around.”

“I have heard many other landlords were able to get a mortgage deferral for 2-3 months and are passing along either a deferral with lease extension accordingly. I understand this is also a business but how much can actually afford. What more assistance would you need from the government to bring this closer to zero?.”

“Dear ____, Please allow us to start by expressing under these most difficult circumstances, we hope that you, your families, and colleagues are safe and well. During this troublesome time we understand landlords and tenants are both fully effected. We know you have financial responsibilities and we are committed to our partnership with you. Although we are closed we will send 25% of rent for April and May in good faith. If we receive the PPP loan we will pay more but we need your forgiveness as well. We need your help getting through this difficult time or we do not know how we can re-open again. We have invested a lot of time, money, and energy in making this business successful and want to continue for many years to come. We understand that you are not willing to give any forgiveness at this time. And why would you? The federal and state government have given small property owners like you zero forgiveness. It must be very frustrating to watch your Industry City neighbors receive substantial funding based on their much larger contribution to jobs and the economy while your needs go unheard. We too feel abandoned at this time while our banks that we have been loyal to for decades are not able to even pick up the phone more less process the application we have filed with them. We are very scared, tired, and left with a feeling of hopelessness. If you could offer the smallest show of good faith in our business and partnership it would go a long way. We need the strength to fight the battle ahead of us and come out if this pandemic stronger than ever.”

“Deal with the reality that the rest of us are; we’re never going back to ‘normal’. You have two options: actually partner with me on a percentage rent deal or chase me in court and then in bankruptcy court. I’m fucked. You’re fucked. We’re all fucked. The sooner we all realize that and work together, the sooner we can all start sorting out the future.”

“Do you have no sense of decency? We pour thousands of dollars into your coffers monthly without interruption and you show us only indifference and the face of your lawyer.”

“I have already told him that it’s not right that I should be shut down and he and his bank still get to make the same amount of money as before. What I would not say but would like to is “we’ll let a judge decide if you get paid in full”.

“For the past 7 years, we’ve followed the rules. We’ve paid our rent on time. We’ve taken great care of our space, even through it’s not truly our own. We’ve done our best to take all the antagonism, the cheap repairs, the passive aggressive behavior, the surprise bills in stride and appreciate that we have a place to practice our craft. But really? This has not been a partnership, this is not a business relationship. We’ve very good at dealing with people where we have a mutually beneficial scenario. But for some reason, you feel like we owe you and you can torture us because of it. You, sir, are and have been been a bully. The things that could have been handled face to face honorably now go through lawyers. The ill will runs so deep that even if we we got all the funding and help to reopen we needed, it might be easier to just walk away clean because dealing with you has been so incredibly painful. My question is why? Why do you think it’s OK to treat people the way you do? Why do you think it’s OK leave the building a mess, why is it OK to bill us for thousands of dollars worth of things that are your responsibility? Why is it OK to deny your obligation to take care of the building? And how could we possibly trust that in the future you’d behave any different than you have so far? What could make me or anyone else possibly want to trust you?”

“We are in this together! Imagine the city scape after all storefronts are empty. Imagine every restaurant shuttered, every mom and pop, every small, independent store. When New York is nothing but banks, drugstores and Starbucks, property values will plummet, your net worth will bottom out. You need us to maintain your portfolios. And we need you to play fair. The burden of this crisis must be shouldered by EVERYONE, not just leaseholders. New York must stand together in every respect, or risk total collapse.”

“Your silence speaks volumes.”

“I would ask my landlord to lower my rent for at least the end of the year”

“Dearest Landlord, As you know, I have written to you pre-COVID to request a more reasonable lease in my opinion. Although you dismiss me as an ignorant little peon, I now think it is time for you to listen to me for once and not your greedy bank account. I have been giving you a way over market value rent for years (235 sq ft) when, as you know, the market value is at the top 150 sq ft.and I have been paying way over the proportionate Real Estate Tax escalation, since you failed to acknowledge a whole separate building in the block and lot in the lease. So, let’s let bygones be bygones and you do the right thing and forgive the rent for the remaining of the year. I think that King Trump and Prince Jared have given relief to the Real Estate Community in the CARES Act so I think that you can give relief to me for once. BTW, I think you won’t be able to enforce the GGG and there will probably be some laws in the works to save restaurants in NYC. Or maybe you prefer an empty space. Sincerely yours, Your Cash Cow”

“I would not speak anonymously to my landlord. I would be early and upfront with my situation and share my personal thoughts. I would tell the landlord that we need to work together to get past these unprecedented times and put together a plan that can give us both the chance of success. Trying to find a new tenant during these next several months will be very difficult. Please help us stay in business by deferring rent and pass through for the next several months and we can work out a payment plan as we move forward and business begins to offer profits. You have my word that any allowable loans we receive will be used to pay rent first to the extent allowed.”

“The US economy is broken. The retail sector is dying. Mom & pops are fighting against Amazon, and independent restaurants are fighting an uphill battle against the headwinds of over-saturation of supply, decreasing demand vis a vis shrinking discretionary income and limited customer ability to pay. Piled on top of this:   Escalation clauses.  Former assumptions of wage growth of the 99% keeping up with costs of living have proven misguided & wrong, and thus make rent escalation clauses in our leases both unjust & potentially enterprise fatal. Landlords can best serve their own long-term interest in recognizing today that keeping good tenants in business (and paying good rent) for decades at a time, provides a better Cap Rate / ROI / IRR than baring the costs of collections/evictions/
vacancies/brokers/attorneys, etc. on an increasingly frequent cycle (i.e.~3-4yrs) via constant pursuit of the greater fool theory of ever increasing rent, and all the labor that goes into perpetuating it.”

“Believe it or not, I’d say, “Thank you. Stay safe.”


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It’s Tuesday, April 28th at 1:00


I hope you all have a chance to do something enjoyable this weekend and take a break from it all.  Remember, we are still alive and in the game and nobody fights harder or has more stamina than restaurant people.  See you Monday.

Good night and good weekend,

David
Written By David Helbraun
David Helbraun is the Founding Partner and Chairman of the firm. He is a lifelong entrepreneur who has been running successful businesses in New York City for years.

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