Taking too long? Close loading screen.
Connect with us

Business

Many Small Businesses Can’t Pay the Rent. A Deal With the Landlord Is Their Only Hope.

Published

on

In March, when the Boston restaurateur Garrett Harker and his partners shut down their seven restaurants after Massachusetts issued lockdown orders, Mr. Harker assumed the closures would be painful but temporary.

Six months later, three of Mr. Harker’s restaurants, including the flagship Eastern Standard — once described as the “perfect restaurant” by The Boston Globe’s food critic — remain shuttered. Mr. Harker and his landlord for those three restaurants are in a standoff: He can’t afford to pay the six-figure arrears he has accrued while his restaurants remain shut, and the landlord, he said, has refused to grant a deferral or discount.

“We’re probably going to lose money for another year to a year and a half,” Mr. Harker said. “It doesn’t work financially to reopen without a new lease.”

Similar sagas are playing out nationwide, as Main Street businesses — especially music clubs, gyms, restaurants, bars and others that were forced to close by the coronavirus pandemic — try to figure out how, or if, they can dig out of debt.

Nearly 73,000 businesses have closed permanently since the pandemic took hold, according to an analysis by Yelp. And the fate of many that remain open increasingly hinges on their ability to renegotiate their leases. A recent survey by Alignable, a social network for small business owners, found that a quarter of those polled had fallen behind on their rent since the shutdowns began. For those in the fitness and beauty industries, the number rose to nearly 40 percent.

The problem may worsen now that an initial flood of federal aid has dried up and a sharply divided Congress has been unable to agree on further relief measures. The government’s $525 billion Paycheck Protection Program gave more than 5 million businesses a one-time cash injection to pay workers and other expenses, including rent, but most recipients have now spent the money.

Credit…Cody O’Loughlin for The New York Times
Credit…Cody O’Loughlin for The New York Times

“For 10 weeks, our revenue went to zero and stayed at zero,” said Rhonda Stark, the owner of three Orangetheory Fitness gyms in Ohio that were shut down from mid-March until late May. Ms. Stark’s collective rent bill, her largest fixed expense, tops $32,000 a month. She hasn’t paid it in full since March. Although she got P.P.P. loans ranging from $45,000 to $75,000 for each of her gyms, most of it went toward payroll, as the loan rules required. Ms. Stark’s gyms have reopened at a reduced capacity, cutting her sales by about 30 percent. To stay open, she needs to strike new deals with her landlords.

Retail rent collections plunged in April to just 54 percent of the total owed, according to Datex Property Solutions, a software company that tracks data on thousands of its clients’ retail properties nationwide. By August, collections had rebounded to nearly 80 percent, but some tenants, like movie theaters, clothing retailers, hair salons and gyms, were much further behind.

“When tenants can’t pay the rent, it imperils landlords’ ability to pay their own overhead and their loans, and the whole thing cascades,” Mark Sigal, chief executive of Datex, said.

#styln-briefing-block { font-family: nyt-franklin,helvetica,arial,sans-serif; background-color: #ffffff; color: #121212; box-sizing: border-box; margin: 30px auto; max-width: 510px; width: calc(100% – 40px); border-top: 5px solid #121212; border-bottom: 2px solid #121212; padding: 5px 0 10px 0; } @media only screen and (min-width: 600px) { #styln-briefing-block { margin: 40px auto; } } #styln-briefing-block a { color: #121212; } #styln-briefing-block ul { margin-left: 15px; } #styln-briefing-block a.briefing-block-link { color: #121212; border-bottom: 1px solid #cccccc; font-size: 0.9375rem; line-height: 1.375rem; } #styln-briefing-block a.briefing-block-link:hover { border-bottom: none; } #styln-briefing-block .briefing-block-bullet::before { content: ‘•’; margin-right: 7px; color: #333; font-size: 12px; margin-left: -13px; top: -2px; position: relative; } #styln-briefing-block .briefing-block-bullet:not(:last-child) { margin-bottom: 0.75em; } #styln-briefing-block .briefing-block-header-section { margin-bottom: 16px; } #styln-briefing-block .briefing-block-header { font-weight: 700; font-size: 1.125rem; line-height: 1.375rem; display: inline-block; margin-bottom: 5px; } @media only screen and (min-width: 600px) { #styln-briefing-block .briefing-block-header { font-size: 1.25rem; line-height: 1.5625rem; } } #styln-briefing-block .briefing-block-header a { text-decoration: none; color: #333; } #styln-briefing-block .briefing-block-header a::after { content: ‘›’; position: relative; font-weight: 500; margin-left: 5px; } #styln-briefing-block .briefing-block-footer { font-size: 14px; margin-top: 1.25em; /* padding-top: 1.25em; border-top: 1px solid #e2e2e2; */ } #styln-briefing-block .briefing-block-briefinglinks a { font-weight: bold; margin-right: 6px; } #styln-briefing-block .briefing-block-footer a { border-bottom: 1px solid #ccc; } #styln-briefing-block .briefing-block-footer a:hover { border-bottom: 1px solid transparent; } #styln-briefing-block .briefing-block-header { border-bottom: none; } #styln-briefing-block .briefing-block-lb-items { display: grid; grid-template-columns: auto 1fr; grid-column-gap: 20px; grid-row-gap: 15px; line-height: 1.2; } #styln-briefing-block .briefing-block-update-time a { color: #999; font-size: 12px; } #styln-briefing-block .briefing-block-update-time.active a { color: #D0021B; } #styln-briefing-block .briefing-block-footer-meta { display: none; justify-content: space-between; align-items: center; } #styln-briefing-block .briefing-block-ts { color: #D0021B; font-size: 12px; display: block; } @media only screen and (min-width: 600px) { #styln-briefing-block a.briefing-block-link { font-size: 1.0625rem; line-height: 1.5rem; } #styln-briefing-block .briefing-block-bullet::before { content: ‘•’; margin-right: 10px; color: #333; font-size: 12px; margin-left: -15px; top: -2px; position: relative; } #styln-briefing-block .briefing-block-update-time a { font-size: 13px; } } @media only screen and (min-width: 1024px) { #styln-briefing-block { width: 100%; } }

For both sides, it’s a complicated dance. Property owners have their own expenses to pay, including taxes, insurance, mortgage or debt payments, and maintenance bills. Buildings owned by real estate investment trusts or Wall Street bondholders have complex management structures and governing covenants that can limit the property manager’s ability to make a deal.

Lance Osborne, the president of Osborne Capital Group, owns a retail plaza in Copley, Ohio, that houses four businesses, including one of Ms. Stark’s gyms. His company has around 150 retail tenants, and he estimates that half have sought rent relief or other concessions.

“Every one has to be handled on a case-by-case basis — no two tenant cases are the same,” Mr. Osborne said. “We’ve always dealt in good faith to try to keep the tenants open and operating. It’s always worth keeping someone, but it has to be an equitable deal.”

ImageDiners at Row 34 in Boston. Mr. Harker's landlord here agreed to slash Row 34’s base rent in return for a higher percentage of its sales.
Credit…Cody O’Loughlin for The New York Times

Eight of his tenants have declared bankruptcy or are on the brink, Mr. Osborne said. He has sued one business — which he described as open and thriving — for nonpayment. For others, he’s gradually negotiating new deals.

Many of those arrangements are informal and fragile. Ms. Stark said she hasn’t signed anything establishing new terms for any of her gyms, which means her landlords could at any time declare her in default and crack down. But so far, each has been willing to take it month by month, collecting some rent and verbally assuring her that they’ll keep working with her.

“It’s very tentative,” Ms. Stark said. “You call them up, you talk to them about what’s going on — I’ve sent screenshots of my numbers so they can see where we stand.”

Ken Giddon, a co-owner of the men’s wear store Rothmans, held off on reopening his flagship store in Manhattan until he nailed down a new lease. The shop hadn’t paid its landlord, ABS Partners Real Estate, since April, and Mr. Giddon didn’t want to bring back his staff and restock inventory if he couldn’t reduce his rent.

Last week, he finalized a new arrangement that involved lowering his base rent and giving ABS a variable payment based on his sales. Such arrangements are common in some industries, especially restaurants, but it was new for Rothmans.

“This is a very handcrafted deal,” said Mr. Giddon, who now plans to reopen next month. “We’ll probably be operating at a third of our previous volume for the next six to 12 months. This arrangement gives us flexibility.”

Gregg Schenker, the president of ABS, said both sides had an incentive to figure out a deal that would keep the business alive. Rothmans, which Mr. Giddon’s grandfather started in 1926, has been an ABS tenant for decades, and Mr. Schenker, who shops there, described it as the kind of unique, multigenerational retailer that he hopes will continue to thrive in New York City.

But not all landlords are willing, or able, to take a haircut. Oren Molovinsky closed his restaurant Farmboy, in Chandler, Ariz., in mid-July for what he intended to be a short break. He hadn’t paid his full rent for months, but he had reached out to his landlord, the Falls Investors, hoping to discuss options. Instead, he got a letter in late July telling him payment in full was due in five days. When he missed that deadline, his landlord locked him out.

“We were surprised they wouldn’t respond to us at all — my attorney didn’t even get a response,” Mr. Molovinsky said.

Credit…Courtney Pedroza for The New York Times
Credit…Courtney Pedroza for The New York Times

The Falls Investors sued Mr. Molovinsky last month in an Arizona state court, seeking at least $110,000 for what the complaint said was unpaid rent. Mr. Molovinsky has told his staff and customers that Farmboy, which sold sandwiches and salads using locally sourced ingredients, will not reopen.

Mr. Harker fears that Eastern Standard — his first restaurant, and the only one of his ventures that he owns outright — will soon join that list.

The brasserie opened 15 years ago and quickly gained a reputation as one of Boston’s best spots for relaxed hospitality and cocktails. It sits in a retail space within the Hotel Commonwealth that has changed hands twice since Eastern Standard opened. The current owner, UrbanMeritage, promotes Mr. Harker’s “award winning restaurants” and the foot traffic they bring to the area in a brochure it created to to advertise a nearby vacant storefront.

But Mr. Harker said he could not afford to reopen unless UrbanMeritage renegotiated his lease, which has a bit more than two years left on it. He has $1.6 million in P.P.P. loans for Eastern Standard and the two other shuttered restaurants — the Hawthorne and the Island Creek Oyster Bar — sitting untouched in a bank account. He plans to return the loans soon if he can’t make a deal.

Michael T. Jammen, a principal of UrbanMeritage, disputed Mr. Harker’s claim that his company was unwilling to negotiate, saying via email that they have “offered multiple discount opportunities both on his existing lease and on a lease renewal” in recent years. Those discussions have continued during the pandemic, Mr. Jammen said.

Mr. Harker has worked out arrangements with his four other landlords, including Young Park, the president of Berkeley Investments. Berkeley owns the building housing the Boston location of Row 34, Mr. Harker’s seafood-and-burgers spot. Mr. Park agreed to slash Row 34’s base rent in return for a higher percentage of its sales.

“We did not want them to leave,” he said. “I think most developers are weighing the benefit of sustaining a business that is showing no revenue for an extended period of time versus the challenge of attracting another operation with the credibility, track record and management skills to run a successful business. That’s not so easy to find.”

Source

Continue Reading
Advertisement
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Business

The Trump campaign celebrated a growth record that Democrats downplayed.

Published

on

The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

Source

Continue Reading

Business

Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

Published

on

The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

Source

Continue Reading

Business

Ant Challenged Beijing and Prospered. Now It Toes the Line.

Published

on

As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

Source

Continue Reading

Trending