Revisiting Your Lease Terms During COVID-19 with Debbie Myers | Building Materials Industry

Revisiting Your Lease Terms During COVID-19 with Debbie Myers

Episode 15: Revisiting Your Lease Terms During COVID-19 with Debbie Myers

In the latest episode of GWP’s Constructing Brands podcast, Debbie Myers shares her expertise in real estate to help business owners and business leaders through this challenging time. Businesses that rent space for their company, such as office buildings, warehouses, and showrooms, are struggling and so are landlords. Debbie explains the most effective way to approach your landlord and the importance of having a strategic team of professionals that can guide you.

Don’t Avoid Your Landlord, Start a Conversation

Everyone knows the golden rule; treat others as you want to be treated. This also applies when dealing with your landlord, and helps guide conversations in the right direction. As a result of COVID-19, we know business tenants are struggling, and so are landlords. While it might be your first reaction to avoid your landlord or simply tell them “I can’t pay you,” Debbie explains that there are other, more effective ways to get your point across and reach an agreement between landlord and tenant.

Team Up with Professionals

Business owners and business leaders are dealing with scenarios they have most likely never dealt with before. Not knowing where or who to turn to for answers adds stress to an already uncertain situation. Debbie shares her expertise as a real estate professional and how she is advising her clients at this time. She discusses the importance of consulting with a team of professionals to help navigate through the quickly changing laws and policies. Both legal and financial counsel are crucial during this time and Debbie stresses the value that a real estate professional can bring to your team.

Revisit Your Lease

Debbie expands on the important steps of revisiting your lease in addition to consulting with your real estate professional. Business tenants often overlook key clauses that are critical during extraordinary circumstances such as COVID-19. Knowing these important details can go a long way when talking to your landlord.

About Debbie Myers

Deborah (Debbie) Myers, Managing Director at Newmark Associates, Inc., joined the firm in 1999. Well able to critically identify market opportunities, and creatively structure the economics of business transactions, Debbie brings finesse in strategic planning, marketing, and negotiation skills to her role as Broker-Associate and Managing Director at Newmark Associates. Demonstrating a talent for merging varied business interests towards the desired goal, she offers Buyer/Seller Agency, Tenant/Landlord representation, valuation and consulting services for land assemblage, office, retail and industrial sales and leasing transactions primarily in the Northern New Jersey market, especially in Essex, Morris and Union counties.

What You Will Learn:

  • How to have an effective conversation with your landlord
  • How the CARES Act is influencing the rent factor
  • The importance of teaming up with professionals to guide you
  • The importance of revisiting the terms of your lease with a real estate attorney

Resources:

Transcription

Eric (00:00): Good morning constructing brands. I'm so excited to be talking to our guest, Debbie Myers. She was a buyer at Macy's in the garment world. She excelled to be vice president of a clothing manufacturing company and then made this pivot into the real estate world. The reason why I think this is such an important conversation to have right now is that as a strategically minded person in a world where she's working with business leaders, business owners, CEOs, presidents, our audience, people who are in charge of making smart strategic decisions for their building material companies, it just seems like a perfect fit. Debbie, I'm so happy to have you on. Thank you for coming onto the show.

Debbie (00:45):
Thank you for having me. I’m excited to be here.

Eric (00:48):
Let’s get right into it. Right now, interesting times to say the least. As someone responsible for, let’s face it, the rent we pay, if we don’t own the buildings that we’re in, whether it’s office space, whether it’s a spot where you’re showcasing your products and services, a showroom or a manufacturing plant, a big, big, big structure, the rent factor, what do you, what’s going on right now? What do you see in the marketplace and what kind of advice can you give our audience?

Debbie (01:19):
So Eric, you’re absolutely right. What’s happening now is it really doesn’t matter what brand you are or what company you are or what business you’re in. People who have to pay rent are suffering right now. I will put a caveat with that and say, so are the landlords. So what’s happening really is this, the first calls that we’re getting are from tenants who are saying, I just can’t pay my rent. What do I do? The first thing that we say to them is, what have you talked to your landlord about? Have you called your landlord, emailed him, had a conversation with him or her? Or are you just summarily saying, I can’t pay my rent, I’m stopping paying my rent, I know nobody can evict me now. When I hear that, what I say is think about yourself. How would you want to be treated in a time like this?

Debbie (02:16):
I would pick up the phone or write an email and not a form letter, an email that says, look, I’ve been a tenant in your building for X amount of time. I am good at paying my rent. There are some things that are happening right now. What can we do? Personally, I think if you asked the question versus telling somebody what you’re going to do, you’re going to get feedback that is more positive then saying because what are you really going to ask them? If you’re going to say to somebody, I’m not paying rent, the only answer they’re going to have is, no or that doesn’t work. But I find that if you’re trying to work with a tenant or a landlord, it works on both sides.

Eric (03:02):
One of the big interesting things that obviously happened in the last week or two is the CARES Act, which takes into consideration that 75% of the funds need to go towards payroll and the other they acknowledge goes towards a rent factor. Correct?

Debbie (03:24):
Correct. And so with that, it’s a perfect point. So if you’re saying to the landlord, I have made that application. So one of the things that I always say is if you can show the landlord that you are making strides into helping yourself and helping your business, that helps everybody.

Debbie (03:46):
So if you’re able to say, I’ve made that application, as soon as I get that I can pay you X. This, at the end of the day, what everybody has to understand is that for a business that is looking to come back after the world rights itself, they’re expecting to come back having a place to come to where the lights are on, the insurance is paid and the taxes have been paid and somebody has to do that. So if a tenant says, I’m not paying you anything, then it all goes onto the landlord. And yes, the landlord could be getting some type of assistance from their bank if they have a mortgage, but at the end of the day somebody has to pay that. So sometimes what we suggest is for somebody to say, I’ll pay the expenses, let me help with the expenses, we can get the base rent back by doing that when the world rights itself and we can figure out some kind of a payment plan. So yes, I think it’s the PPP and any of the other grants and loans. We have sent a multitude of things out to our customers, both landlords and tenants specifically for that.

Eric (05:00):
So, great points and just to capture the first and foremost, it sounds like you’re saying be nice, be fair, treat someone like you’d like to be treated, which is a really great start. Don’t avoid your landlord, start a conversation, start communicating with your landlord and letting them know that you respect them and you understand that they’re in a tough position too and you’re trying to come up with a good solution. It sounds like is your first piece of advice.

Debbie (05:28):
Exactly, and I would follow that up by saying one of the other first things to do is to have a look at your lease. So in some cases and typically it inures to the benefit of the landlord, but there are times that it does inure to the tenant and that is when you look at your lease, there could be a clause and it’s called the force majeure clause and that allows a tenant, if it inures to the tenant, to stop paying rent in the event of certain circumstances. Now that could be a very gray area. It’s a legal term. It can be a very gray area because I’ve seen force majeure clauses that say in the event of a catastrophic event. Well that leads to an interpretation of what is catastrophic. So that kind of leads to if you have some type of a clause in your lease, whether it’s a force majeure clause, it could be under the insurance where it’s a business interruption clause.

Debbie (06:36):
You really need to look at the lease to see what’s in there. And trust me, there are many people who don’t look at their lease after they sign it and when it’s going to expire. Those are the two times they look. There are paragraphs in there that could be beneficial. It’s helpful to have a real estate attorney look at those clauses. It’s also helpful if you have, and you should have trust in your real estate professional, to help you assess what your lease says. And we do that for a lot of clients where we go back and look at those leases and say, you may have some relief here or you may look to the landlord and say, we wrote this clause in here in case of an event like this. That is another very important point and probably one that would go a long way if you knew what was in that lease prior to calling the landlord.

Eric (07:37):
What a great point to highlight because really as someone responsible for how to maneuver strategically through this minute that we’re in, it always starts with where do I begin? Who do I bring in? Who are the experts? What you’re saying here, which makes so much sense is your expert could be your real estate professional, the person who showed you this space, who showed you this factory, who showed you this opportunity that has become your home, one. Two, your real estate attorney, and if you don’t have one, an attorney who’s well versed in and able to pivot and understand what’s going on with the law and understand interpretation because obviously this is a lot of new frontier for a lot of people, but also, and what a great thought, your insurance professional. Looking at that lease and really understanding and it feels like right now more than ever, teaming up with the right professionals and knowing who to bring in, how helps, the person sitting in that position of making the right decision, the right strategic decision. I mean, how important to know what direction to turn. So it sounds like your real estate professional might be the first phone call when it comes to before even making a call to your landlord. Kind of feeling them out.

Debbie (08:51):
Yes. And to be honest with you, sometimes people, tenants want to look at the ways they can help themselves and they want do it in the most economical sense. And so calling a real estate professional first, especially somebody who either put you into that space, helped you get that lease somebody you have a good relationship with. If they’re going to charge you, first of all, I would look for somebody else. That’s what we do. That’s part of the service that we would provide somebody. And it would be our pleasure to do that because obviously the tenant is in a very precarious position, especially if they’ve been told that they have to shut down. This is not what they wanted to do. They did not want to shut down their business.

Debbie (09:39):
So they’re probably looking at, am I going to open back up? Will I have a place to come back to? And what is that going to look like? So I think part of the strategy also has to be, you can’t look at anything right now, short term. You really have to have a longer term to look at, both on the landlord and the tenant side to look at how this is all going to play out. If you’ve had a really good tenant, and I’ve done this, I have counseled landlords who are not, they’re just landlords. They’re not big time landlords, they may own one or two office buildings or one or two warehouses. And they’re saying, well, what should I do? Well, I say like if they’ve been a good tenant and you don’t want to lose them, help make it happen for them, give them some time.

Debbie (10:33):
Let them apply for the different loans and brands and in the meantime, give them some time to get their act together literally, so that they can come back and they can have their business. Now I will say that there are people that are going to try and take advantage of that. And every landlord has said the same thing to me, which is, I will take it on a case by case basis. So if you come in with guns flaring, they may not want to talk to you, but if you come in with a strategy, with a kind of clear head, at the end of the day it’s a business, it’s a business for you and it’s a business for them and you can’t put your hand in their pocket and say, well, you’re a big landlord. You can handle it way more than me. They’re facing it from every one of their tenants. So everybody kind of has to find their solutions.

Eric (11:30):
So how have you seen it in your experience? I know Newmark Associates handles everything from warehouse space to showrooms and office buildings, etc. How in your experience have you seen it work out best for that manufacturing company? Is it better to start with the real estate professional and have them kind of pepper it with the landlord at this moment? Or is it better to kind of just have the conversation with your real estate professional and then go to your landlord? So is it a direct conversation between the tenant and the land owner or what’s the best move right now? Or is it a case by case?

Debbie (12:13):
It is a case by case and really the difference is there are landlords that I know and so I’ve put tenants into those buildings and when that’s happened the tenant may say, can you help me with the landlord? And, and I can say, and yes, of course. The first thing I try to do is go over their lease with them and kind of pick out some points and try to help them come up with a strategy. And either we can call together, they can call on their own. Sometimes you get a little bit more when you’re calling on your own because you’re calling as a human. There are times that they think that the broker, they’d be in it for something else. I’m really there to satisfy my tenants. I’m just thinking about with building manufacturing warehouses, so warehouses, I read so much about how the industrial and warehouse asset class or commercial real estate has been hit the least with all of them and I think, in a lot of those cases that’s going to be on a true case by case basis.

Debbie (13:16):
They usually have fair amount of square footage. They’re either, big percentages of those buildings so that too would create a situation where they should talk to a real estate professional or their attorney or accountant. But I think in those instances A, if they’ve been able to stay open at all is going to have an impact or B, if they haven’t been able to stay up at all, they know their business is coming back. They just need to get back on track. But that does bring me to something else. There are those owners, who are also their own tenants. Some of these people own their own buildings. So one of the other things that has come up is that they may not be able to pay their mortgage. It becomes the same conversation when you can get somebody on the phone about your banker. What’s happening with that? Are you being forgiven? Is there what they call forbearance? So forbearance if it’s in the bank, is giving you forbearance, that’s a forgiveness of payments of mortgage payments for a period of time. So you can ask your bank, are they willing to give you some forbearance because either you can’t pay or you have other tenants in the building who also can’t pay.

Eric (14:34):
In the last week, I’ve spoken with the CEO of a company who, because of the structure of his company, he can’t go for the CARES Act and he’s in a warehouse, which he’s been able to do his manufacturing and he’s got separate warehouses. One of which, because some of the people working in the factory have COVID, the way it works is you immediately close down that factory, so that warehouse in effect becomes a place where no one could work for I believe it’s a 15 day period. Everything looked like it was okay. He had his costs of goods, he understood the new world that he was going into, distribution, all those things change. There are a lot of variables. If you run a manufacturing company, there are so many variables that you’re working through right now that are changing every minute and what to do now if this is a place.

Eric (15:29):
So I’m just thinking from your advice, it sounds like even though things were going on a track, at least in terms of your manufacturing, now, might be a time for him to contact his real estate professional before doing anything. Because Debbie, it sounds like I would want to ask you, do you have a great relationship or is it a business relationship? You know, where’s the relationship before I make the phone call or before I shoot an email off to this building owner or in this case, this factory owner consortium. Let me check to see if you have a better relationship and maybe a little bit more clout than I might have. Maybe you have multiple properties with them and you could explain to them that I just got hit right now and I could use a little help over the next month or two. Sounds like that would be the move in his case. Correct?

Debbie (16:21):
Yes. And I think that one of the things that is critical, so just imagine like, when your kids say, well, I need more money. I want to go buy something and I need more money. The specificity of asking for what you want in this time I think is critical. Because just to say I can’t pay or I’ve been hit with, and so even if I were calling the landlord, the landlord’s going to say, well, what are they expecting? What did they want? And I think the specificity of being able to say, look, my rent is X amount of dollars a month. Right now, I can afford to pay you, Y. So at least now the landlord knows he may not like it. He may say, I can’t live with that. Let’s come up with something in the middle.

Debbie (17:12):
But yes, those are the kinds of things that will produce an answer versus asking somebody, I need help, or I don’t know how much I can pay. There has to be some, listen, it’s work at the end of the day, it’s work on both sides. Everybody’s trying to come to a solution and in the case of the person you were talking about now would be the time to say these 15 days, you know, that I had to be without business might have cost me X, maybe that’s 30% of his business. So maybe this month I can’t pay 30% of my bills. And then typically what we’ve seen is that the landlords have, the landlords for the most part have been pretty aligned with what’s going on because they don’t want to lose those tenants. So one of the things they might say we’ll make that up, that 30% we’re going to make that up and we’re going to tack it on.

Debbie (18:19):
We can do a 12-month payment plan, or we can do a one-time payment. There are ways so it doesn’t hurt as much on the tenant side, but the landlord will be expected, well is expecting the tenant to pay them back. Very few that I have run into so far that have just been forgiving and saying you don’t have to pay it at all and to be honest with you, you can kind of understand where both sides are coming from. If the business is going to go out of business, you’re going to have a different conversation because at the end of the day there was a legal contract between a tenant and a landlord and what the tenant’s responsible for. That’s when you get an attorney involved because it’s going to have to get worked out one way or the other.

Eric (19:07):
It seems like right now is the time to strategize with people who are really clear thinkers, really strategically minded because there’s no precedent. This is all new territory and so to know what your strategy needs to look like to be able to be okay and have our A, B and C plan in place, run the numbers, accountant, run the numbers attorney. Okay. If we could go this way, that works. The other thing that you brought up that I thought was really interesting, we didn’t talk about yet, is more often than not, people who are owning their own factories, owning their own office buildings, owning their own showrooms, you know, we’re learning is it’s not decided, at least as of right now, while we’re doing this recording, it’s not decided how the government hasn’t clearly said that if you are your own landlord, if this can come to you as tenant landlord as it would be if you’re not your own, as a matter of fact, in filing for the CARES Act for the PPP, if you do own your property, there’s Addendum A on I think question four that you have to fill out highlighting that,

Eric (20:32):
yes, I pay rent to an entity that I also own. It sounds like maybe your bank who holds your mortgage, the forbearance that you had mentioned. Maybe that’s something to look at?

Debbie (20:45):
I think right now, I spoke to a woman who is the head of a commercial lending department at a community bank and I spoke to her probably three weeks ago and she was already completely overwhelmed with what was going on. But one of the things she said to me was, I said, how’s it going and what are you doing? And she said, we’re looking at our banking customers and we’re taking it on a case by case basis and we’re looking to see what we can do for them. Now since then, I have talked to a lot of different attorneys and accountants and I can get just like every, I think everybody gets a lot of information on this, on the CARES Act and what people are being expected to do or being asked to do.

Debbie (21:38):
And I think from the mortgage standpoint, they’re probably going to have to do some kind of forbearance and my understanding is certainly with some of the bigger landlords, that’s what’s happening. They have banking relationships that they’ve had for many years for some of the smaller landlords. They too, I spoke to a landlord the other day who owns a fair amount of property. Single guy just owns a fair amount of property. And he said that some of the community banks that he was working with gave him, some forbearance, like a couple of months on retail, locations that he owns because the retailers obviously can’t be at work. You know, I would hope that we were having such a great economy and we were doing really, really well that there is something to be said about the banks being able to give some forbearance to these landlords, to these owners of buildings that would see them through and help them get through this time frame. And that kind of trickles down because if they’re being given forbearance then maybe they can give that to their tenants and come out on the other side of this, maybe not as economically sound as they were prior to it, but at least able to get through.

Eric (23:05):
Makes a lot of sense and it really reinforces what we were saying before, which is because you know, there’s no precedent there. Has there ever been a time in the history of the world where literally the economy was going at this top level and then it was forced to shut down an economy and it wasn’t a crude oil thing, there was no impetus that was business-related. It was health related. Right? So to navigate right now through that, anybody responsible for any type of business, whether it’s manufacturing, whether it’s whatever, it really doesn’t matter. We are in these interesting times and I always try to look for the opportunity. What is besides are, you know, the environment probably being able to rebuild itself a little bit because of so much less being put into that into the air.

Eric (23:59):
There’s the other part, which is people, right? What a great opportunity to identify not only who are your stars in your own company, who are the people who are positive, who are thinking forward, who are attacking situations with gusto, with energy and with the positivity. But also who do you have surrounding you, whether it’s your accountant or your lawyer or your real estate professional or your marketing guy or your, whatever, your ad guy or whoever it is, who you consider. I always think of it this way, are they a vendor or a partner? And here’s an opportunity where you want partners, you want people who are, who deserve a seat at the table strategically to help you maneuver if you’re in charge of running a company. So it sounds like another really important person to think about when we get out of this tunnel is if you’re renting space for your factory, for your warehouse, for your showroom, for your, who are you renting from and are they someone who strategically can help you? Not only when things are good you don’t need them, but when things get a little wonky, right, that’s if you only knew. So what a great wakeup call about how important it is to choose a real professional to help you navigate through your real estate. And Debbie, I think you’re just highlighting how important it is to have someone like yourself to strategize with for when things aren’t great. I thank you for coming on the show. How can people get in touch with you?

Debbie (25:33):
Well Eric I have to say it’s been a pleasure to be on the show and my name is Debbie Myers, I’m with Newmark Associates. It’s Newmarkrealestate.com and we are really a company that is quite different in the fact that we’re a women owned company that has been around for over 30 years and have a really good pulse on the market. And I would say that, especially in these times, you do want a partner. I think that that’s a perfect way to put it. To have a partner who has integrity and authenticity and goes forward and helps both landlord and tenant buyer and seller get through very much of an unprecedented time.

Eric (26:15):
How could someone get through to you specifically if they want to talk to you?
Debbie (26:22):
[email protected] and I always give out my cell number because everybody can call me. It’s (973) 493-8508. And if I don’t pick it up it’s because I’m on another call. Definitely leave me a message. We’d get back to anybody within 24 hours.

Eric (26:40):
Debbie, I thank you so much. Thank you for your knowledge, your information, and spending some time with us this morning. I really do appreciate you, everything you do, and the way in which you approach it. So thank you again.

Debbie (26:51):
Thank you.