Landlord Strategies for Handling Rent Relief Requests

Ariticle provided by Carmen R. Austin, MBA, CCIM, Associate Broker for Saurage Rotenberg Commercial Real Estate

Written by Yvonne A. Jones, CCIM, CIRE Magazine [Sept-Oct 2010 Issue]

The ongoing recession has had a profound impact on commercial real estate throughout the United States: More and more landlords and tenants are struggling to survive. As a result, most property managers have noticed a significant uptick in the number of tenant negotiations they are working on at the properties they manage. While these tenants seek to reduce their costs, landlords must find ways to preserve their cash flow and maintain occupancy to ensure long-term financial stability.

Landlords can employ a variety of strategies to provide tenants with relief. The most common are discussed below.

Rent Reduction. The landlord can reduce the tenant’s rent for a portion or all of the term left on the lease. The usual forms of rent reduction are to reduce the base rent, operating expenses, or both. In regard to retail, it is common to convert base rent to percentage rent.

Rent Deferral. In this case, the landlord can defer a portion of the tenant’s rent but would require them to repay the rent deferred at a later time, either in a lump sum or by increasing subsequent payments. A variation of rent deferral could be to cap or set a base year to operating expenses for a short or extended period of time.

Rent Abatement. If a tenant is significantly past due on rent payments, a landlord may agree to forgive a certain amount of the past due rent if the tenant remains current thereafter.

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Carmen has been a practicing commercial real estate broker since 2001. She is a graduate of the Louisiana State University (LSU) E.J. Ourso College of Business and the LSU Flores Masters of Business Administration (MBA) Program with a specialization in Entrepreneurship and Real Estate Finance. Her experience includes past employment as Regional Director of Leasing at Commercial Properties Realty Trust the for-profit arm of the Baton Rouge Area Foundation. Carmen’s affiliations include Louisiana REALTORS®,Greater Baton Rouge Association of REALTORS® Commercial Investment Division, International Council of Shopping Centers, Commercial Real Estate Women, Certified Commercial Investment Member Institute, National Association of REALTORS®, and Urban Land Institute. She is also an active volunteer on the board of directors for the Baton Rouge Gallery, LSU MBA Alumni Association, Junior Achievement of Baton Rouge, and the Junior League of Baton Rouge. Carmen currently serves as the 2010 President of the Louisiana CCIM Chapter.