Kansas City retail and restaurant tenants seeking rent relief — ‘or we will not survive’

The Cheesecake Factory came right out with it: It would not be paying April rent.

With many of its dining rooms shut down because of the COVID-19 pandemic — including area restaurants on the Country Club Plaza and in Overland Park (now only open for carry-out) — the chain is looking for a “potential deferral, abatement and/or restructuring of rent otherwise payable” during the shutdown, according to an SEC filing.

It isn’t alone.

Monthly bills are now coming due for mom-and-pop operations as well as big chains with little or no revenue coming in. Many operations have already laid off employees. Now they are looking at what bills they absolutely have to pay, such as insurance, and what they can put off for another month or two.

As April arrives, rent is due for the first time during the crisis. It is one of a tenant’s largest expenditures and a bill many would like a break on. For small operations, it could mean the difference between staying open or shutting down for good.

The family-owned Elite Feet in Overland Park has weathered most of the challenges facing mom-and-pop operations since it was founded in 1997 — competition from chains and big box stores, the surge in online shopping and the ”Great Recession” in 2008 and 2009. But nothing like this.

“It’s awful, it’s awful. I feel like I’m just living through a nightmare,” said Don Nottberg, owner of the specialty footwear store with his wife and daughter. “We don’t have large cash reserves, most of us just going month to month. Some of these locals are just teetering on going out of business anyway. This will push them over the edge. These landlords have to work with us or we will not survive.”

The Nottbergs decided to shut down for two weeks starting March 26 to protect their employees and customers during the pandemic. Then came the order to shut down for 30 days. Loyal customers are placing orders even if they don’t need shoes right now. They just want to help them stay in business.

The family asked for April rent to be waived and possibly rent for May. But they said when the management company got back to them, it was for April rent — in full.

CBRE, leasing broker and property manager for Hawthorne Plaza, said it was not in a position to comment.

“Everyone’s focused on April 1. The landlords are very realistic and understand that they are going to the mailbox and there are going to be very few rent checks there,” said Alexander Goldfarb, managing director and senior REIT analyst for Piper Sandler & Co.

Some rents may be deferred, some may be spread out over the remainder of the lease, and some tenants will go out of business, he said.q

“That’s the short-term solution. Clearly if this extends long term it’s bad. The economic ramifications are even worse,” Goldfarb said. “Up top there’s no free lunch. If tenants don’t pay landlords, well then landlords can’t pay all their employees, can’t pay property tax, they can’t pay insurance, can’t pay utilities. So it’s a whole ripple effect.”

The Lamy Group, a Louisiana-based international financial management consulting firm specializing in retail and commercial real estate, said it has evaluated rent relief for retail landlords for decades. But this is the largest number of tenant requests it has seen coming in such a short period, even including the 2008 economic downturn.

A lease that covers shutdowns for force majeure (also known as an act of God or unanticipated event clause) may not cover a government shutdown, experts said. Landlords need to look at their tenant’s financial situation before the pandemic, how the closure is affecting cash reserves, and what other assistance they may be eligible for.

The U.S. Small Business Administration is one source for resources on debt relief, disaster loans and other assistance.

After many inquiries from tenants, The Taubman Company, which operates the Country Club Plaza, sent a memo to its tenants on March 25 saying it also has obligations to “lenders, utility companies, insurance companies and the like.” Tenants will be expected to meet their lease obligations.

“The rental income that we receive from tenants is essential in order to meet these obligations,” Taubman said.

But in a statement sent to The Star this week, Taubman said: “We are attempting to navigate through this situation in the best way we can, while being as flexible as we can with our tenants in light of our ongoing obligations. The tenant memo does not replace our willingness to talk to each tenant about their respective challenges and help them chart an appropriate course for the future.

“In fact, we’ve had numerous calls with our long-standing tenants and most fully understand our position as it is a challenging time for all involved. Naturally, the environment is much harder for smaller, less-established temporary occupants that may only be operating in one center.”

LANE4 Property Group, which specializes in project leasing, development, tenant representation, and property management, declined to comment. Its projects include 39Rainbow in Kansas City, Kansas, and Red Bridge Shopping Center.

In a statement, Oak Park Mall officials said, “We value the relationship we have with our tenants and are committed to working together as we navigate this challenging period together.”

The CARES Act (Coronavirus Aid, Relief and Economic Security) includes federal loans for rent and mortgage that could be forgiven — if workers remain on the payroll or are soon re-hired.

Vic Allred, founder of Jazz, a Louisiana Kitchen, is using the down time to remodel the five locations, including three area restaurants. He is keeping employees busy with curbside service and other jobs that the restaurants can’t always get to when they are open daily.

“The Care ACT allows you to have forgivable expenses for two months related to payroll, rent, utilities, rent or mortgage and mortgage interest,” he said. “We’re just letting our landlords know we are not going to be paying the April rent, same thing with the utilities, and then we are going to apply for those loans as soon as we can. If the government will reimburse you for the payroll, I’m going to try to keep my employees off the unemployment list.”

But some retailers have already closed.

Shop Beautiful got its start in Brookside in 1936. Ruth Martin later took it over and then her daughters — Abbey Fields and Sarah Douglas — became owners in 1981. While that shop closed in late 2018, the sisters still had their store in Hawthorne Plaza, which opened in 1990.

They were “words away” from signing a new lease, just negotiating a few points, when the coronavirus fears hit the metro. On March 21, they decided not to renew their lease, and they were out of the space by midnight March 23 when the shelter-in-place order went into effect. Now Shop Beautiful is concentrating on online sales.

“The store survived the Great Depression, World War II, 2008. The coronavirus is a pause in our brick-and-mortar,” Fields said. “We’ve been fortunate that we have been able to pivot so quickly. But I think that there’s going to be a lot of really nice retail spaces in six months.”

This story was originally published March 31, 2020 at 2:57 PM.