COVID-19

What happens when retailers stop paying rent?

Marielle Segarra Apr 6, 2020
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Urban Outfitters announced last week that it would stop paying rent at its stores during the COVID-19 pandemic. Justin Sullivan/Getty Images
COVID-19

What happens when retailers stop paying rent?

Marielle Segarra Apr 6, 2020
Urban Outfitters announced last week that it would stop paying rent at its stores during the COVID-19 pandemic. Justin Sullivan/Getty Images
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Retail is taking a huge hit during this outbreak of coronavirus.

Companies are, at least temporarily, laying off large percentages of their staff. And last week, Urban Outfitters announced that it was simply going to stop paying rent at its stores for now. Mattress Firm has done the same. Adidas tried, but walked it back after a public outcry. And each of these decisions has a ripple effect.  

You can think about this like dominoes. Stores are closed. Sales have evaporated. So a lot of retailers can’t pay their rent. Guess what happens next?

“The landlord, of course, he doesn’t collect rent. How is he gonna pay the mortgages? And the landlord can say to the lender, ‘I need basically a moratorium on my payments to you,’” said Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at U.C. Berkeley.

The banks take a financial hit. And so do investors, like pension funds, that put money into mortgage-backed securities. 

Rosen said we’ve seen the dominoes fall before.

“When we have recessions, what starts out as one thing becomes much more pervasive, as the housing crisis in 2008 and 2009 showed you,” he said.  

But this scenario is not a foregone conclusion. 

Dan Sheridan, partner at the Hoffman Strategy Group, said some landlords are going to default quickly, but some won’t.

“Some landlords have a better ability to absorb some period of time where tenants would not be paying full rent,” he said.

Byron Carlock Jr., national real estate practice leader at PwC, said he’s seeing landlords, tenants, and banks making arrangements for the short term.

“It could be rent forbearance if the retailer wants to stay open in that particular location. It can be allowing a tenant to terminate in certain locations and stay open in others,” he said.

And in the cases where none of that works out and the banks are left with the losses, here’s one one piece of good news: Thanks to the post-financial crisis law, Dodd-Frank, they have more of a financial cushion now than they did in 2008. 

“All of the regulation created coming out of the global financial crisis was to have healthy banks and to be able to deal with crises as they come up,” Carlock said.  

How hard the dominoes fall also depends how long this virus outbreak lasts.

COVID-19 Economy FAQs

It’s still the question on everyone’s minds: What’s going on with extra COVID-19 unemployment benefits?

The $600-a-week payments have ended, officially, as of July 31. For now, there is no additional federal pandemic unemployment assistance. House Democrats want to renew the $600 payments. Senate Republicans have proposed giving the unemployed 70% of their most recent salary by this October, when state unemployment offices have had time to reconfigure their computer systems to do those calculations. Until then, jobless workers would just get another $200. But, nothing has been signed into law yet.

What’s the latest on evictions?

For millions of Americans, things are looking grim. Unemployment is high, and pandemic eviction moratoriums have expired in states across the country. And as many people already know, eviction is something that can haunt a person’s life for years. For instance, getting evicted can make it hard to rent again. And that can lead to spiraling poverty.

Which retailers are requiring that people wear masks when shopping? And how are they enforcing those rules?

Walmart, Target, Lowe’s, CVS, Home Depot, Costco — they all have policies that say shoppers are required to wear a mask. When an employee confronts a customer who refuses, the interaction can spin out of control, so many of these retailers are telling their workers to not enforce these mandates. But, just having them will actually get more people to wear masks.

You can find answers to more questions on unemployment benefits and COVID-19 here.

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