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Paying rent is suddenly scary for many Omaha businesses, but some landlords are being generous

Paying rent is suddenly scary for many Omaha businesses, but some landlords are being generous

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Paying April rent was a scary thought for the Monster Club and its sibling operation, Drastic Plastic Vinyl Lounge.

The two haunts, which share a 132-year-old Old Market building, were among the first places Douglas County health officials publicly identified in mid-March as having been exposed to COVID-19.

The alert chilled business at the novelty bars and grabbed the attention of their landlord, who had high hopes for the quirky enterprises that had leased space at 1217 Howard St. for less than a year. The landlord swiftly devised an emergency plan: Instead of the typical fixed rent amount, the tenants for the next few months could pay a percentage of sales.

“All of a sudden we found ourselves completely unable to do business,” said Neil Azevedo, spokesman for the horror-themed restaurant and vintage record shop. “The landlord’s proactive effort was absolutely crucial and key to us being able to come out of this successfully.”

Not all commercial tenants struggling from ill effects of COVID-19 will get as generous a lease arrangement. Interviews with several property managers, owners and lenders reveal varied responses when it comes to April rent obligations that become overdue this week.

Lifelines range from deferring a payment to forgiving all or part of the month’s rent. Some landlords and lenders, though, are demanding proof that help is truly needed. Not all businesses are expected to survive.

It’s a tough spot for all involved in the rent chain, as even those higher up pay a price if rent revenue dries up. Without a rental stream from the tenant, property owners could fall behind on mortgage payments to banks, and lending institutions face consequences as well.

“There’s a domino effect,” said John Lund, chief executive of Cushman & Wakefield/the Lund Co., whose firm manages more than 6 million square feet of mostly office, apartment and retail property. “We’re dealing with something unprecedented, and I think everybody’s trying to do the right thing.”

A check with multiple real estate managers, property owners and lenders showed that, for the most part, partners on all levels of lease deals have been working together to ensure that commercial tenants stay afloat and can return to spaces many have vacated since the deadly virus struck Omaha.

So far, real estate representatives say, they haven’t heard much of a plea for rental help from office, industrial or multifamily segments of their industry.

“We know it’s not going to be this perfect in another two or three months,” said Jerry Slusky, a real estate attorney who owns numerous apartments.

For now, hardest hit are retailers whose sales of dine-in food, cocktails, hospitality and certain other services have plunged with social distancing practices.

“These are folks that have been asked to lock their doors,” Lund said. “We’re dealing with many requests to have rent deferment for the month of April. We’ll take this one month at a time.”

Jay R. Lerner, president of the Lerner Co., which handles leasing for 4 million square feet of retail space, said about 25% of his company’s tenants have reached out for rent relief. He said responses have varied depending on the client’s tenure and other factors.

“It’s not a pretty picture,” Lerner said. “As you might expect, there are continued operating costs at these shopping centers whether the centers are open or not.”

He said landlords’ cash reserves at this point have covered rent relief. “Who knows how long they can do that. We just started talking to banks.”

To be sure, financial pain might be eased by the federal government’s stimulus package, and its impact will become clearer as weeks progress.

Meanwhile, Sean Miglini, senior commercial lender with Veridian Credit Union, said his bank also has fielded relief requests primarily from retail clients. Some want to defer rent payments; others hope to pay only interest temporarily.

“I don’t know how you could not be accommodating,” he said.

Compared to past economic downturns, lenders likely will be more open to helping businesses impacted by COVID-19, said Bradley Hammitt, who heads commercial mortgage and real estate investments for Mutual of Omaha Insurance Co.

This crisis, he said, is caused by a contagious disease outside anyone’s control, while, for instance, the 2008-09 recession was rooted in human abuses and excesses in the system.

At the same time, Hammitt said, Mutual is not about to give “carte blanche” relief and will ask for proof of financial need before endorsing a change in loan provisions. “We’re not going to turn our back, we’re not taking that stance, but we want to make sure these are genuine needs.”

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The Monster Club, with its life-size statues of Frankenstein, Freddy Krueger and more, was meant to be a dine-in restaurant, so it wasn't prepared to shift to takeout only.

R.J. Neary, who heads Omaha’s Investors Realty, said his team represents nearly 200 different landlords whose response to tenants during the COVID-19 outbreak have varied from offering no special relief to reducing April rent.

The 1217 Howard building that houses Monster Club and Drastic Plastic is among properties managed by Investors Realty, and also is owned in part by Neary.

In that situation, Neary said, he could foresee Old Market business suffering from the loss of money-making events including the College World Series, and he wanted to offer tenants a fighting chance by temporarily shifting from a fixed rent to a percentage of sales.

Azevedo said that lifted a weight, as the Monster Club was not set up to prepare carry-out food to help compensate for lost dine-in business. He said the restaurant was designed to be a museum-like experience, with patrons enjoying a burger and beer among life-size Frankenstein, Pennywise, Freddy Krueger and other ghouls.

The upstairs record store and lounge was designed also to be social.

Now that local officials temporarily closed bars, Azevedo said, he’s furloughed about 20 employees.

The rent reprieve should help the two businesses regain their footing, Azevedo said, as they seek additional relief from the federal stimulus package.

“We plan on reopening,” Azevedo said. “And we are going to come out of this strong.”

World-Herald researcher Sheritha Jones contributed to this report.

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Reporter - Money

Cindy covers housing, commercial real estate development and more for The World-Herald. Follow her on Twitter @cgonzalez_owh. Phone: 402-444-1224.

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