Some landlords are adjusting rent, while others hold firm. Their decisions are reshaping New York City’s neighborhoods.

After a laundromat in Manhattan said it could not pay its monthly rent in April and May, the manager of the property, Aaron Weber, asked for half the $7,200 bill. Mr. Weber allowed another struggling tenant in the neighborhood, an electronics repair store, to pay one-third of its $12,500 monthly rent.

A nearby clothing store in the Chelsea neighborhood also had its $10,000 rent cut by 50 percent. The drastic reductions are part of a desperate effort by Mr. Weber and his company, which manages nearly 40 commercial properties in Manhattan, to stave off vacancies, even as revenue plummets and taxes, utilities and other costs erode their own reserves.

“We kind of just take what we can get and work out a number,” Mr. Weber said. “As long as they are paying something, we’re happy.”

Thousands of small businesses that are a staple of city life have been ravaged by the pandemic, leaving them unable to pay basics like rent. That in turn has set off an extraordinary crisis for landlords, who have lost tens of millions of dollars in income since the city’s lockdown began in March, analysts said.

The landlords face an unpleasant choice: forgive or lower rent payments even as their own bills pile up, or hold firm and risk the prospect of losing a tenant who may not be replaced for months or even years.

Even as some landlords are cutting rents, others have been unwilling to consider any compromise, going so far as to threaten tenants with lawsuits even if a business faces permanent closure.

As a result, the relationship between tenants and landlords, often difficult in normal times, has become more complicated and a major challenge for New York’s recovery, with worries growing among industry figures, brokers, landlords and some business owners that a combination of high rents and mounting debt could yield rows and rows of barren storefronts.

“On the tenant side, the stakes are a massive wave of not temporary but permanent closures, which will mean damages to personal credit scores, many lost jobs and all the ripple effects,” said Ari Harkov, a broker who has worked with commercial landlords and tenants. “On the landlord side, you’re talking about potential foreclosure, you’re talking about people defaulting on their loans, not being able to pay their bills.”

Louis Rossmann, the owner of the electronics repair store, Rossmann Repair Group, said he asked Mr. Weber for a rent reduction after he lost between $50,000 and $70,000 in revenue in April as foot traffic dramatically declined in Manhattan.

The store sits on West 27th Street, where signs seek new tenants for at least seven retail and office spaces. Other shops and restaurants, like one advertising pizza for 99 cents, remain shuttered. A page taped to the window of Kano Martial Arts said it has shut its doors to safeguard public health.

Mr. Rossmann said he appreciated the lower rent, which helped him keep workers employed. He has also been bolstered by an uptick in customers mailing their devices in for repair, and he was able to pay 60 percent of the rent in August, Mr. Weber said.

Still, he is considering leaving New York since even his reduced rent is still higher than he would pay in other cities. Without reliable foot traffic, he said running a small business in Manhattan is probably impossible.

Alimu Sow, the owner of the clothing store, Shaw and Barrie Enterprise, said he shut down from March until June. Mr. Sow said the store has had about half the customers it had before the outbreak.

Federal coronavirus relief and a pay reduction kept his three workers on the job, he said, but rent is Mr. Sow’s biggest cost, and he said he could not stay open without a lower monthly bill.

Even as the pandemic has receded in New York, the future for his small business, as for many others, is murky.

“That’s our hope, that it’s getting better,” he said. “But what it’s going to be we don’t know.”

There is no accurate way to gauge how many landlords have granted rent relief, but commercial real estate brokers say anecdotally that a growing number of tenants are getting some kind of decrease.

The pain varies. Commercial tenants like restaurants, shops, salons and others have been hit harder than companies in office towers.

Bigger landlords, who have apartments or offices as well as spaces for small businesses, can often help offset the rent lost from retail tenants.

And retail businesses have been particularly devastated in Lower Manhattan and Midtown, areas that depend on office workers and tourists and where rents were already high.

Government aid programs, like the now expired federal Paycheck Protection Program, have helped businesses stay open, and Gov. Andrew M. Cuomo recently extended a moratorium on evictions of commercial tenants until Sept. 20.

But most businesses are still required to pay rent, and not all landlords are being flexible.

In a survey of 500 restaurants, bars and other businesses released recently by the New York City Hospitality Alliance, about 60 percent said landlords would not defer rent payments in July. In another survey by the Brooklyn Chamber of Commerce, roughly 25 percent of small businesses reported receiving some sort of concession on rent.

“I think landlords to some degree are being cautious about renegotiating their rent and moving forward because they don’t know the extent of this crisis,” said Andrew Rigie, the alliance’s executive director.

In some cases, mortgages place restrictions on how much a landlord is allowed to lower the rent, and many landlords say they need income to pay mortgages, utility bills, property taxes and insurance premiums.

The bills for the commercial property owners who are Mr. Weber’s clients amount to tens of thousands of dollars every month. The monthly water bill averages about $2,250 per building, and maintenance is about $2,000, electricity and gas is about $1,000 and insurance costs are another $1,000, Mr. Weber said.

And then there is the biggest expense, property taxes. For the building with the laundromat, which also has two other commercial businesses, monthly taxes are roughly $18,000. For the building that houses the repair shop and the clothing store, which also has residential units, the tax bill is about $10,000 per month.

“We have a year’s worth of taxes saved up,” he said. “That’s kind of the standard amount that owners hold in their reserve account. Once that’s dried up, it’s going to be scary.”

The Banty Rooster, a restaurant offering southwestern fare, opened last December in a West Village building owned by Shelley Azapian.

But when the pandemic hit, the restaurant’s owner, Delores Tronco-DePierro, said she could not pay the $23,000 monthly rent and laid off more than 30 employees.

Declining to provide specifics, she said she offered to pay Ms. Azapian a lump sum and then continue paying a monthly percentage of her revenue until that amount increased to the equivalent of her $23,000 rent.

“I made an offer that I felt was fair and also what I was able to do with the resources I had,” she said.

But Ms. Azapian said the proposal would lock in too low a payment for too long. Ms. Tronco-DePierro closed her restaurant in August.

“I can’t change my expenses,” Ms. Azapian said, adding that she had enough money saved up to hold out for the market to improve.

“I’m not a doom-and-gloom person,” she said. “Having lived through 9/11, and the ups and downs of the economic situation, we’ve gone through a number of very deep recessions.”

Vinny Minissale, 60, bought a commercial property in Park Slope, Brooklyn, about 30 years ago where he could run his pizza restaurant, Pizza Town.

The building has another commercial space that had been filled by a clothing and jewelry store called Dearest.

When the pandemic shut businesses, Mr. Minissale said he did not collect rent from Dearest for two months, but then started asking for the regular monthly amount of about $7,000.

“You do whatever you can do,” he said. “If you can’t help no more, then you leave it up to them to do whatever they decide to do.”

Dearest closed for good. People associated with the store did not respond to requests for comment. Mr. Minissale said he has not been able to find another tenant and wonders how long he can keep operating his own business.

“If I got to lower it for a year, $1,000 to $2,000, I will do that, if it will give somebody a chance to start up again,” he said. “But I got to keep up with the expenses.”

A few blocks away, Daniella Stromberg, the owner of d’mai Urban Spa, is preparing to shut down at the end of September after 15 years. Her revenue, from skin care and massages, dropped from about $200,000 per month to zero after the spa shut down in March. She furloughed more than 30 employees.

Still, she said she paid her $28,000 rent through July, while trying to negotiate relief from her landlord. The spa reopened under limited-capacity rules in July.

She said she offered to pay 50 percent of her rent through September 2021 when her lease ended or until she could operate at full capacity. The landlord countered by saying he could offer half rent for three months if she extended her lease by five years, she said.

“I said, ‘Well, I can’t meet those terms, and I’ll be out on Sept. 30, your place will be broom swept,’” she said, adding that she was planning to file for bankruptcy.

“It’s just another really sad story, of many more dozen people losing their livelihoods, myself included,” Ms. Stromberg said.

Other negotiations have produced happier outcomes. Blaire Papagni has owned Anella, a restaurant in Greenpoint, Brooklyn, since 2009. Anella shut down in March, opened for takeout in the middle of May and for outdoor customers in late June.

She laid off 22 employees, but was able to bring back eight. She has been kept afloat in part, she said, by her landlord’s willingness to cut her a break. Ms. Papagni declined to provide specific numbers, but said she has been paying roughly half her normal rent.

“It’s something that we’re trying to work out with our landlord on a monthly basis,” she said.

At the Brooklyn Navy Yard, a vast city-owned complex that houses hundreds of artisans, artists and small manufacturers, David Ehrenberg, the president and chief executive of the nonprofit corporation that manages the Yard, is trying to help struggling tenants. A typical adjustment includes forgiving one-third of the rent, deferring another third and requiring tenants to pay the remainder.

“Demanding that small businesses pay 100 percent of their rent in the worst pandemic in 100 years and the worst recession since the Great Depression hardly seems like a winning business proposition,” Mr. Ehrenberg said.

Source: https://www.nytimes.com/2020/09/19/nyregion/nyc-businesses-rent-landlords.html

News – Small Businesses Need Rent Breaks. But Landlords Are in Crisis, Too.