Retail landlord Out of the Box Ventures is slashing rents for most tenants in its more than 6 million-square-foot, multistate portfolio.
The goal is to help its occupiers through the COVID-19 crisis. SCT contributing editor Matt Hudgins spoke with the Miami-based firm's founder and CEO, Ophir Sternberg, about the program and its potential as a model for other landlords.
What convinced you to offer an assistance program?
Landlords and tenants right now are all in the same boat. There's obviously a lot of pain going around in this crisis. A few weeks ago, we started receiving different requests and inquiries from tenants expressing they were definitely in need of some type of relief and asking what was on the table. That prompted me to think: What can we do to help their businesses that would also be fair to both sides. And I think we came up with something that's extremely fair.
What are the basic terms of your offer to tenants, and what kind of savings do you expect them to receive if they participate?
The proposal we came up with for tenants is: In lieu of the full rents for April and May, just pay your share of the [common area maintenance] charges and property taxes, and we'll cover the balance of the rent. That varies from property to property, but it amounts to an average discount of 60 percent to 70 percent of the full rent amount. If there is further relief on some of the other expenses, such as property taxes, we're committed to passing those on to the tenants, which will further lower their payments.
What can you tell us about your company, its portfolio and the retailers affected by your offer?
We are a subsidiary of Lionheart Capital, a global developer also based in Miami, and we own 30 properties ranging from regional enclosed malls to shopping centers and big-box retail centers in 17 states. Those are Arkansas, California, Colorado, Florida, Georgia, Indiana, Illinois, Kansas, Louisiana, Michigan, Missouri, New York, Oklahoma, Ohio, Pennsylvania, Rhode Island and Virginia. We've developed a proprietary method for unlocking new value in formerly distressed commercial retail space and have been scaling rapidly for the past three years, following our vision of transforming these retail spaces into dynamic mixed-use destinations. We want our properties to be as functional as they are impactful in the revitalization of their surrounding areas and communities.
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Ophir Sternberg
Are you offering rent assistance to all your tenants?
We're offering it throughout the portfolio to all tenants that are shut down right now, that either chose to shut down their store or were forced to do so due to a state mandate.
Is this a standing offer for the rest of the crisis?
We are asking them to make an immediate decision because we do need those funds to help carry the property.
Landlords in many markets are dealing with their tenants' distress on a case-by-case basis. What made Out of the Box decide to enact its policy across the board, and why now?
Doing it right now has the most impact. We did it because we feel it's the right thing to do in this time of crisis and because we can do it. We are fortunate to have very low leverage, and that allows us the flexibility to make this type of offering.
Have you discussed this plan with your lenders, and did they ask for any safeguards or other measures as you implement the program?
We started having discussions with our lenders. They thought it was a positive, generous gesture on our part, and we are hoping some of them will be flexible with us on some of the interest payments in the next couple of months.
How long do you anticipate running this program?
Right now, we're committed to keep it going for the next couple of months, for April and May. Hopefully that will be enough for businesses to start coming back and stay open. If not, we will evaluate it at that point and see what we can do.
How will these rent reductions affect your firm's operations in the near term and future months?
It's definitely affecting our bottom line; we're coming out of pocket pretty significantly to keep this going. But we can afford to do it and we feel it’s the right thing to do.
What other types of tenant assistance did you consider before deciding to reduce rent, and why did you choose this route?
We have been helping by directing some of our tenants to apply for the different government assistance programs, but the rent relief, we feel, is the most impactful so that's our main initiative. We've also offered some of our vacant big boxes to FEMA and other governmental agencies in case they can use them in this time of crisis.
How do you see Out of the Box and your tenants emerging from this pandemic? How will this experience affect those relationships?
We've already received some very positive feedback. Some tenants were extremely excited and appreciative, and some even said this was so heartwarming that now they plan on extending their leases later this year.
What advice would you give other retail landlords?
For any retail landlord that is in a position to offer [rent relief], I would encourage them to do so, as the financial health of our tenants is extremely important to the industry.