Politicians originally designed a relief package for residential tenants facing serious financial difficulties. But many retail chains are taking advantage of it and putting landlords in financial trouble. There is no mutual agreement: copied letters to landlords and overloaded hotlines leave little room for individual solutions acceptable to both parties. Instead of formally confirming their liquidity problems as the new law requires, retailers threaten tenants with lawyers. HDE president Stefan Genth’s demand that landlords generally waive 50% of rent is simply unaffordable for many property owners.
“If the companies concerned at least announced salary cuts in their executive suites, landlords might be more understanding. Instead, everything is being dumped on the landlord. I have received many copied letters with impersonal email addresses and overloaded hotlines, simply announcing suspension of rent and service charges. In some cases, they even threaten legal action. This makes it impossible for landlords to start a discussion and reach a solution that works for both sides,” says Eckhard Brockhoff, criticising the growing number of retail chains reversing a relief package originally intended for residential tenants and putting landlords at risk. Like many landlords, the retail-property expert is disappointed by some retailers, especially as some of these relationships have lasted for decades.
Some of these companies recently said publicly that they operate without external financing. “There is no shame in seeking bank financing at this stage to secure liquidity. That is entirely normal,” Brockhoff says.
More and more companies are using these methods. Adidas has reversed course; Deichmann has not. Deichmann pays neither service charges nor rent. Perfumery Pieper pays service charges but not rent. KIND Hörgeräte, whose stores are mostly still operating, has also rejected rent and service-charge payments, although it appears willing to compromise in direct discussions with owners. Gerry Weber announced that it would stop paying rent and service charges and also wants parts of its March payments refunded. Ernsting’s family likewise does not want to pay rent or service charges. So does Thalia bookshop. Bijou Brigitte is open to compromise in personal discussions. Fashion retailer H&M speaks of deferrals and says it will consider only individual cases.
Must landlords now disclose their liquidity problems?
Several retailers refer to case-by-case arrangements. Does that mean the landlord, rather than the tenant, must disclose financial hardship? “That is not what politicians intended. The relief package is being exploited and turned on its head. Politicians urgently need to correct this,” says Eckhard Brockhoff, who has marketed retail properties throughout Germany for more than 30 years and has more than 18,750 contacts among owners of properties in pedestrian zones.
Property owners still have to make interest and principal payments
Meanwhile, property owners are under increasing pressure because they must continue paying interest and repaying loans to banks. Without retail rents, which often make up most of their rental income, this is difficult or even impossible in some cases.
Many owners are willing to consider deferrals. They regret that they cannot even speak with tenants about them. “The worst example is Edeka Nord, which says it has increased sales during coronavirus but pays rent only under reservation. This frightens property owners. Every family has a black sheep; in the Edeka family, that appears to be Edeka Nord. Embarrassing,” says Brockhoff.
HDE chairman Stefan Genth is calling on landlords to waive 50% of rent. “Sorry, that simply cannot be done across the board, especially not for a long period. No one knows exactly how long the coronavirus crisis will keep shops closed. It is therefore incomprehensible that global companies such as Deichmann contacted property owners just days after the forced closures to suspend rent and service-charge payments. These companies should be able to withstand a crisis like this,” says Brockhoff. He also regrets the silence of professional associations and says they have a duty to speak out. Property owners have no lobby of their own.
Brockhoff forgoes state aid and plans to weather the crisis with its own resources
His own group has not applied for short-time work and intends to overcome the crisis independently. If the company’s resources are insufficient, the entrepreneur—who has spent many years benefiting from the strength of his company—must step in. “That is only natural. If necessary, I will use my own money. That is my responsibility as an entrepreneur. Unfortunately, this culture seems absent at many companies, especially large ones,” Brockhoff says about his management approach.
The rental portfolio of Eckhard Brockhoff and his companies shows that family businesses operating a shop are much more willing to have personal discussions and find solutions that help both sides. Their conduct differs greatly from that of large corporations. “That is how it should be. If a tenant is really in difficulty, every landlord will be willing to compromise and help,” Brockhoff says.
The smaller the town, the more powerful the retailers
Personal discussions with decision-makers also indicate that some first suspend service-charge payments, then try after the coronavirus crisis to have rent payments cancelled by landlords. Many owners, particularly in small and medium-sized towns, cannot afford to do so. Yet retail businesses have greater influence in those markets. In large cities such as Munich, the situation is different: landlords have more leverage and can choose their tenants. In smaller towns, where shopping streets already have high vacancy, tenants hold considerably more sway.
Many property owners may be forced to sell their buildings at whatever price they can get, simply to secure their families’ liquidity.
Retailers have complained about poor sales for years, and this is likely to intensify. However, Eckhard Brockhoff expects sales to rise sharply after shops reopen. “People will be glad to return to city centres, spend time there and shop,” he predicts. International retailers confirm this based on their experience in China, where shops were closed for weeks and then generated sales in one week that more than offset the losses. A sharp recovery in sales is therefore expected, although inventories are full and substantial write-downs may be necessary. “Overall, city centres can benefit after the crisis because people will once again enjoy shopping in person. Shopping is one of the most popular leisure activities and will grow. Sales can surely be made up,” Brockhoff says.
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Brockhoff & Partner is Germany’s largest regional commercial property agent and the Ruhr region’s real estate market leader. With more than 30 years of industry experience, it has extensive expertise in marketing properties in OFFICE, INVEST, RETAIL and LOGISTICS. Its portfolio includes nationwide sales of office properties, office letting focused on the Ruhr region, brokerage of retail properties in prime locations in small, medium-sized and major German cities, and the letting and sale of logistics properties.
For more than 30 years, Brockhoff & Partner has marketed city-centre retail properties and publishes the industry’s standard reference work, the Atlas of 1A locations. The company’s database contains 18,750 property owners in German pedestrian zones. After German reunification, it was the first company to include the new federal states as well..