Landlords and Institutional Investors of commercial properties around the globe have faced a wide variety of challenges given the current climate as a result of COVID19. Trying to manage the rapidly changing payment structures, challenging cash management and modified lease terms has proven to be a hurdle for many, who did not have the benefit of a solution that was readily available pre-pandemic period.
Specifically, companies such as Retransform, a global leader in the delivery of technology and business process management services to the commercial real estate industry, were well positioned to meet these unique challenges that their clients faced. First and foremost, the immediate challenge for many Landlords was enabling teams to be functional in a remote environment very quickly. The very nature of the services delivered by Retransform are essentially “virtual” which allowed them to adapt very quickly to ensure that clients didn’t experience any interruption in their operations.
The second challenge for many Landlords was identifying and addressing opportunities and risks in their tenant’s leases, in conjunction with required shut-downs of the tenant’s physical spaces. The obvious question became “How will my tenants pay rent when they are not open for business?” – this would directly affect how Landlords would be able to effectively manage their own cash flow and continue to meet their mortgage obligations.
In partnership with Retransform, Landlords have been able to very quickly identify relevant lease clauses that could impact their approach to providing aid to their tenants while maintaining their own obligations. It was time for Landlords to get creative in how they addressed these immediate challenges. Some of these solutions included the following:
- Application of security deposits to rent - first, Landlords needed to verify if the tenant indeed had a security deposit on file and next determine if the application of this would be permissible under loan covenants and internal policies. Accounting for the application of a security deposit while reducing the liability on the Balance Sheet needed to happen promptly and accurately.
- Abatement of rent and extending lease terms – many Landlords opted to abate several months of rent payments and extend the lease term by the abated period. This required prompt documentation and updating in their Property Management Accounting systems (PMS) which Retransform was able to accomplish.
- Application of prior reconciliation credits sitting on the books- Landlords took the opportunity to apply older existing credits that had not yet been applied or refunded, to the current and future rent charges. Retransform was able to quickly identify these tenants and complete the application of any existing credits to the respective tenant ledger.
- Renegotiation of overall lease terms – in some cases, Landlords opted to renegotiate the lease terms altogether by either reducing the rent charges or abating rent for some fixed period and amortizing these amounts over the remaining lease term. Again, Retransform was able to assist in the prompt delivery of required documents, as well as complete the changes to lease terms in the applicable PMS.
- Loan covenant compliance – for some, the changes in payment terms, or lack thereof, would surely have an effect on the Net Operating Income (NOI) and corresponding Debt Service Coverage Ratio (DSCR). Understanding the effects of these changes to their loan compliance was essential for Landlords to address their lenders promptly.
In summary, Landlords able to quickly pivot were better positioned to not only assist their tenants but maintain their own critical functions, thereby ultimately moving through the crisis period more effectively and efficiently to reach a faster resolution. In unchartered territory, having an agile partner such as Retransform, provided Real Estate companies security and confidence during critical decision-making times.