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Retail tenants hopeful over federal relief plan, but landlords reluctant to join

Bill Pratt hasn’t paid some $70,000 in rent for his restaurants in Atlantic Canada since April after having to shutter operations due to the COVID-19 pandemic and experiencing a “critical” sales drop.

“There’s no way I can make it,” said Pratt, the CEO of Chef Inspired Group of Restaurants and Food Trucks. “I can’t pay 100% rent with no income.”

When the federal government announced a new measure aimed at reducing rent for small businesses by three quarters, it sparked hope of survival among restaurateurs like Pratt. However, without buy-in from landlords – some of whom have decided to take a wait-and-see approach due to what they say is a lack of clarity – the program will fail to provide relief to those who need it most.

The Canada Emergency Commercial Rent Assistance program will allow landlords to apply for government funds to cover half of rent payments for small businesses, up to $50,000 a month, with tenants paying 25%. Landlords would forfeit the remaining 25%.

Pratt deals with seven landlords across 10 locations for his 22 restaurants spread out across Nova Scotia, New Brunswick and Prince Edward Island.

He wrote to all of them to inform them he wouldn’t be able to pay April’s rent, but said most didn’t respond. Once April 1 arrived, so did some default letters. Pratt told his landlords he wanted to work out an arrangement other than rent deferral as he can’t afford to push the bills into the future.

As he started reopening some locations for takeaway and delivery, the government announced its rent relief measure. Pratt was hopeful he could use the money from the limited sales he’s making to pay his share of rent on all his properties _ so long as his landlords agreed to apply.

“So far … I’m six for six that don’t want to do this,” he said.

Other landlords, including big real estate trusts like RioCan, have said they’d be open to considering the program.

“We believe it’s incumbent upon us to actively consider participating,” said RioCan president Jonathan Gitlin on a conference call last week.

But RioCan and others in the industry say there’s still too little detail to decide yet.

“It’s too early to tell how cumbersome it’s going to be,” said Michael Brooks, CEO of landlord industry group Realpac.

“No one can make a decision, they’re frozen, until such time as we see all of the details, and we just don’t have them.”

Some of the unknowns include how landlords will verify that tenant earnings are down, what happens if a tenant doesn’t pay their share, and what happens if tenant revenues recover partway through the program. The application process has not yet opened, though it is expected this month according to the CECRA website.

Some landlords will likely also hold off on the program in the hope of recouping full rental fees, said Brooks.

“You’re going to have some who foolishly, I think, will think that if they refuse to cut any slack for a tenant the tenant’s just going to pay anyway and they’ll still be there when the smoke clears. I don’t think that’s the case.”

Other landlords might choose instead to continue with the rent deferral programs they’ve already set up, said Brooks.

Raffaele Morana re-opened Bar Volo at a new Toronto location in October 2019, only to close down mid-March due to the pandemic. He’s since re-opened as a retailer, selling alcohol and some food, such as spices and fish tins, in an effort to make some money.

He worked out an agreement with his landlord, whom he would not name because he doesn’t want to damage their relationship, to pay rent twice a month as opposed to in one monthly sum, but won’t qualify for CECRA in part because he re-opened for some sales.

In order for landlords to qualify, tenants must be closed temporarily or have experienced at least a 70% drop in revenue compared to the same time last year, according to The Canada Mortgage and Housing Corporation’s website. The CMHC administers the program on behalf of the federal, provincial and territorial governments.

Since Morana’s bar wasn’t open between April and June 2019, he must compare his current revenues against an average of this past January and February _ two of the slowest months of the year, and a period that saw a two-week closure at Bar Volo for staff vacations.

He falls a few percent shy of the 70% revenue drop requirement.

“They have to change it,” he said, noting he’s being penalized for staying open.

Even if the government changed the criteria, it’s unclear if Morana’s landlord would even apply, let alone qualify.

His landlord’s “initial impressions” of the program are that the “eligibility rules are in need of explanation and clarification, and … there are fundamental flaws that need to be overcome,” according to a letter shared on Bar Volo’s Twitter account, dated May 5, that Morana says is from his landlord.

“Accordingly, the landlord is not, at this time, in a position to make a decision of whether or not they will opt into CECRA.”

Morana said he found the letter disappointing, though he is sympathetic to the fact that the program is creating confusion.

One of Pratt’s landlords agreed to apply for the CECRA program if Pratt repaid him the 25% in rent that’s meant to be forgiven, which amounts to a little over $560 monthly, throughout 2021.

“… I would like to defer this portion of the payments for one year, and have repayments commence January 1, 2021 and ending December 31, 2021,” reads an email from landlord Abe Salloum dated May 7 and provided by Pratt to The Canadian Press.

“This will provide you the opportunity to get the business up and running successfully and give you time to prepare the adjustment to your monthly rent payments.”

The email had a rent deferral contract attached, which Pratt refused to sign. He has also received a default notice for the location.

According to CMHC’s website, Salloum’s demand that the outstanding 25% of the rent be paid back is contrary to the rules of the program, which state that property owners are “to not seek to recover rent abatement amounts after the program is over.”

Salloum did not reply to requests for comment.

“I said it flies in the face of the prime minister and the premier, you know, the spirit of this program,” said Pratt.

Neither Pratt nor Morana know any restaurant owners whose landlord has agreed to apply for CECRA.

“I’ve talked to a lot of people. No one’s heard anything from their (landlord),” said Morana.

“Well, they’ve heard from their landlords. They’re not doing it.”

Eve Schwarz manages a few properties in Toronto that she and her father own, and has already cut rent for her struggling tenants. She hopes to be able to apply to a government program to ease the loss of income, but with no mortgage she’s waiting on details for a promised second program since the main initiative requires one.

She said she doesn’t understand landlords who aren’t being flexible during these times, and that it’s important to think about the longer-term health of local business.

“How is that going to benefit me to have empty space that I can’t rent in the next two or three months, because things aren’t going to normalize until late summer, early fall.”

She said that delays in rolling out the program, however, are already having an effect.

“Given the fact that so many small businesses haven’t survived the first two months, there’s going to be a lot of vacant storefronts, so I guess that would be the frustrating part, that it took so long.”

 


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Montrealers battle over reasons why their booming city is plagued by empty storefronts

On the corner of Montreal’s historic St-Laurent Blvd. and trendy St-Viateur Street – known for the 24-hour St-Viateur Bagel Shop – lies an empty storefront that has become a symbol of the city’s retail woes.

And Danny Lavy, co-owner of the company that owns the building, has joined a list of real estate players fingered as neighbourhood villains in various pockets of the city.

Lavy and other landlords are accused by local residents, city politicians and small business owners of being major contributors to the wave of vacant storefronts plaguing such storied Montreal arteries as St-Denis Street, Ste-Catherine Street, and Park Ave.

The city last month began holding public consultations to gather suggestions on what to do about the estimated 15 per cent of street-level retail space that sits empty despite a growing population and booming economy. Those who appeared before the committee cited city taxes, lack of parking and changing consumer habits to explain the problem.

But many also expressed frustration with what they called avaricious landlords, who they say are snapping up buildings in popular neighbourhoods, forcing out long-standing tenants with rent hikes and then letting the storefronts sit empty.

Lavy says anyone who believes that doesn’t understand basic economics and the realities of running a business in Montreal.

“Are you joking?” he said in a recent interview at the suggestion his company purposefully lets storefronts sit empty. “We are willing to take … lower and lower rent. You think I’d rather pay my mortgage and city taxes and be empty?”

Buildings on popular streets such as St-Viateur are worth a fortune, he said, adding that former owners on the strip were more than happy to sell to him. When you factor in new mortgage payments, city taxes and renovation costs, landlords need to find tenants who can pay prices that reflect the market’s new value.

The empty store at the corner of St-Laurent and St-Viateur used to house a cafe and music venue selling a meatless menu to a mostly young and bohemian clientele. But Coop Le Cagibi was forced out in 2018 when the previous landlord jacked up the rent. The space has been empty since.

City councillor Richard Ryan is running the consultations and says the city doesn’t have the data to quantify the role real estate speculators and wealthy landlords are playing in the vacancy problem.

But Ryan, who represents the Mile End district where Le Cagibi was located, said there is “no reason” a renter can’t be found to replace it.

Roughly 14,000 workers around the neighbourhood shop and eat on St-Viateur daily, Ryan said in a recent interview. Mile End is also one of the most densely populated parts of the city. St-Viateur, he said, “has all the elements.”

Mark Lazar, a real estate developer with mixed-use properties across the city, said it’s easy to blame so-called greedy landlords for vacancies, but a deeper reflection on the matter reveals other causes.

A lot of vacancies on commercial arteries are big spaces that don’t respond to the current needs of the market, Lazar said in an interview.

Fifteen years ago many of these spaces were filled with spacious restaurants feeding large crowds, he said, but today “entrepreneurial young chefs” are opting for cozier spaces.

Additionally, landlords have to pay hefty upfront costs to renovate before tenants move in. “Today, the cost of (having) a tenant is not well understood,” Lazar said. “They think any tenant can walk in like they walk into an apartment that is already furnished.”

A business owner on Ste-Catherine Street who didn’t want to be named because she is in litigation with her landlord, said in an interview she had tried in vain a couple of years ago to negotiate an affordable rent for several unoccupied retail spaces on the street.

But at least four times, she said, the various real estate agents didn’t want to negotiate because the owners allegedly didn’t care whether it was rented or not. Even empty, the buildings were “just gaining value,” she was told.

But Lazar and Lavy say the main factor behind the vacancies is taxes.

Global real estate consultant firm, Altus Group, calculates that Montreal has the highest commercial real estate taxes among large Canadian cities.

Montreal taxes, Lavy said, “are completely out of whack for a retail operation. Retail is already destroyed because of the internet.”

Ryan and his committee are still collating data from an online survey and from the consultations. He couldn’t say when he’ll be able to propose recommendations to council or what they will include.

But, he said, “people are expecting us to do something.”

Ryan said he’s heard from fiscal experts that big landlords can write off losses associated with empty properties to reduce taxes on revenues from other buildings in their portfolio. Alternatively, he said, the big players have the financial cushion to let the space sit empty and wait until a major chain comes knocking with the means to pay the high rent.

Ron Rayside, with architecture firm Rayside Labossiere, filed a submission to Ryan’s committee, in which he suggested the city impose a tax on owners who let their storefronts sit empty for long periods of time, with the levy increasing the longer it is left empty.

A commercial artery is the heart of a neighbourhood, he said in a recent interview, and there is growing concern that too many are being allowed to wither. “It’s where people walk around, where there is life, where you can meet people,” he said.

Lavy said he had good news for those worried about St-Viateur: He found a business to replace Coop Le Cagibi. “I’m putting a lot of money into it. It’s going to be open by the summer,” he said.

“I can tell you every place I have on St-Viateur will be open by the summer. And I happen to love St. Viateur. Not like – love.”