McNellis: Our Retail Marshall Plan

McNellis Palo Alto retail
Photo by MILKOVÍ on Unsplash

By John McNellis

Because we’ve been in the neighborhood shopping center business for decades, not only our tenants but also our competitors have begun asking us what, if anything, we’re going to do to help our small businesses in this plague year. As of today, March 17th, all of our tenants in the greater Bay Area (save supermarkets, banks and a few others) have been shut down for several weeks by government order. 

McNellis

Here is what we’re doing: 

We are forgiving all rent and other charges (so-called NNN expenses) for the month of April for our mom & pop tenants that have been forced to close, regardless of their business type or when they may reopen. That is to say, even if a tenant reopened on April 3rd, rent for the month would still be forgiven. 

We will treat tenants that are mom & pop franchisees of national companies (e.g. Subway) slightly differently. Because our financial resources are a light-year from infinite, we will need the big guys to help us help their franchisees. Thus, we will forgive our franchisee-tenants’ rents up to that same one-month, but only on a dollar-for-dollar basis with credits granted to them by their parent company; i.e. if Subway gives our tenant a $2,000 franchise fee credit, we will give it a $2,000 rent credit. 

We will give the same one-month credit to our mom & pop restaurant tenants outside the Bay Area even if they never shut down. But, as to our other small business uses that remain open, we will consider a rent credit on a case-by-case basis. Some tenants are suffering terribly, while others (e.g. cigarettes and alcohol) appear to be thriving.

If a given tenant needs more than one month’s help, we will consider that on an individual basis, likely tying any additional help with a concession from the tenant (e.g. exercising an option, extending the lease term, or perhaps a downstream rent increase). 

Many of our national credit tenants are also suffering in this plague year, and we completely sympathize with their plight. They, however, will weather the storm. Also, they are highly sophisticated and understand that our lenders will not be forgiving any of our interest payments and that we are simply unable to offer rent breaks to credit tenants. 

We trust and hope that our world will have substantially returned to normalcy by May 1st, even if it takes months to fully recover.

John E. McNellis is a Principal at McNellis Partners in Palo Alto, Calif.

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To read more from McNellis, please consider his book Making It in Real Estate: Starting Out as a Developer.