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NY small businesses need rent breaks, but landlords are in crisis too

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The landlords face an unpleasant choice: forgive or lower rent payments even as their own bills pile up, or hold firm and risk the prospect of losing a tenant who may not be replaced for months or even years.

[NEW YORK] After a laundromat in Manhattan said it could not pay its monthly rent in April and May, the manager of the property, Aaron Weber, asked for half the US$7,200 bill. Mr Weber allowed another struggling tenant in the neighbourhood, an electronics repair store, to pay one-third of its US$12,500 monthly rent.

A nearby clothing store in the Chelsea neighbourhood also had its US$10,000 rent cut by 50 per cent. The drastic reductions are part of a desperate effort by Mr Weber and his company, which manages nearly 40 commercial properties in Manhattan, to stave off vacancies, even as revenue plummets and taxes, utilities and other costs erode their own reserves.

"We kind of just take what we can get and work out a number," Mr Weber said. "As long as they are paying something, we're happy." Thousands of small businesses that are a staple of city life have been ravaged by the pandemic, leaving them unable to pay basics like rent. That in turn has set off an extraordinary crisis for landlords, who have lost tens of millions of dollars in income since the city's lockdown began in March, analysts said.

The landlords face an unpleasant choice: forgive or lower rent payments even as their own bills pile up, or hold firm and risk the prospect of losing a tenant who may not be replaced for months or even years.

Even as some landlords are cutting rents, others have been unwilling to consider any compromise, going so far as to threaten tenants with lawsuits even if a business faces permanent closure.

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As a result, the relationship between tenants and landlords, often difficult in normal times, has become more complicated and a major challenge for New York's recovery, with worries growing among industry figures, brokers, landlords and some business owners that a combination of high rents and mounting debt could yield rows and rows of barren storefronts.

"On the tenant side, the stakes are a massive wave of not temporary but permanent closures, which will mean damages to personal credit scores, many lost jobs and all the ripple effects," said Ari Harkov, a broker who has worked with commercial landlords and tenants. "On the landlord side, you're talking about potential foreclosure; you're talking about people defaulting on their loans, not being able to pay their bills. That could be very, very painful for New York.'' Louis Rossmann, owner of electronics repair store Rossmann Repair Group, said he asked Mr Weber for a rent reduction after he lost between US$50,000 and US$70,000 in revenue in April as foot traffic dramatically declined in Manhattan.

The store sits on West 27th Street, where signs seek new tenants for at least seven retail and office spaces. Other shops and restaurants, like one advertising pizza for 99 US cents, remain shuttered. A page taped to the window of Kano Martial Arts said it has shut its doors to safeguard public health.

Mr Rossmann said he appreciated the lower rent, which helped him keep workers employed. He has also been bolstered by an uptick in customers mailing their devices in for repair, and he was able to pay 60 per cent of the rent in August, Mr Weber said.

Still, he is considering leaving New York since even his reduced rent is still higher than he would pay in other cities. Without reliable foot traffic, he said running a small business in Manhattan is probably impossible.

"I don't know what the city is going to be next year," Mr Rossmann said.

Alimu Sow, owner of clothing store Shaw and Barrie Enterprise, said he shut down from March until June. Mr Sow said the store has had about half the customers it had before the outbreak.

Federal coronavirus relief and a pay reduction kept his three workers on the job, he said, but rent is Mr Sow's biggest cost, and he said he could not stay open without a lower monthly bill.

Even as the pandemic has receded in New York, the future for his small business, as for many others, is murky.

"That's our hope; that it's getting better," he said. "But what it's going to be, we don't know." There is no accurate way to gauge how many landlords have granted rent relief, but commercial real estate brokers say anecdotally that a growing number of tenants are getting some kind of decrease.

The pain varies. Commercial tenants like restaurants, shops, salons and others have been hit harder than companies in office towers.

Bigger landlords, who have apartments or offices as well as spaces for small businesses, can often help offset the rent lost from retail tenants.

And retail businesses have been particularly devastated in lower Manhattan and midtown, areas that depend on office workers and tourists and where rents were already high.

Government aid programmes, like the now expired federal Paycheck Protection Program, have helped businesses stay open, and Governor Andrew Cuomo recently extended a moratorium on evictions of commercial tenants until Sept 20.

But most businesses are still required to pay rent, and not all landlords are being flexible.

In a survey of 500 restaurants, bars and other businesses released recently by the New York City Hospitality Alliance, about 60 per cent said landlords would not defer rent payments in July. In another survey by the Brooklyn Chamber of Commerce, roughly 25 per cent of small businesses reported receiving some sort of concession on rent.

"I think landlords to some degree are being cautious about renegotiating their rent and moving forward because they don't know the extent of this crisis," said Andrew Rigie, the alliance's executive director.

In some cases, mortgages place restrictions on how much a landlord is allowed to lower the rent, and many landlords say they need income to pay mortgages, utility bills, property taxes and insurance premiums.

The bills for the commercial property owners who are Mr Weber's clients amount to tens of thousands of dollars every month. The monthly water bill averages about US$S2,250 per building; maintenance is about US$2,000; electricity and gas is about US$1,000; and insurance costs are another US$1,000, Mr Weber said.

And then there is the biggest expense: property taxes. For the building with the laundromat, which also has two other commercial businesses, monthly taxes are roughly US$18,000. For the building that houses the repair shop and the clothing store, which also has residential units, the tax bill is about US$10,000 per month.

"We have a year's worth of taxes saved up," he said. "That's kind of the standard amount that owners hold in their reserve account. Once that's dried up, it's going to be scary."

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