We’ve seen hundreds of billions of dollars go to banks and Wall Street and so far not much stimulation has occured. We hear that much more money is need to be a proper stimulant and maybe thats true.  In fact most of America is staking their financial future on the premise that the government’s Stimulus Package will work.

In the meantime property owners are often being put in a position of having to offer their own Stimulus Plan in the form of rent concessions.  Many times tenants feel that the property owner has no cost of doing business and what ever money comes in goes to the bottom line.  That is borne out but the size of the rent concession tenants often request or even demand.

As a property manager and owner we are getting more and more requests from tenants to reduce the rent. However, many seem to think that the property owner is going to have to cave in to these requests or will lose the tenant.  The request can be a 50% rent reduction as though there is no hardship attached to the landlord taking such a cut in income.

There is little thought given to the fact that if income is reduced so drastically the landlord may be in jeopardy of losing the property to the lender.  There is also little thought often given by tenants that perhaps they should speak to their own bank to see if they can get a break on their loan payments or do a total loan modification, perhaps in combination with some sort of rent concession so that everyone can get by these tough time.

I advise business people to prepare a thoughtful business plan that may include a reasonable rent concession.  This plan should show the businesses ability to survive during hard time with all creditors involved in keeping it afloat.  If the tenant waits until they are already in serious default on the rent it becomes problematic to solve their problem either with the landlord or their banker.  Waiting until hope is gone is not a good way to keep one’s business functioning. 

Lets hope that the government Stimulus Plan will achieve it’s purpose and bail America out of its financial doldrums.  In the meantime business and professional people in need of rent relief will hopefully look at the entire picture for relief and not put all their eggs in the landlord’s basket. 

In the past 5 years our response to these problems has been something like “I’m sorry to hear that but we just can’t carry you while you solve your problem”.  Maybe a little cold sounding but  we really hadn’t heard very much of those kind of issues and secondly there were plenty of other tenants to take the current tenant’s place.  Maybe, if the tenant had a good record with us we gave them a little time to catch up and they almost always were able to.  Times were good.

In today’s upside down world, things are very different.  We are having lots of these conversations and we need to do lots of analysis and thinking about what we are going to do.  There are no longer lots of other tenants waiting in line and if there are they may well be planning on paying much less than the current tenant.  In addition a vacancy that once leased up in a matter of days or weeks can now take months.  More to the point is that so many people need some help it behooves us to try to mitigate their problem in some way.

Commercial rent concessions are commonplace these days where once even the thought of a concession ellicited a sneer and a scoff.  In many cases commercial tenants are demanding to reneogitate their leases or are just walking. The landlord can sue of course but it takes a great deal of time and money to do that.

The goal of Property Managers is to enhance the property owners asset value by operating the property efficiently, maintaining it for the future and to provide profits to the owner.  How do you do all that in an economy where there is so much hurting going on and that seems to be going further and further downwards towards a possible depression (whatever that is defined as)?

The answer lies in running a tight ship, mitigating rent losses by working out payment programs with good tenants with good payment histories, trying not to incur large vacancies problems by keeping the better tenants if at all possible.  Saying all that it is important that tenants are not allowed to fall too far behind because many will never be able to get caught up.  If they are unable to pay any rent then it is probably better to have a vacant office or store.

  Maintenance must be kept up but perhaps some projects can be delayed awhile and still keep the integrity of the physical plant.  Costs for the more sizable projects can be negotiated down to some degree these days where that was almost impossible just a year or 2 ago.  Obviously stretching the dollar in tough times becomes a necessity.

Good management is key to success today, more than it has been for many years.  I believe that those that have it will get by the next couple of years without too much pain. Those that don’t will have to start planning their comeback in 2011 or 2012.