Commercial rent threat facing New York City

Things seem to be getting worse in New York City, as reports from landlords suggest that the majority of retail tenants have missed out on rent payments as at their due date.

One affected landlord reported that as much as 80% of tenants have defaulted on rent payment, and expressed fears that this could affect the property tax collections which fund vital city services. 

According to the Community House Improvement Program, a group which represents around 4,000 landlords of rent-stabilised apartment buildings, up to two-thirds of commercial tenants failed to pay their rents in April and May, with a significant 5% increase in the number of tenants who did not pay rent in May compared to April.

Businesses across New York City have been affected, and both renters and business owners alike are doubtful that the situation would change any time soon. The primary reason for these defaults, of course, are the lockdowns imposed by the government to curtail the deadly Covid-19, and experts have stated that the far-ranging effects of these lockdowns have grown to affect residents who can’t pay bills, rent or taxes, and property owners who are starved of their monthly income.

Building owners really need to come up with enough money to cover looming property tax bills in the next five weeks as these effects are projected to grow and affect funding for emergency services like the fire department and public hospitals, as well as essential services like trash pickups.

This comes at a time when various tenant right groups and social justice agencies have railed against actions by landlords to collect rent from tenants, and the ensuing battle has grown to encompass companies with NYC offices or retail spaces who have allegedly been far more aggressive in skipping rent.

As the lockdown lengthens and savings gradually run out, some of the largest commercial landlords in the city have also reported a significant decline in the number of tenants who have paid their rents. This problem isn’t restricted to individuals however, as Vornado Realty Trust — one of the city’s biggest commercial landlords — has reported that most of its retail clients have sought a deferral on rent payments.

In a statement attributed to its Chief Executive, Steve Roth, 80% of its retail tenants defaulted on rent payment during the months of April and May, although this number had fallen to 47% as at the end of April. Similarly, only 60% of office tenants were able to pay rent at the start of April and May, but this percentage has also improved to 90% at the end of April.

As a result of these figures, the company has sent out a warning to investors that this decline in revenue, in addition to the growing uncertainty about the state of the economy as the lockdown continues, may lead to a reduction in the value of the company’s property. 

There was a similar bleakness in the reports from Empire State Realty Trust, the owner of the Empire State Building and eight other Manhattan office properties. They reported that more than a quarter of its office tenants, and up to 50% of retail tenants defaulted on their April rent.

According to the Chief Executive of the company, Anthony E. Malkin, the company had begun to seek alternative ways for tenants to handle their rents, including deferring it to the end of their leases or using their security deposits.

As predicted by experts, the lockdown has also affected tax revenue in New York City. The Real Estate Board of New York has showcased a significant drop in monthly revenue from $217.5 million in March to $78.5 million in April on the sale of commercial and residential properties.

This is the direct consequence of the prohibition on the showcasing of homes to new buyers during the lockdown which led to a drastic reduction of the numbers of homes sold in the month of May by as much as 50% from the previous month.

This represents a significant problem for the city on an individual and state-wide level, as the failure of individuals to make rent payments on time would lead to financial impoverishment of the landlords, which would in turn affect the remittance of tax to the government.