Rent deferment to help your cash flow

How a landlord may be in a position to help you with rent during these difficult times

04/13/2020

COVID-19 is just bad for everyone. Good businesses are unable to step foot in their store, office, restaurant, factory or facility resulting in frozen receivables and payables. Landlords are caught in the middle of tenants not being able to make rent payments and their mortgage debt payments. It is all just a great big mess.  

The Payroll Protection Program included in the CARES Act may provide some relief, but it is focused on assisting companies with their payroll to help employees through shelter in-place while their employer's cashflow is frozen. In addition, these loans are administered through SBA-approved lenders and these lenders are going to follow the rules to the letter to ensure they are 100% guaranteed by the SBA.

The other SBA option for companies is the Emergency Inquiry Disaster Loan (EIDL) program. This is a loan to SBA qualified companies for payroll, utilities, rent, and/or mortgage payments. While many businesses may fall into the SBA qualifications, they may have a line of credit with covenants that make it not possible to leverage the EIDL program.

Rent costs are typically the second highest expense to companies behind their payroll, so help with this expense may make a huge difference. Below is an option that may work for you and your landlord.

First, we believe working as a team and being completely transparent is critical for both the tenant and landlord. Both parties need one another to survive. That said, rent deferment is a way to reduce your current rent for payment at a later time. Typically rent deferment will be structured like an amortized loan. There are several ways to structure this and will depend on the Landlord and Tenant's current situation.

Landlord situations that may impact rent help:

  • If the property is heavily leveraged, the landlord may need help with the property's debt service. In these cases landlords may be open to deferring a portion of the rent and forgiving a portion of the deferred payback at a later time.
  • In cases where the property is part of a larger portfolio of properties, landlords may be open to deferring rent by adding to the term of the lease or treating the deferred rent as a loan that can be paid back throughout the term of the lease.

Below is how the general structure works, but will heavily depend on each situation, which we can help you think through.

Rent Deferment Scenario: 100% deferment of rent for a set number of months: Landlord then amortizes the total deferred rent over a set term where the tenant pays additional rent.

Assumptions:

  • Defer rent for 3 months beginning May-20. This would be deferred rent for May, June and July.
  • Monthly rent = $20,000
  • Landlord's cost of capital (COC) = 10% Annually OR 0.83% monthly (10%/12)
  • Landlord amortizes the total deferred rent plus their COC at 8% interest over 12 months
  • Tenant begins to pay back through additional rent beginning September-20 through August-21

Total Amount Financed = Total deferred rent + cost of capital: $61,513.95

Month

May

June

July

August

Deferred

$20,000

$20,000

$20,000

$0.00

COC

0.83%

0.83%

0.83%

0.83%

Total

$20,166.67

$40,501.39

$61,005.57

$61,513.95

 

Amortization Table: Monthly Principal & Interest Payments for Total Amount: $61,513.95

Month

Aug-20

Sep-20

Oct-20

Nov-20

Dec-20

Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

Jul-21

Aug-21

Principal

$0.00

$4,940.91

$4,973.85

$5,007.01

$5,040.39

$5,073.99

$5,107.82

$5,141.87

$5,176.15

$5,210.66

$5,245.39

$5,280.36

$5,315.56

Interest

$0.00

$410.09

$377.15

$343.99

$310.61

$277.01

$243.19

$209.13

$174.85

$140.35

$105.61

$70.64

$35.44

Total P&I

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

 

Rent: August-20 through August-21 - Amortized P&I payback begins September 2020 through August 2021

Month

Aug-20

Sep-20

Oct-20

Nov-20

Dec-20

Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

Jul-21

Aug-21

Rent

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

$20,000

P&I

$0.00

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

$5,351

Total

$20,000

$25,351

$25,351

$25,351

$25,351

$25,351

$25,351

$25,351

$25,351

$25,351

$25,351

$25,351

$25,351