H&M, Staples, and Primark are refusing to pay rent, and it's setting a dangerous precedent that could squeeze retail landlords globally

• As stores across the US and Europe remain closed, retailers are shifting the financial burden of expensive brick and mortar stores on to their landlords by refusing to pay rent.
• Experts say this has disastrous knock-on effects as landlords, who have their own mortgage payments and loans to consider, will be unable to pay up having bigger economic ramifications.
• The solution, they say, is for tenants, landlords, and their financial backers to work together to come up with a solution.
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Retail companies across the US are grappling with a global pandemic that's forcing them to keep their stores closed, drying up business, and putting their futures at risk.

The US is weeks into the lockdown with no clear end in sight and some retailers, who are growing increasingly concerned about depleting cash reserves as sales drop off but expensive store rents remain, are shifting the financial burden elsewhere by refusing to pay their landlords.

Refusing to pay rent puts landlords, who have their own mortgage payments and loans to worry about, also at risk of failure, and greater pressure on the companies that finance them - the banks, hedge funds, and pension funds - which is likely to have wider economic ramifications, experts say.

'It is not our fault that it is happening'

In the US, a small group of retailers are so far reported to have refused to pay rent. Among these are the national chains - Staples, The Cheesecake Factory, and Mattress Firm. In Europe, H&M, Primark, and Adidas (though it went back on its decision) have done the same.

But industry experts and insiders painted a gloomier picture of the breadth of this crisis, which could see considerably more retailers refusing to cough up on their rent in the next few months.

Greg Maloney, who heads commercial real estate services company JLL Retail in the US, which offers property management and leasing services for landlords, told Business Insider that by April 9, it had received 20% to 25% of the anticipated rent for the month.

In a normal month, outside of the crisis, he would expect to collect around 50% to 60% of rents by that point in time. And well over 50% of the retailers that lease spaces with their clients had been in touch to say they will need help in April and May, he said.

"By the end of the month, we probably will have discussions with every single one of them," he added. JLL manages 625 retail assets from shopping centers to single buildings in total.

"We have letters saying: 'We need rent abatement for the next three months. Here's the agreement, please sign it,' all the way up to: 'Hey, can we call and work this out.'"

Maloney said the general consensus amongst landlords is there is no reason why they should abate the rent or why the responsibility should entirely fall on them. "It is not our fault that this is happening," he said.

"Deferral is our preferred avenue," he added. We think it's fair. When things come back and they start doing well, they will have the money to pay us back."

Keeping retail spaces full is the priority

The biggest priority is preserving occupancy levels and reopening stores. "Every single one of us wants to get them back opening, operating," Maloney said.

The fear of stores being left bare gives retailers somewhat of an upper hand here. As does the fact that it is a complicated process for landlords to evict their tenants and one that couldn't happen overnight.

Big retailers have "the whip hand in the relationship between tenant and landlord," Neil Saunders, managing director of GlobalData Retail, told Business Insider, and are "using this power to deny payments or to slash their rent bills."

"It is an absolute anathema for a landlord to see their stores go dark...the likelihood of being able to release spaces in light of this crisis is enormously challenging," Mark Cohen, a retail expert and director at Columbia Business School, told Business Insider.

"At the end of the day, a dark store is deadly for any landlord," he said. "It's deadly from a position of no cash flow, and it's deadly because it diminishes the value of the property at large.

"This is why so many malls in the US pre-pandemic were more or less failing because they were becoming increasingly encumbered by vacant stores and tenants."

So what's the near-term solution?

Working together.

"The key is staying in close communication with each tenant and remaining flexible and available," Philippe Lanier, principal at EastBanc, a commercial real estate developer based in Washington, DC, told Business Insider.

He continued: "I've seen most landlords come to the same conclusion: the goal is to come out on the other side, not to collect all of our money today."

This doesn't only mean landlords being open to offering rent deferrals but the financial bakers behind these landlords also offering some kind of relief.

"Everyone in the mix, the financial backers of landlords, the landlords, and the tenants, they are all caught in a web of crisis. Cool heads need to prevail because otherwise, we are going to have chaos," Cohen said.

He added: "It is an issue where there are no winners or losers, everything runs the risk of being a loser and everything hinges when does this pandemic come to an end and what the ramifications of that end and how do we adjust for the way this thing ends and what society looks like going forward.

"This is a brand new normal. We need some framework with which to adjust and some element of fairness that spreads the burden equitably," he said.

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