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For the good of all society retail payment relief must be a two-way street

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By Tom Brown
10 Nov 2020

With the UK in its second lockdown, there is growing frustration among commercial landlords that retailer tenants are taking advantage of payment waivers. It is vital for the health of the commercial real estate sector and the pension funds that finance it that this is not allowed to happen.

Unibail-Rodamco-Westfield is said to have threatened a number of tenants at its Westfield shopping centres in London with legal action, including high profile names like Hugo Boss and Pret A Manger.

During the first lockdown, which began in the UK on March 23, there was a feeling that everyone was in it together, and landlords should bite the bullet for the good of the UK High Street. This time around there seems to be a lot less camaraderie.

Many have decried what they see as URW's strong arm tactics, shaking down retailers at ta time when they are unable to pay rents as the UK looks to lower its infection rate.

Owner of The Entertainer, a chain of shops with branches at Westfield centres, Gary Grant even appealed to his MP, writing that he was “shocked and disappointed with the untimely and aggressive approach.”

But URW — which has financial troubles of its own — isn’t in the wrong. It has every right to demand rent from tenants; especially those who have had around three months of trading.

Hugo Boss's third quarter results saw a swing back to profitability after a tough start to the year, spurred by a successful online business, while Pret has launched an online subscription-based coffee service.

According to legal sources, internal discussions among many commercial landlords has led to some  classifying these tenants as “can’t pay, won’t pay” — simply taking the option of skipping the rent because the coronavirus rules allow them to.

To permit this would not only hurt URW's ability to negotiate with its other tenants, but it also hits the real economy harder than those on the side of the tenants might consider.

For a start, URW is a business too, with employees and dependents and all the rest of it. But further, there is a vast amount of pension money wrapped up in commercial real estate.  — meaning that millions of ordinary citizens have a dog in this fight and need rents to be paid if they can. 

Letting our shopping centres and property owners default not only damages the health of public facilities, but it also risks cutting off pension returns at a point when the elderly are the most vulnerable in our society.

Around 16% of pension fund investment is held in commercial real estate via REITS, according to lobbyist firm Nareit, while Investment Property Forum research estimates that 30% of all defined contribution pension schemes invest in property.

Any capital grown in CRE accumulates tax-free, making the sector a popular choice for those looking to grow their own pension before retirement.

URW's Westfield Stratford in east London is securitized in a CMBS deal, launched in 2014 and ultimately backed by two pension firms.

At a time when the pensions industry is frequently in the news for its financial shortcomings, it seems a strange decision not to support its claims when retail tenants won't pay the rent. It certainly seems a cheaper option than waiting until various pension schemes need bailing out.

Fairness should be our aim when it comes to sharing the cost of the pandemic. As such, rent relief has to be a two-way street.

By Tom Brown
10 Nov 2020