With commercial eviction moratorium lifted, small businesses bank on communication with landlords
When Will Truce and Jake Conway worked as high school teachers in Carson City, a colleague offered them some crystallized honey from his bee farm, and the two began experimenting with making mead, the world’s oldest alcoholic beverage brewed by fermenting honey with water and sometimes referred to as ‘honey wine.’
Truce and Conway began brewing the honeyed drink out of a kitchen in 2013, filling every nook and cranny of the space with mead bottles and brewing supplies, offering batches for taste testing to friends and family. About six years later, the two opened Black Rabbit Mead, a meadery in Reno's burgeoning brewery district on East 4th Street.
Neither Truce nor Conway could have predicted that within the first year of opening, a global pandemic would devastate the local economy. The unprecedented shutdowns of non-essential businesses to halt the spread of the virus threw financial plans into disarray. The two had to develop creative ways to pay the rent along with other expenses.
Though the bar room is closed, Truce and Conway are still serving customers through curbside pickup services, but business is down and the situation is far from ideal.
"We have a bit of a cushion for ourselves, but the most challenging thing about the pandemic is the uncertainty that the future brings," Truce said. "In a given week, we could stay alive and maintain our optimism or at least our hope that things will start to ease up and we'll be able to [fully] open again soon. Now, if that doesn't happen, making our monthly payment is going to get a lot harder."
Black Rabbit Mead is just one of Nevada's 254,337 small businesses with fewer than 500 employees, 25 percent of which are having difficulties meeting rent obligations, a spokesperson for the treasurer’s office told The Nevada Independent. Gov. Steve Sisolak lifted a moratorium on commercial evictions on June 25, allowing landlords to evict commercial tenants for non-payment of rent beginning July 1. To help struggling commercial tenants, the state is rolling out commercial rental assistance for small businesses, but experts say an increase in commercial eviction filings are on the horizon.
Aaron Lovaas, a partner at Newmeyer Dillion law firm’s Las Vegas office, expects to see the initiation of commercial evictions increase now that the moratorium is no longer in place. But because the governor’s directives contained explicit language encouraging commercial landlords and tenants to negotiate contracts and establish repayment plans in lieu of vacating a space, he believes judges will be more sympathetic and give tenants and landlords encouragement to work something out.
Lovaas added that initiation of the eviction process might be used to encourage an enforceable payment plan and that there will likely be an increase in bankruptcy filings as a way for tenants to suspend litigation and perhaps restructure a lease or work with a landlord to figure out a deal satisfying both parties.
“Everybody maybe initially will have a little more willingness to work with one another and try to help others get out of the situation. I think landlords will lose their patience with that as time goes by,” Lovaas said. “So maybe we won't see this immediate surge in eviction efforts in commercial space right away, but perhaps a month or two from now as those efforts to negotiate a payment plan fail, I think that time will tell, but we'll definitely see an increase.”
As for tracking statistics surrounding the number of commercial evictions that might take place, Lovaas said it will be difficult because a landlord can seek a summary eviction without having to file anything in court unless that landlord is seeking payment for unpaid rent.
There will “unequivocally” be an increase in the number of commercial evictions, said Jeremy Aguero, a principal analyst with Applied Analysis. In a survey the company conducted of about 2,600 businesses in Nevada last month, Aguero said, 17 percent of businesses renting indicated that they were not paying rent and 10 percent of businesses with mortgages said they were not paying on those loans.
“I think we will probably see more [commercial evictions in] the fourth quarter of 2020, and the first quarter of 2021,” Aguero said. “One of the determinant factors is going to be the extent to which stimulus is extended and the obviously the extent of which the economy comes back and science sort of overcomes the challenge of the virus.”
In a press release sent out Friday, leaders of the Commercial Alliance Las Vegas (CALV) said the real estate industry and tenants in Southern Nevada are navigating the pandemic better than many anticipated, but were wary of how a prolonged economic downturn might affect the industry in the long term.
Landlords and tenants are working together and navigating the pandemic as best they can, said CALV President Robin Civish, a longtime commercial real estate broker in Las Vegas.
“The cost to re-lease a space can be more than a couple months of past-due rent,” Civish explained in the release. “Landlords are not gunning to get good tenants out. Good tenants are not looking to get out. It’s those tenants that were struggling before the onset of the pandemic and shutdown that will be the hardest hit and the most likely to leave the market.”
Landlords struggle along with businesses
The lifting of the commercial eviction moratorium gave landlords the ability to address "bad actor" tenants taking advantage of the situation, such as larger companies or businesses with the revenue to pay for rent or utilities, said Jay Heller, the former president and current chair of the government affairs committee for the commercial real estate development association NAIOP.
"The obligations are still there to pay property taxes. The common power for the property, the landscaping, the cleaning, the trash," Heller said, noting that landlords have lenders to pay and can be caught between bills and non-payment of rent.
There is no federal assistance for property owners or financial aid for landlords from the legislature, Heller added, and many loans have restrictions that preclude the acceptance of additional debt.
"We misperceive landlords," he said. "They're struggling just as much as the businesses are."
Heller, who also owns commercial property, pointed out that moving a tenant out of a space can be expensive and a hassle. He said that landlords do not want to evict a business, especially during a pandemic when finding another commercial tenant could be difficult, and that the lifting of the moratorium incentivizes communication between landlords and tenants.
"[Eviction is] a last resort that you would go through because again, it's in the best interest of the property owner and a business to work together, to try and keep the business in business and operating and not have that vacancy," Heller said. "And, that's the ultimate goal too, to keep people in their jobs and continue to work."
Though smaller, more local landlords might be more willing to work with and can more easily negotiate with their clients, Lovass said that many industrial spaces are owned by larger companies with headquarters located in other parts of the country. He worries about tenants who may be trying to connect with these larger companies which can have poor communication between departments resulting in a tenant receiving an eviction notice even though they set up a repayment agreement.
“Unfortunately, it's going to be the tenant who is in the position of trying to navigate that and get in front of the right people and try to negotiate a resolution,” Lovass said. “It's also difficult in these circumstances because the tenant is behind in their rent … and if they can't pay their rent, they don't have a lot of income around to pay lawyers to go fight for them and get this resolved. So it's going to be somewhat unequal bargaining power out there.”
Initiating the conversation
Lisamarie Wand, the commercial division director for the real estate agency Keller Williams Group One, also works as a commercial real estate broker in Northern Nevada. She realized that with the ongoing pandemic and the commercial eviction moratorium dissolving, landlords and tenants were operating in a quickly changing territory and began offering her services for free to both groups via Zoom conference calls.
Though she has not had any landlords take her up on the offer, Wand said that her conversations with tenants focus on negotiating with landlords to figure out a long-term plan. Ideally, a plan would allow the business to remain open, keep employees on payroll and pay rent at least through the beginning of next year.
"The goal is to get the tenants and the landlords in conversation, so we don't have a landlord that just freaks out, for lack of a better term, and then evicts the tenant, ‘cause nobody wins under those circumstances," Wand said, noting that, unfortunately, this has happened to some businesses.
Landlords still need to pay overhead costs and maintain buildings, which can be difficult if they do not receive rent money, Wand said, adding that deferment plans can help address a landlord's fears about not collecting rent. Still, many tenants may not know how to start that conversation.
"The main issues are tenants needing some education and some verbiage to begin a conversation with their landlord, because most of them really don't know where to begin because they have this legal document that is their lease, and they may not understand the terms of the lease and they may not understand what can I ask for," Wand said.
Knowing how to contact and communicate with her landlord stumped Jamie Laughton, the owner of Ceramic Tile Center Stonework and Design in Sparks.
She sent a letter to her landlord about deferring rent payments or pursuing rent forgiveness, but for six weeks, all she heard was radio silence until she reached out to Wand.
"[Wand] said, ‘I cannot write the letter up for you, but I can give you points and make suggestions and then you put it in your own verbiage,’" Laughton said, describing how Wand helped her put together graphs displaying rent fees, care and maintenance fees as well as income and figure out the language necessary to get her landlord's attention as well as ask for a deferment plan.
Laughton added that Wand also gave recommendations that helped her receive rent forgiveness, negotiate a deferment plan and amortize forgiveness.
"My knowledge base was not enough to approach the situation because apparently the first letter I sent did not get answered. So I felt I needed guidance," Laughton said, explaining that she sent Wand flowers, but wishes there was more she could do to express her gratitude.
Wand said she was glad to help, but it will be a while before landlords and tenants are out of the woods. She believes the pandemic's effect on commercial evictions will not be evident until perhaps the end of the year, even continuing into next year.
"It is really important for us to do everything we can to help [landlords and tenants] be successful over the long haul, because COVID is not going anywhere. I think that, you know, the next 18 months is going to be a challenge," she said.
In Las Vegas, Deborah Armstrong, the owner and founder of Pour LV, one of Nevada's only Black-owned coffee shops in a country with a disparity in Black entrepreneurship, bought out the last couple months of her lease and temporarily closed the shop.
The governor's mandate to close non-essential businesses and move to carry-out orders was not financially feasible for her coffee shop, Armstrong said, explaining that fixed costs such as rent and electricity still needed to be paid.
Though she applied for PPP loans, her business only had three employees, including herself, and the funding would have only helped her stay afloat for one more month — not feasible for long-term planning.
Armstrong, who left the corporate world to open a shop centered around the community, said she misses her customers and is looking forward to re-opening.
"My phone rings constantly throughout the day. Just people wondering, are you open to get take out and so on," Armstrong said. "And then when I let them know that we're currently closed, you can tell that there's a level of disappointment. And that refreshes me to know that people really did like what we had."
Nevada small businesses employ about 42 percent of Nevada's private employees. Roughly 47 percent of small businesses across the U.S. have two weeks or less cash liquidity, placing Nevada small businesses — and their employees — particularly at risk from the economic effects of COVID-19, according to a report from the Guinn Center.
To help businesses struggling to make rental payments, the Treasurer's Office and the Governor's Office of Economic Development rolled out a commercial rental assistance grant. The grant, which consists of $20 million supported by COVID-19 relief funds, is designed to help small businesses and non-profit organizations with less than 50 employees that lost significant revenue because of the pandemic.
State employees targeted the grant criteria for businesses such as Pour LV's which did not qualify for PPP loans or other aid, Zach Conine, the state treasurer, told The Nevada Independent. He emphasized that small businesses are a source of addressing Nevada’s wealth gap and essential to the state's economic recovery.
The treasurer’s office is prioritizing businesses that suffered a significant revenue decline and are owned by a women, minority, veteran, nonprofit, or individual with a disability. Historically disadvantaged groups will have access to the funds first because individuals identifying within those categories usually face the most difficulties in establishing a business, Conine explained.
Applicants may receive up to $10,000 in grant aid, which means that the fund can support about 2,000 to 3,000 businesses. Though it will not meet the financial need of every business owner in the state, Conine said it is a start.
"We would like it to be able to help everybody, but if we can help, [2,000 to 3,000] businesses stay operating, pay back rent — which helps landlords, not just tenants and keep people hired — that's a good use of the funds," Conine said.
He added that future coronavirus relief money could potentially increase the size of the fund.
Applications for commercial rental assistance open on Aug. 24 and close Aug. 30. In the meantime, Black Rabbit Mead's owners are developing strategies to help meet gaps in revenue.
"We keep trying to hustle to find new ways to make money," Conway said with a laugh, explaining they created an online web order option and are exploring the idea of opening a coffee shop during the morning.
He and Truce said they have been grateful for the community's support and are just taking each day as it comes.
"In the end, we find that you can't rely upon the government to support you. You can't rely upon your landlord necessarily to support you. It's all about collaboration with other small businesses and keeping the community aware of what you're doing," Truce said. "That's really what's kept us alive.”