Northwest Arkansas Democrat-Gazette
Retailers’ reliability a sign of recovery
Lenders note rise in on-time rent
Retailers are paying rents on a more consistent basis, with a new report from Stephens Inc. noting the payments bounced back in July and “it appears rent trends are on the mend” after troubles this spring.
The Stephens banking research team surveyed lenders across the nation and found that rent payments have improved since April, when about 66% of essential retailers were paying rents. That improved to 90% last month.
The improvements are welcome news for Arkansas bankers monitoring mortgage payments and other loan activity affected by the coronavirus pandemic.
Rents collected from retailers are used to pay commercial real estate loans and mortgages that developers have with banks.
Arkansas bankers note the retail sector, buoyed in part by federal aid through the Paycheck Protection Program, seems to have bounced back from pandemic-driven economic troubles that began in March.
“At this point, we’re pleased with the improvements we’ve seen in cash flows,” said Jim Cargill, president and chief executive of Arvest Bank operations for much of central, northeast and southwest Arkansas.
“We’ve fared much better than we expected.”
Cargill, and Jon Harrell, chairman and chief executive officer of Generations Bank of Rogers, both noted that requests to defer loan payments spiked in the spring when about 20% of borrowers asked for modifications.
That number is down to about 1% today, Cargill said Tuesday, noting that many small businesses received cash injections from the paycheck program, which was established to help pay rents and other essential expenses.
Businesses are not yet free from pandemic challenges, the bankers said. “The longer this pandemic goes on, the greater the risk factor,” Cargill added. “We’re not out of the woods yet.”
Generations Bank, which operates mainly in the northwest corridor, has seen “substantial improvements” with borrowers’ cash flows, Harrell said.
“We have only a few customers that are struggling, mainly in downtown locations,” he added. “Most businesses appear to be coming back but it seems like some of the mom-and-pop operations are still having some difficulty.”
Signature Bank of Arkansas, focused on small business lending in the northwest corridor and Brinkley, has not experienced any downturn in rent collections or other loan difficulties, according to Chairman and CEO Gary Head.
“We have not experienced past due issues with any of our clients,” Head said Tuesday. “We have been very, very fortunate.”
Stephens reports that the past three months also have seen a higher percentage of retail tenants paying rent on a regular basis. The report found that 61% of tenants paid more than 75% of their rent in July, up from 39% in April.
Steady and reliable rent payments are good news for lenders looking to avoid any further increases in loan deferments or losses. “We believe
this level of rent collection should provide enough revenue for many retail landlords to service mortgages” and cover loan values, the report said.
In May, only about 40% of nonessential retailers were making steady payments, improving to 75% last month.
Stephens defines essential retailers as grocery stores, pharmacies and office supplies among others. Nonessential retailers include discount and department stores, booksellers and cinemas.
The retail sector has been shredded by the pandemic, which has forced store closings and job losses.
This year, national retailers such as J. Crew, Neiman Marcus, Pier 1, Brooks Brothers, J.C. Penney, Tuesday Morning, Stein Mart and the nation’s oldest department store, Lord & Taylor, have been forced into bankruptcy.
Coresight Research, which specializes in covering the retail sector, has predicted that 25,000 stores will close this year as the pandemic ravages the sector. The previous annual high was 8,069 announced store closings in 2017.
The southwest region, which includes Arkansas, along with the southeastern U.S. is showing greater improvement than the rest of the nation, Stephens found.
“While the July results are encouraging,” the report added, “we also find regional differences with the southeast and southwest faring better than the northeast and midAtlantic, still showing significantly lower levels of smallbusiness revenue.”
Small-business revenue declined a median of about 7.5% in the southeast and southwest while dropping upward of 25% in the northeast and mid-Atlantic regions. The report used January’s revenue as a baseline for the findings.
“Geography remains a key issue as some states/regions have been more lax in terms of shutdowns or aggressive in terms of reopening,” the report said. “As a result, looking at small-business revenue year-to-date, we find vast differences between states and regions in terms of performance.”