Rent forgiveness? It’s news to tenants
Businesses in city properties wait and worry
Rent relief could be coming for the hundreds of small businesses on property owned by the city of San Francisco — though the businesses’ owners largely haven’t heard anything about it.
That’s because forgiving rent is a tricky process when the city’s properties are distributed among a complex web of agencies, some city departments and some overseen by independent commissions. The city charter also requires Board of Supervisors approval for some commercial leases, so expediting rent relief for those requires their signoff.
The prospect of rent forgiveness for the city’s commercial tenants came to the fore Wednesday after The Chronicle spoke to struggling restaurant owners whose landlord, the San Francisco Municipal Transportation Agency, told them it expected full rent payments to resume in July. City agencies have deferred rent for tenants during the coronavirus crisis, but as shelterinplace restrictions slowly lift across the state and prospects for a fast recovery dim, business owners have grown concerned about their inability to pay mounting bills for back rent.
After The Chronicle’s first report, SFMTA transportation director Jeffrey Tumlin said the agency is exploring rent forgiveness. Mayor London Breed followed up with a tweet saying no small business would be evicted for nonpayment of rent during the health crisis.
But forgiving rent turns out to be more complicated
than hitting send on a tweet. The SFMTA is currently in talks with the city administrator’s office, as are other city agencies that are landlords, including the Port of San Francisco and San Francisco Recreation and Park Department, according to Bill Barnes, a spokesman for the city administrator’s office. Together, they’re working on proposing legislation that would give individual city departments the power to implement rent relief without additional approvals. Otherwise, agencies would have to seek permission from the Board of Supervisors on nearly every lease modification.
The goal is to present the legislation to the Board of Supervisors in early June.
“If we go to the Board of Supervisors, we can apply the same standard citywide, which would be better for everybody,” Barnes said. “Our hope is to keep as many tenants as we can but everybody’s situation is unique.”
But this idea is news to the Board of Supervisors. Supervisor Aaron Peskin said the city will work to be a good landlord to struggling small businesses, but he’s concerned about what such legislation would mean for checks and balances.
“I’m interested in making sure tenants get taken care of but that doesn’t necessarily mean the Board should abdicate its oversight responsibilities,” he said.
The Port of San Francisco is by far the biggest city landlord and has the most to lose — it’s long lacked the capital needed to repair its crumbling piers, a problem likely to only get worse.
The port has over 560 commercial and industrial tenants, representing 20.6 million square feet of occupied space and approximately $52.3 million in annual revenue. (Those figures do not include leases to maritime tenants managed by the Maritime Division.)
Of 541 port tenants who received rent invoices in April, 259, or 48%, made payments. A port staff report stated that the revenue shortfalls were spread throughout its holdings, with the Fisherman’s Wharf properties experiencing the largest percentage uncollected at 80%.
“The ground is shifting so quickly among our diverse array of tenants. We get calls every single day from tenants concerned about what the future might look like,” said Rebecca Benassini, the port’s acting deputy director of real estate. “We are trying to take a calm and steady approach in a really shaky economic situation.”
In addition to working with the city administrator’s office, the Port is studying a rent deferral program that would extend through the end of the year. The idea is to give tenants some “breathing room” while the port studies how to work with the different sectors in its real estate portfolio, where restaurant or retail tenants might be harder hit than a storage company or architecture firm.
“Nobody is doing fine right now, but some tenants are able to operate more than others in the telecommuting setting,” Benassini said.
The current forbearance agreement isn’t helpful for restaurants that have had to close during shelterinplace, said Pete Sittnick, managing partner of Waterbar and Epic Steak, which are both on port property. Having to repay deferred rent by the end of the year represents a huge financial burden.
“We don’t even know when we’re going to be able to open and certainly whenever that is, it’s not going to be at 100% capacity,” he said, referring to reopening proposals that would limit indoor seating. “If you got open by July 1, you’d have to be paying 1.5 times the rent per month to get to the end of the year.”
A group of concerned restaurant owners along the waterfront has been discussing what rent agreements could look like to help businesses survive, with the hopes of negotiating with the port collectively.
“It’s a combination of rent forgiveness, certainly for the months where the shelterinplace order was in effect, and then some form of rent relief moving forward into the remainder of 2020 — and I think you have to look at 2021 as well,” Sittnick said, adding that he’s tried talking to his landlord multiple times about the rent but hasn’t heard back.
Several tenants said communication with their city landlords has been unclear. While Thai Van, the owner of Green Papaya in the Fifth and Mission Garage and the subject of The Chronicle’s first report on this issue, said he later got a call from SFMTA about his rent, other tenants did not. The SFTMA sent an email to tenants Friday that mentioned a “new tenant relief proposal” but did not specifically address rent forgiveness.
“I don't think SFMTA sees themselves as a leasing company,” said Chuck Lukezic, coowner of Phonobar, a bar, restaurant and music venue in the Performing Arts Garage. “They have much bigger projects than our 1,900squarefoot restaurant.”
Despite not receiving any updates on Phonobar’s rent situation, Lukezic said he’s happy to learn SFMTA is considering rent forgiveness now — and that it ultimately makes sense for the city.
“I think the worst thing that could happen to them is the businesses in those spaces have to file for bankruptcy,” he said. “I don’t think anyone wants to buy a bar or nightclub at this time, so those spaces would effectively sit empty if we were forced out because we couldn’t pay our rent.”
Meanwhile, the park department has also deferred rent payments for all of its tenants during shelterinplace, “with strong assurances they will be waived,” said Tamara Aparton, the department’s deputy director of communication and public affairs, by email. Word hasn’t trickled down to tenants yet.
“They haven’t charged us thus far, but we have no clue as to what’s going to happen,” said Carol Murata, who operates the cafe and gift shop at the Japanese Tea Garden in Golden Gate Park.
Murata’s cafe is temporarily closed. She said rent forgiveness would be great, though it might not be enough for her business to survive. “We’re a majorly tourist business. We used to get busloads of people from Spain, Brazil — I don’t think many people are going to be traveling,” she said.
San Francisco International Airport tenants have been hearing much more frequently from their landlord since the crisis began, according to Kevin Westlye, president of High Flying Foods, which operates several businesses at the airport including outposts of Gott’s Roadside and Peet’s Coffee. SFO spokesman Doug Yakel said the airport is deferring rent, which must be paid by June 2021, and looking at other relief options, such as lease modifications.
“The airport is saying, ‘We’ll work with you because we know we’re off 97% from where we were.’ I think they’re trying to be flexible,” Westlye said.
One of High Flying Foods’ cafes is still open and paying a percentage of its sales as rent. Westlye said there have been verbal agreements from airport officials to waive deferred rent for shuttered businesses, potentially through January 2021, though Yakel did not acknowledge any such agreement.
“I see no reason to believe that won’t go as it’s been discussed,” Westlye said, “but there is a legal process.”