When retail landlords started to get an increasing number of rent reduction requests at the beginning of this year, many in the industry took the trend as a bad omen. It meant retailers were struggling to keep afloat, it meant rental rates nationwide were going to decline and it meant retail owners would be losing cash flow at a time when they could ill afford to do so. But when Thomas Lackman, managing partner with Lackman Commercial Group, a Phoenix-based commercial real estate firm and a 28-year industry veteran, began to get calls from tenants asking whether there was any way they could rework their leases, he saw an opportunity. Instead of wringing his hands, he partnered with Michael Jackowitz, principal of Jackowitz LLP, a New York City-based law firm with a focus on commercial real estate, to create Reduce Your Rent LLC, a nationwide network of real estate professionals who help commercial tenants negotiate rent reductions.
Reduce Your Rent’s premise is simple—while most national retail chains have in-house real estate departments and sophisticated consultants to help them deal with leasing issues, many local and regional retailers don’t. Some family operations are so small they are run by three or four people, none of whom have any extensive knowledge of real estate, Lackman says. His network of professional brokers helps those businesses make a case for a rent reduction or a lease renegotiation, examining their leases, figuring out how the recession has impacted their sales, putting together the necessary financial documents to present to the landlords and handling the negotiations themselves.
“Landlords usually don’t act just on the request for rent reduction,” Lackman says. “We work with the tenant to put together a business case. We help them organize their financial records. We do sales projections for them. We try to coach them in areas where they might be able to cut expenses. We will not go to the landlord until we’ve gone through that process.”
Plus, when landlords put up a fight, experienced real estate professionals are better able to deal with the stonewalling. In one case, Lackman worked with 12 tenants at a shopping center in Phoenix to request rent reductions from the landlord, a large, national company. At first, the landlord demanded to see additional financial documents so it could decide whether the tenants’ struggles merited rental breaks. Then, the company said no to all 12 retailers. Over the course of seven months, Lackman kept approaching the landlord through various channels and had received an official refusal at least four times. “They are overwhelmed with requests, so they are sifting them by finding out who’s really serious. If you persist, if you make a good case, maybe they will give you some rent relief,” he says. In the end, his persistence paid off. Today, four of the 12 original tenants have received rent reductions of up to 25 percent, while several others continue to negotiate.
In most cases, however, the negotiations take only a month or two. And if the landlord’s final answer is still no, Reduce Your Rent helps its clients sub-lease the space when possible.
The network’s brokers (by now, Reduce Your Rent has more than 60 agents nationwide, most of them Lackman Commercial brokers, but about a dozen or so are independent professionals) claim landlords feel more comfortable working with them because they understand the issues currently affecting real estate owners. They know about the rising vacancy rates, the too tight debt covenants that prevent the landlord from signing off on a rent reduction without the lender’s approval. So whenever possible, Reduce Your Rent tries to work out a solution that will bring some value to both parties, says Jackowitz. Recently, for example, the firm worked with a restaurant client that was located in a shopping center where one of the anchor tenants went dark. The restaurant’s lease featured a co-tenancy clause that allowed it to leave its location given the drop-off in shopper traffic. But since the restaurant’s owner felt his business drew sufficient traffic on its own, Reduce Your Rent approached the landlord about a temporary rent reduction for the restaurant if it agreed to give up the co-tenancy clause. Since the landlord was extremely worried about rising vacancies, the situation turned out to be a win/win.
Reduce Your Rent agents have tried to work out a reasonable pricing system—the standard fee for a for-profit business is 25 percent of whatever savings the network manages to achieve on the client’s behalf. For non-profits, Reduce Your Rent has done pro bono work. The main goal of the business is to create a long-term relationship with a potential client, says Lackman, so when the economy turns the tenants will go to the same agents to handle expansion campaigns.
“We hope that the tenant will survive as the economy turns around, prosper in the future, possibly want to open new stores,” he says. “In some cases, having helped them through a difficult time, we’ll have a client for life.”