Rent Is Due. And Lots Of Small Businesses In Southern California Can't Pay It

A security guard wears a face mask while standing outside shuttered shops and a 'For Lease' sign in Los Angeles. (Mario Tama/Getty Images)

It's April 1. The rent is due.

But instead of writing a check, many small businesses in Southern California are writing uncomfortable emails to their landlords. Some are asking for the month off. Some are offering to pay less. Some can still pay in full, but not for much longer.

Landlords and property managers, meanwhile, are facing the prospect of receiving little to no income from their commercial tenants this month, and wondering how they will pay their bills and mortgages.

"Because this is unprecedented, nobody really knows how to deal with it," said Mike Brennan, a lawyer who represents landlords. "There's a large degree of anxiety on everybody's end."

RENT RULES IN THE COVID-19 ERA

On March 27, Gov. Gavin Newsom banned landlords across California from evicting tenants over the next two months if they cannot pay their rent due to coronavirus.

But the ban only applies to residential evictions.

That means it is up to cities to decide whether or not to offer similar protections to businesses. Some cities, like Los Angeles and Long Beach, have. But others have not.

The result is a patchwork of protection that leaves some small business owners feeling confused and alone.

"Los Angeles, they are on it," said Christy Quade, who owns Pure Love Yoga in San Clemente, which does not have a commercial eviction moratorium. "Their mayor is just unbelievable. He's giving updates. We haven't heard the same thing for Orange County."

MAKING SACRIFICES

But even in cities with commercial eviction bans, businesses are still on the hook for paying rent eventually. In L.A., businesses have three months to repay their landlords after the end of the coronavirus emergency. In Long Beach, they have until November 30.

But in high rent areas, some businesses struggle to pay rent in a normal month.

"It's not easy to run a fabric store on the Westside," said Jack Jacob Sapar, who runs Fabric Planet in Venice.

Lately, Sapar has been selling tons of ¼-inch elastic for civic-minded sewers making surgical masks at home.

But that hasn't made up for the loss in large orders from designers.

"It's not like this bump from selling mask stuff is covering our normal expenses. We had to cut hours," he said, in an effort to keep his employees on the payroll.

Last week, Sapar's landlord sent him a letter offering to let him pay half of his April rent. But the letter made clear: "Rent deferral means that rent otherwise due during the rent deferral period will be due at a later date." (KPCC/LAist was unable to talk to Sapar's landlord).

Sapar was appreciative of the offer, but said he probably will not be able to pay his landlord back without government assistance (which, hopefully, is coming).

"For someone like me, at the rent I'm at, it's going to be very challenging to do that. Like, I would have to make more sacrifices. I would have to let people go," he said.

'WE CAN EVALUATE YOUR REQUEST'

Some landlords are hesitant about offering their tenants assistance.

RedCar Properties, a developer that, "acquires under performing properties in high growth urban neighborhoods" like West Adams and Highland Park, told some of its tenants last week that requests for rent deferment would need to be approved by their lenders, and backed up by a full set of financial information showing a loss of business since the coronavirus outbreak.

A screenshot of a letter that real estate developer RedCar Properties sent to a commercial tenant on March 25, 2020.

A RedCar tenant, who did not want to be interviewed or named, shared the letter with KPCC/LAist. The tenant said they were disappointed by the company's response.

RedCar did not respond to multiple requests for comment.

'IT'S JUST LIKE, COME ON'

Some business owners said their landlords were still expecting them to pay their full rent on April 1.

Jon-Patrick Lopez owns Wanderlust Creamery, an artisanal ice cream shop with four locations around L.A. They are only selling pints right now, which doesn't quite fit with his business model.

"Our whole model is this experience of coming into the store, and being able to sample different flavors that we've created based on travel experiences," he said. "People coming in and getting a pint placed into a bag doesn't scratch the surface."

Lopez asked for rent deferment from all four of his landlords.

"We've gotten mixed responses," he said. "One of them is expecting us to pay in April. And it's just like, come on. That expectation is a little unfair."

BUILDING OWNERS M.I.A.

Some business owners said their landlords have not spoken to them at all.

"Called him, texted him, emailed him, zero contact. It's weird," Jenette Goldstein said of one of her landlords. She owns Jenette Bras, a bra-fitting boutique with four stores across L.A. County and one in Atlanta (Full disclosure: the company has been an underwriter of KPCC).

Goldstein, who specializes in large cup bras, does not sell online. Every customer comes in for a fitting.

"Bras are a difficult piece of clothing. It not only has to fit you it has to do something," she said. "It's as if you were buying a beautiful suit. You don't get it off the rack. You go to a tailor."

So sales, not surprisingly, have evaporated. On March 17 — "Black Tuesday," as Goldstein called it — she laid off 10 of her 13 employees, and then used her credit card to send them their final payroll checks over Venmo.

"We didn't have enough money for their final checks," she said. "That was a nightmare."

Since then, Goldstein has been on constant Zoom calls with lawyers and her chief financial officer, trying to figure out how to apply for the Small Business Administration's low-interest disaster relief loans, as well as the recently-announced stimulus package loans, which turn into grants if business owners rehire employees.

Like small business owners around the country, Goldstein finds the process incredibly confusing.

LANDLORDS: WE'RE IN TROUBLE, TOO

Landlords, of course, are business owners themselves, and many are also worried about a steep decline in income if tenants cannot pay rent.

Brennan, the lawyer, said he's been flooded with requests from landlords who want help figuring out how to talk to their tenants about making April rent.

"Everyone is being very compassionate towards their tenants, and they want to work together," he said. "Believe me, that's their cash flow. They don't want empty buildings. Nobody is running out to evict these people."

Brennan said a few of his clients worry that their tenants will try to take advantage of the situation and stop paying rent for reasons that have nothing to do with coronavirus, knowing they are unlikely to be evicted. Most civil courts are suspended through the end of May.

He said many landlords worry about the long-term consequences of falling so far behind in rent.

"The tenant may build up a reserve of unpaid rent that's so high they'll never be able to recover from this."

Note: Have you applied for a small business loan due to the coronavirus? Tell KPCC/LAist about your experience by emailing me, Emily Guerin: eguerin@scpr.org

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