Silicon Valley Office

COVID-19 Playbook For Silicon Valley Office Tenants Negotiating Rent Relief

COVID-19 Playbook For Silicon Valley Office Tenants Negotiating Rent Relief

Apr 21st, 2020
Shane Minnis

silicon valley commercial real estate broker

The coronavirus pandemic, accompanied with shelter-in-place mandates, has led to a number of tenants asking their landlords for rent relief or deferments. However, contrary to what landlords are experiencing with retail and hospitality tenants, the majority of  Silicon Valley office tenants have continued to pay rent as of the date of this post. 

Given that the Silicon Valley tenant base is predominantly made up of technology companies, many office tenants had strong financials when signing their leases and have been able to transition their workforce to work from home and continue operations. As a result, landlords are generally taking a more bullish approach in handling existing tenant concession requests which are being negotiated on a case-by-case basis. 

Many landlords are concerned about existing tenants taking advantage of today’s environment in an opportunistic way as leverage to secure otherwise unnecessary concessions (at the Landlord’s cost). However, if your company is experiencing hardship during these trying times and you are dependent upon rent relief as a lifeline to keep your business afloat then the following will serve as an invaluable playbook to streamline your efforts to get to the negotiation table – after all, time is not on your side…

Narrative

Let’s start with the why… “Because your broker said you should request rent relief” or “because you heard another company had received some concession” are not good reasons for a landlord to consider opening up the negotiation table – especially when you already have a legally binding contractual lease agreement between one another.

My best recommendation here is to be transparent and candid. This can be in the form of a formal letter or an e-mail, either way you should write it down so that your landlord knows you are serious and prepared. It doesn’t have to be long either, but it should summarize your current situation, the concession(s) being requested, how the requested concessions will support the continuation of your business and ultimately why the landlord should consider this request. 

In addition to your narrative, you will want to be prepared to provide documentation and other objectively verifiable means that support your narrative, as your landlord is likely to inquire about the items in the following sections as they consider your rent relief requests. 

Silicon Valley Office

Outside Relief

Many times tenants will need to exercise other available relief options before a landlord will consider concessions when there is an existing lease agreement in place. The following is a list of outside relief options that may be available to you as a resource to overcome the challenges of the current environment:

1) Federal:

  • SBA Economic Injury Disaster Loan Program – as part of its disaster assistance program, the SBA is providing low-interest working capital loans of up to $2 million to small businesses and nonprofits affected by COVID-19. These loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits. Loan repayment terms vary by applicant, up to a maximum of 30 years.
  • SBA Economic Injury Disaster Loan Emergency Advance – this loan advance will provide up to $10,000 of economic relief to businesses that are currently experiencing temporary loss of revenue as a result of the COVID-19 pandemic.
  • SBA Paycheck Protection Program (PPP) – this loan program provides loan forgiveness for retaining employees by temporarily expanding the traditional SBA 7(a) loan program. It’s an SBA loan that helps businesses keep their workforce employed during the COVID-19 crisis. 
  • SBA Debt Relief – the SBA will pay the principal and interest of current 7(a), 504, and microloans for a period of 6 months and will also automatically pay the principal, interest and fees of new 7(a), 504, and microloans issued prior to September 27, 2020.
  • SBA Express Disaster Bridge Loans – enables small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly. If a small business has an urgent need for cash while waiting for decision and disbursement on an Economic Injury Disaster Loan, they may qualify for an SBA Express Disaster Bridge Loan. 
  • Employee Retention Tax Credit – is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020 and before January 1, 2021. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make.

2) California:

  • Extension for Filing Tax Returns – effective March 30, 2020 all taxpayers who file a return less than $1 million will have an additional 3 months to file their return, between now and July 31, 2020.
  • Small Business Relief Payment Plans – effective April 2, 2020, small business taxpayers, those with less than $5 million in taxable annual sales, can take advantage of a 12-month, interest-free, payment plan for up to $50,000 of sales and use tax liability.

3) Private:

  • Silicon Valley Strong – supports residents, businesses, and community organizations that have been severely impacted by COVID-19.
  • Facebook Small Business Grants Program – Facebook is offering $100 million in cash grants and ad credits to help during the coronavirus pandemic.
  • Silicon Valley Community Foundation Small Business Relief Fund – will provide immediate support to struggling self-employed and small business owners through technical assistance as well as loan and grant funding to provide relief and/or liquidity.
  • LISC / Verizon – LISC will use Verizon funding for grants up to $10,000 to businesses financially struggling because of COVID-19 – especially entrepreneurs who don’t have access to flexible, affordable capital.
  • Kiva – small loans (now up to $15,000) at 0% interest are now available through this non-profit lending group for existing and start-up companies.
  • Pacific Community Ventures – companies and non-profits who have been in business for at least 1 year, have employees, and were profitable before the pandemic may qualify for loans as much as $200,000 for 1 to 5 years with an interest rate between 7 and 13%.
  • Opportunity Fund – up to $250,000 can be borrowed by established businesses including non-profits for 1 to 5 years at competitive interest rates with no fees.
  • California Statewide CDC – working capital loans up to $250,000 are available for 5 to 10 years.
  • CDC Small Business Finance – loans of up to $500,000 are available for up to 10 years.

Business Plan & Financials

Once rent relief concessions are being considered, landlords generally require documentation or other objectively verifiable means to demonstrate substantial loss of income due to COVID-19. The following are items I would recommend you have prepared to provide to your landlord:

  • 12-month profitability / business plan
  • Expense reduction plan
  • Tenant concession repayment plan
  • 2020 year-to-date financial statements (profit/loss or income statement, balance sheet, cash flow statement)
  • 2019 financial statements (profit/loss or income statement, balance sheet, cash flow statement)
  • Current bank statements
  • Any other documentation as it relates to objectively demonstrating your current situation (such as your sales pipeline report, accounts receivable, etc.)
  • If you’re a start-up, then you’ll also likely want to include: 
    • Your investor list
    • How many rounds of funding you have received to-date, along with corresponding details
    • Any planned future rounds of funding, along with corresponding details
    • Projected financials and burn rate

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Until next time…

Disclaimer: The views expressed on this website/blog are mine alone and do not necessarily reflect the views of my employer, Colliers International. The information furnished has been obtained from sources I deem reliable and is submitted subject to errors, omissions and changes. Although I have no reason to doubt its accuracy, I do not guarantee it. All information should be verified by the recipient prior to lease, purchase, exchange, or execution of legal documents.

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