Many real estate investors are calling Westwood Net Lease Advisors with urgent questions regarding fast-food restaurant properties. Some of you have single-tenant NNN investment transactions in-process and others already own quick-service restaurants that are low on cash flow, leaving tenants unable to pay rent. What do you do now?
If you find yourself in either situation, it’s best to reach out to a net-lease buyer’s advisor for help. This is uncharted territory, so it is wise to work with a professional who knows the industry and has the resources to help you navigate your situation and come to a resolution that works in your financial favor. Depending on your situation, there are certain actions you can take to protect your financial well-being.
Pause on QSR Property Mortgages, Still Lending for Other NNNs
Most lenders are hitting the pause button on mortgages for fast-food, fast-casual, or any other type of restaurant property, even though they are normally solid real estate investments. Even if you are purchasing a NNN property with a corporate-guaranteed lease, many financial institutions are still either canceling these loans or waiting a few months to close on them until they see what happens with COVID-19.
At Westwood Net Lease Advisors, we are walking our clients through this process and working with their attorneys. Fortunately, for many of these buyers, we have located different NNN investments that house essential businesses like Dollar General, Family Dollar, CVS, and 7-Eleven, which most banks are still willing to mortgage.
Tenant Asking for Rent Relief? 3 Steps to Take First
Many quick-service restaurants are still operating drive-thrus and offering online ordering with contactless curbside carry-out. However, without walk-in and eat-in service, QSRs can’t do the volume they’re accustomed to so many are operating with minimal cash flow and asking the landlord for temporary rent relief.
If you own a fast-food restaurant and your tenant is requesting a rent suspension for a few months, should you honor this request, and if you do, how do you go about it?
Westwood Net Lease Advisors recommends working with your tenant if you can afford to do so, but before you agree to a solution, there are three steps you need to take.
1. First, ask your financial institution if you can suspend mortgage payments for the same amount of time the tenant is asking for rent relief. Many banks are allowing this and adding the unpaid months to the end of the mortgage term. Keep in mind, interest continues to accrue despite the lack of payments.
2. Next, if the bank agrees to what you need, contact your attorney or a Westwood advisor to discuss amending the lease with a temporary lease addendum that ensures you recoup your rent over time. Some investors are increasing rent each month for up to 18 months, others are asking for a set amount of payments. This is completely dependent on your risk tolerance and financial needs and should be decided upon and drawn-up with your attorney before you contact the tenant with your offer.
3. Lastly, once you feel comfortable with your options, contact the tenant to discuss rent abatement. There is always room for negotiation – only you know the history of your tenant’s reliability and your risk tolerance level.
If you’re not comfortable doing this on your own, our advisors can ease your uncertainty and assist with the entire process.
Many Fast-Food Restaurants Are Maintaining Sales
During the COVID-19 pandemic, any open QSR must provide contactless ordering, fulfillment, and delivery. Companies doing this well are seeing sales hold steady. Some are even offering different products than usual to satisfy current customer needs – think juice, eggs, milk. The willingness to satisfy convenience needs is helping with efficiency and sales.
Community is also very important to succeeding in this unprecedented time. This is exactly why most NNN properties choose their locations strategically – the surrounding community and neighboring businesses have everything to do with success in any economy.
What will happen when we are through the other side of this crisis? Restaurant professionals predict that the off-premise business model many have been forced to adopt or improve will strengthen the fast-food and fast-casual industry post-COVID-19 and change it for the better.
To Wrap it Up – No QSR Right Now, But There Are Other NNN Options
Amid the COVID-19 pandemic, there are still investment-grade corporations other than QSRs offering needs-based goods and services and continuing with expansion, adding thousands of staff, and increasing earnings. Many are NNN lease investments currently available for purchase.
Westwood advisors can help you locate these properties and offer assistance if you were in the process of buying a QSR property and were put on hold. We are working remotely, staying in daily contact with industry professionals, continuing to evaluate NNN developments, and assisting buyers with the complexity of the COVID-19 market, all at no cost to our clients. Feel free to contact us today for perspective and advice. 314-997-5227
