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Restaurants: What can you do with that expensive lease?

Restaurants: What can you do with that expensive lease?

Posted on February 22, 2021May 10, 2025 By Martin Smith

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  • Retailers to Focus on Long-Term Occupancy Cost Reductions in 2021 Amid Looming ‘Rent Deferral Bubble,’ Advises A&G Real Estate Partners’ Graiser
  • Jefferies invites a veteran real estate executive to share his insights on lease-restructuring trends among retailers, restaurants, theater operators, and entertainment concepts.
    • Landlords will need to grant more abatements in 2021.
    • Retailers will have better access to financing.
    • Theaters will continue to struggle, posing risks.

Retailers to Focus on Long-Term Occupancy Cost Reductions in 2021 Amid Looming ‘Rent Deferral Bubble,’ Advises A&G Real Estate Partners’ Graiser

Jefferies invites a veteran real estate executive to share his insights on lease-restructuring trends among retailers, restaurants, theater operators, and entertainment concepts.

MELVILLE, NY (StLouisRestaurantReview) The following release was published by A&G Real Estate Partners today.  We have republished it on St Louis Restaurant Review because we understand the difficult situation restaurant owners have been placed in during this pandemic.  They need affordable help.  Some landlords quickly sold properties this past year and some even forced new lease agreements to “protect themselves.”

Even though capital markets are opening up, U.S. retailers will continue to file for bankruptcy and close stores this year, due in part to their need to repay deferred rent from 2020, warned Andy Graiser, Co-President of A&G Real Estate Partners (A&G), in a conference call hosted by Jefferies, the investment bank and financial services company.

Declining foot traffic only adds to that pressure, added the veteran real estate executive, and it is unclear whether mall traffic will bounce back anytime soon.

“Last year, it seemed as though nearly every retailer in America was asking for rent deferrals,” Graiser noted.  “Now they’re staring at a ‘deferral bubble’ of $40 billion-plus that they’re going to have to pay back, over and above their existing rent.”  When landlords initially agreed to those deferrals, he continued, many observers still believed the U.S. economy would be booming by Q4 2020.  But those hopes for an imminent “V-shaped recovery” faded, Graiser noted, and many negotiations shifted to rent abatement, no deferrals.

A&G was on the front lines of that shift: Last year, the Melville, N.Y.-based company reduced the occupancy costs for 61 retail and other operators by a total of $1.8 billion.  “We touched 13,600 leases in 2020, restructuring 10,450 of them and securing terminations on 950,” Graiser told the audience.  “It was like nothing we’ve ever seen.”  The firm continues to assist the likes of rue21, Cinépolis, Chico’s, Christmas Tree Shops, Ruth’s Chris Steak House, and many other companies with their real estate strategies.

Here are some additional takeaways from the recent call, part of the “Jefferies University” series.  The program was hosted by equity analysts Linda Tsai and Jonathan Petersen of Jefferies’ Retail REITs Team.

Landlords will need to grant more abatements in 2021.

In exchange for rent abatements granted by landlords in 2021, tenants may need to provide additional lease terms and waive certain co-tenancy rights.  “Last year, in our Chapter 11 cases, we negotiated rent concessions of anywhere from 20 percent to as high as 40 or 50 percent on some of these locations,” Graiser said.  “Otherwise, the stores would close.”  Landlords needed to waive past-due or deferred rent as well, he added, for these retailers to emerge from Chapter 11.  “Despite all the 2020 closures, it could have been worse,” Graiser said.  “Working closely with the landlords, we prevented thousands of stores from closing last year.”

Retailers will have better access to financing.

Capital markets are opening up in ways that could support retailers’ real estate strategies, Graiser said.  He cited the Jan. 14 announcement by apparel retailer Express that it had secured a $140 million loan agreement.  “Retailers need to buy the time to shore up liquidity during this extended Covid-19 crisis.”

Theaters will continue to struggle, posing risks.

Graiser told the audience to expect more theater sector struggles, which lockdowns and streaming video have a hard hit.  “It’s clear the industry faces significant headwinds,” he said. “This is going to have a negative impact on landlords and other neighboring tenants and restaurants.  It also could trigger some co-tenancy clauses, which would translate into more closures.”

Landlords will continue to work with these operators in 2021, despite some of the larger chains securing good liquidity from the capital markets, Graiser said.  “The support will need to be in the form of rent abatement and converting the rent to a percentage of sales,” he added.  “The theater sector is an example where the capital markets have opened up to help these operators buy the necessary runway to offset the industry’s woes.”

There will be opportunities, too.

Also, Graiser pointed to emerging opportunities:

  • Certain restaurant chains are raising money to take over second-generation restaurant space;
  • some mall retailers are scouting suburban strips to secure better locations, and
  • many landlords aim to woo tenants from competing properties by offering to pay their lease-termination fees. “In particular, healthier tenants with short-term leases have some incredible relocation opportunities,” Graiser said.
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