Opinion: Musings on the Coast

The Landlord Experience

I make a living by constructing and owning real estate, primarily the kind retail tenants occupy.   

Nowadays, being a retail landlord ain’t no fun at all. The small tenants like nail shops, are closed, cannot pay rent, and trying to squeeze them will only result in them going broke. The big ones, called “credit tenants” because they have big balance sheets, are using the pandemic as an opportunity to demand concessions and many landlords are giving them.

All this, in turn, means landlords must go their lenders and ask for “forbearance,” another way of stating they do not have enough cash flowing in to make their monthly payments.

So far, most lenders are taking a hard line. The current forbearance most lenders are offering is pitifully little, maybe three months of “interest-only” payments. This does no good at all, so just about every landlord is calling a bankruptcy attorney for advice on legal alternatives.

Soon, a whole swath of foreclosures is bound to occur, and soon after that, the bankruptcy courts will be full. The lenders are betting it will not get that far, repeating the tired refrain that all will be normal in another month or two. In short, they are ignoring reality. It is a kind of pantomime of covering their eyes and praying.

The lenders will pay for it later, because the bankruptcy courts will acknowledge the virus is the real problem and will grant landlords lengthy no-pay periods while the tenants slowly return. That is what a normal bankruptcy is all about—giving the borrower enough time to work things out.

In the meantime, property owners are working with tenants in any manner that makes sense. Receiving some payment is better than none at all. Some tenants, maybe many, will not make it at all. This includes huge chains in malls, which were already under attack by the internet.

Small stores are month-to-month anyway. They do not have reserves, and unless you give them a break, they simply will disappear.

In my estimation, which is more upbeat than most, I believe people are so frustrated by the lockdowns that they will quickly return to old habits and go back to public shopping. It is part of the human experience. We enjoy being with other people. People enjoy walking around Fashion Island or South Coast Plaza; upon re-opening with new social distancing standards these retail hubs will do just fine.

But then again, I am an optimist.

By the way, I do not own any property in Laguna beyond my house and a duplex; and no, I certainly do not want to own retail property in this city.  Laguna Beach, under its own set of Village Laguna-induced hyper-controls, is extraordinarily hostile to property owners. Doing business here is so difficult, no sane landlord wants to buy and fix-up property here when they can do it more easily in—well, every other city in Orange County. I mean that. The master-planned city of Irvine is a breeze compared to Laguna.

Every city is a breeze compared to Laguna. Unless it’s changed drastically, the proposed Downtown Specific Plan’s “loosening” of restrictions is a joke.  We need something big, such as closing the first block of Forest Avenue and turning it into a cool pedestrian experience with outside seating.

But will Laguna do something radical like that? Good luck.