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Copyright © 2020 Albuquerque Journal
Jean Bernstein daily scans the empty tables and chairs at Flying Star restaurants and Satellite Coffee shops, at least the ones that are still open and serving food for takeout.
The owner and chief executive officer of the business, Bernstein says the economic shutdown of the state has had a ripple effect. She has temporarily shut two of her restaurants and three of her coffee shops and laid off or furloughed 390 of her 450 employees.
That, in turn, has affected those out-of-work employees and her vendors – from the folks who sharpen knives or clean the grease traps to those who supply food and beverages.
As the pandemic and closures stretch on, rent is the next sticking point.
Bernstein’s businesses are housed in 13 buildings, none of which she owns, obliging her to pay rent to 11 landlords.
“In better times, rent should be 7% to 8% of revenue, but if our business is down 70%, then regular rents become unaffordable,” she says.
Bernstein isn’t alone. For many who pay rent, either for a business or for their own residence, it’s one of their largest and most inflexible monthly expenses. Early in the crisis, major companies such as Dick’s Sporting Goods and the Cheesecake Factory signaled they weren’t planning to pay rent at locations across the country, in some cases invoking “force majeure” clauses in rental contracts. Force majeure clauses allow exceptions to contracts in the case of unavoidable catastrophes.
Bernstein has long-term contracts and good relationships with many of the landlords, some of whom own their buildings free and clear and don’t have the pressure of monthly payments to a bank. As a result, some have been able to offer rent deferments, and others have offered rent forgiveness.
Others – particularly those who live out of state – “have been really nasty,” Bernstein says.
Bernstein says she has filed an application for a loan from the Small Business Administration that would help her pay rents and other costs.
A loan through the SBA was not an option for 28-year-old Anna Benson of Albuquerque, who worried about paying rent and other expenses after being laid off from her job as a bartender. Benson signed up for unemployment compensation but says it was not a smooth process.
“At first, it was pretty rough. I applied the day they sent us home, so I got ahead of if before other people did,” Benson says. “But getting ahold of people at the unemployment office was completely awful, so I applied online at 2 a.m., when fewer people were on the site.”
It was three weeks before she started getting money, which turned out to about $250 a week. Recently, she also began receiving an extra $600, which came from Federal Pandemic Unemployment Compensation, a benefit that is part of the CARES Act and is budgeted through July 31.
After taxes, Benson says, she is taking in about $2,000 a month, which is “a lot less than what I made as a bartender.” After paying rent, utilities and other expenses, Benson estimates she will have between $200 and $300 remaining at the end of each month.
“I’m definitely doing better than a lot of people I know,” she says. “I don’t have kids and only have to feed myself, so if I eat ramen noodles every day, I’m fine with that.”
While Benson is getting by, many others are having a more difficult time.
Tom Prettyman, the managing attorney for the Albuquerque office of New Mexico Legal Aid, says he’s been fielding numerous calls from tenants who can’t afford to pay rent because they have no income, and are now being threatened with eviction.
Normally – and this still applies in the age of coronavirus – an eviction notice must explain why the person is being evicted, how much is owed, what late fees are being assessed and how many days the tenant has to get current. After that, a landlord can go to court and file to evict the person. Generally, a hearing is held in seven to 10 days, Prettyman says.
“I always tell people to go to court and tell the judge your story. If a judge finds you owe the rent, then he will evict you. It’s as certain as wind in August.”
A judge then gives the tenant three to seven days to move out, and if the tenant still refuses to vacate, the landlord can request that the Sheriff’s Office evict the person.
However, the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, which was signed into law by President Donald Trump on March 27, established an eviction moratorium on properties with federal subsidies, such as public housing, Section 8 housing or projects subsidized by the federal Department of Housing and Urban Development, Prettyman says. The law also prohibits landlords of such properties from charging late fees.
That doesn’t mean the tenant won’t be evicted – only that there is a stay on the eviction until the governor lifts the stay-at-home order, he says.
Because that provision in the CARES Act is not widely known, landlords of these subsidized properties are still filing for evictions and assessing late fees.
“Most tenants don’t know anything about this, so they don’t know to raise it in court, and I’m not sure all judges know about it either,” Prettyman says.
Landlords have challenges also, says Joe R. Romero, who heads the multifamily residential division of Colliers International, New Mexico, a full-service real estate company.
He points to a client who owns 30,000 units around the country, many in the Southwest. At the beginning of March, 70% of his tenants used automatic bank withdrawals to pay their rents. By mid-March, he says, 30% of those tenants had shut off the automatic draft function.
Some tenants, Romero says, have learned there’s an eviction moratorium on subsidized housing and are not paying rent, either purposely or under the mistaken belief that it applies to nonsubsidized housing.
Still, he says, landlords are trying to work with tenants who have lost jobs by taking partial payments, waiving late fees and offering deferments, with months added to the back end of the lease.
Riley McKee, an adviser at NAI Maestas and Ward, a listing agent for landlords, agrees. “The key is to have discussions with landlords and help them understand your position, and to try better understand their position so that a mutual arrangement can be reached that recognizes the challenges both sides face.”
As for people with conventional loans on homes and other property, the best course of action for them is to approach the bank or lender that holds their note and ask for a deferment, says Julia Sheldon, a vice president at Bank of the West and the bank’s senior SBA business development officer.
If the borrower’s loan is in good standing and current, most banks will provide a three-month deferment and, if necessary, an option to defer for another three months, tacking the extra months to the back end of the note.
It’s all about honestly communicating with your lender about what your circumstances are, she says.
The U.S. Small Business Administration has several programs business owners can take advantage of, according to John Garcia, director of New Mexico’s SBA district office. These include:
• The Economic Injury Disaster Loan Advance, which provides up to $10,000 for payroll.• A regular EIDL, which provides relief for economic injury a business has sustained for two months. The 30-year loan can be up to $10 million, with an interest rate of 3.75%.
• The Paycheck Protection Program, or PPP, which provides payroll funding and other expenses for eight weeks, the first payment being deferred for six months. The loan can be converted into a forgivable grant if recipients maintain payroll expenses at pre-crisis levels.