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To weather COVID-19, Seattle freezes rent for small businesses

Work from artist James Spencer on E Olive Way’s Revolver

Seattle’s small businesses and nonprofits hardest hit by the COVID-19 crisis got a small boost Monday as the City Council passed legislation that freezes their rents and enacts a ban on commercial eviction during the crisis in the form of negotiated “payment plan” requirements.

The legislation follows Mayor Jenny Durkan’s order prohibiting “the eviction of a small business or nonprofit tenant for non-payment of rent or because an existing lease terminated during the civil emergency period.”

“Small businesses are struggling to stay afloat, and those forced to shut down are worried they won’t be able to restart their businesses after the initial crisis is over,” West Seattle representative Lisa Herbold said about the passage of her bill:

This legislation complements the city’s moratorium on small business evictions already in place, alleviates financial pressures such as rent increases, and gives certainty to small businesses and nonprofits. In the West Seattle Junction, I’ve heard reports that landlord communication has ranged from full abatement for some businesses to ‘sorry we need to pay our mortgage’ requiring 100% of the full rent due for other businesses.

The legislation applies to nonprofits, and to small businesses with 50 or fewer employees that have been closed due to public orders or that have seen at least a 30% drop in business.

Landlords will be required to work out payment plans with small business and nonprofit tenants for up to six months after the end of the civil emergency. Repayment plans must not require the tenant to pay more than 1/3 of late rent within any month or period, and the repayment schedule must require that all late rent will be repaid within a year of the end of the civil emergency with “no late fees, interest or other charges.”

Also Monday, Seattle announced its first round of Small Business Stabilization Fund $10,000 grants to qualifying small businesses chosen in a weighted lottery. 9,000 applied. 250 were selected. The city says it hopes to mount future rounds with the help of private and corporate donations.


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james
james
7 months ago

the messages on these boards are so corny

Biz
Biz
7 months ago

Hmm but property tax still due next month and not frozen. You can’t have it both ways.

Glenn
Glenn
7 months ago

Guess what? I do have to pay my mortgage. Lenders expect to be paid regularly for their extension of credit (mortgage), and mine has already informed me that failure to make timely payments will constitute a default. If they declare me in default the lender can step into my shoes, basically taking control of the property from me and eventually the property itself.

The city is now forcing landlords, private property owners, to offer what they sell, that is occupancy in a privately owned and contracted physical space, for free. Oh sure, payment plans. Repaid over one year, with no interest. So also forcing landlords to extend credit without interest and a high probability the debtor will not be able to repay the debt. And we have zero leverage to negotiate with tenants because we cannot remove them for non-payment.

A better approach would be to offer rent assistance to small businesses, helping them to pay their rent. The pitifully small city program offered to date does nothing to address the problems of small businesses. Ramp it up to ensure they can meet their financial obligations rather than forcing other small businesses (landlords) to absorb the risk and costs of rent non-payments. And how about waiving and/or delaying property tax payments until six months after this crisis? At this point those still have to be paid, either by the landlord or by reimbursement by tenants. Why not delay collection indefinitely without interest or penalty?

Bottom line. Landlords have lenders who want their money. The city wants it’s money and so does the state. step up to the plate and offer some real assistance rather than dictating that landlords suck up all the risk and costs associated with keeping some small businesses afloat.

Mike
Mike
7 months ago
Reply to  Glenn

Evicting a business tenant during the crisis doesn’t help you, the landlord, pay the mortgage. But it very much hurts the ability of a small business to reopen and rehire staff.

If you get foreclosed for nonpayment and the property sold, you still get cashed out for the increased value of your capital while you’ve owned it. In this market, you’ll likely end with a nice profit anyway.

So sure, it sucks from your perspective, but putting the risk on real estate investors hurts the local business economy less than burdening small businesses.

Glenn
Glenn
7 months ago
Reply to  Mike

I agree that eviction makes no sense right now, and should be avoided under most circumstances. However, taking that option away for the landlord and dictating a rigid payment plan payable over six months to one year is not a solution that takes the needs of landlords into account. It seems Council is encouraging tenants not to pay by disempowering landlords. And if you think I would profit by losing my properties to foreclosure, you don’t understand foreclosures. Maybe I would retain some of the equity obtained through years of responsible ownership and improvement, but I would lose much more. And most of these unsavory outcomes could be avoided by meaningful assistance to small business.

Biz
Biz
7 months ago
Reply to  Glenn

The 8% penalty for late payment on full year property tax is insane at this point.

russ
russ
7 months ago
Reply to  Glenn

This is called sharing the pain. Landlords theoretically benefit from not getting COVID, so seems reasonable that they chip in too for this public benefit. They can chip in by taking a financial haircut, or by working with the people they owe money to (banks, etc) to push out their obligations. Just as small businesses are doing.

Suggesting that landlords should just get to sit back and collect the rent they’d see during normal times (whether paid by tenants or the gov’t) while everyone else scrambles…. do you also think we should feed you grapes while you lounge on your chaise?

Moving On
Moving On
7 months ago
Reply to  russ

Insisting that landlords should be able to absorb the losses is no more feasible than insisting that small businesses should absorb the losses.

The govt recognizes this and is printing money in the form of bank grants to small businesses and fully supporting unemployment.

Why try to go around that plan? All you’ll do is force out small landlords, and what happens then? Rich get richer, that’s what.

Buy low, sell high, but only those who have the capital can do it.

russ
russ
7 months ago
Reply to  russ

Almost none of the small business funds have been dispersed. SBA is in chaos. And the $349B PPP is massively over-subscribed – businesses will get a tiny fraction of what they requested. At the end of the day most of the funds will be a windfall to companies that did not change their behavior (e.g they would have kept their employees on anyway), because few small businesses where it does not make sense to keep on employees are doing so based on promise of a loan (yet to materialize) that will be forgiven (with terms and conditions still in flux).

Having landlords push the pain up to the big banks – who basically have an open spigot at the Fed – is a much more reliable way to solve this.

Big business has access to capital and liquidity. Small business does not.

Glenn
Glenn
7 months ago
Reply to  russ

This blog has am advertisement at the top of the page from a councilmember calling for a rent and mortgage payment strike. Apparently this crisis is best solved by instituting a rent and mortgage payment strike, without regard to the renter/debtor’s ability to pay. Despite the façt that upwards of eight-five percent of residential tenants are still employed, Council voted 9-0 last week on a resolution calling on the Governor to immediately institute rent and mortgage psyment cessation. Both these efforts advocate non-payment of rents and mortgages for the duration of this crisis.

Does this sound like the actions of responsible government ? What would be the justification for these policies, and how would they solve our current problems ? But these actions don’t purport to solve our problems. As Russ says, they are really an attempt to spread the pain to landlords and property owners. Not because doing so will make anything better, but because doing so makes political sense and costs the city nothing. The fact that they will further undermine our local economy has not been considered in the least.

Moving On
Moving On
7 months ago
Reply to  russ

I agree pushing the pressure up means the big banks will get relief.

Not sure how that money works it’s way back to the community, though! They’re not going to use that to help small landlords or small businesses. As per my comment, they’ll use that to buy up distressed properties cheap. Rich get richer, because they have the capital to float.

Better to get the money in the hands of people directly than try to trickle it down from the big banks.

Btw, I know of at least 3 local small businesses who’ve gotten loans disbursed. Seems to depend heavily on where you bank. Further underlining the point that the big banks will not save us, here.

Moving On
Moving On
7 months ago

How about having banks give loans instead of individual landlords?

Just an idea.

It's a crazy time
It's a crazy time
7 months ago

C’mon landlords. You know the city council is working without getting paid right? Morales and Sawant, since they have large houses in Leschi are of course donating their time, for the cause.

CD Rez
CD Rez
7 months ago

its such a cop-out to pass the buck to building owners because they know its politically easy to do but actually does nothing to fix the problem. So maybe they have to eat your rent until the ban is lifted but at some point, you have to pay up or your business failed anyway and took up potetnetially rentable space. it’s not a real solution.

russ
russ
7 months ago
Reply to  CD Rez

Rentable to whom? I’m not aware of many of my small business peers looking to commit to leases on buildings zoned for restaurant, bar or retail space that the gov’t has declared can’t be used… Where there is a threat of multiple shutdowns over the next 18 months. If your building can’t be used for its zoned purpose, that really diminishes its value. You can do a change of use – but SDCI will take 6 months to approve it and charge you thousands of dollars.

Here’s what I’d be worried about as a landlord. A lot of small businesses are going to fail. And the scars will last. How many fewer entrepreneurs are going to want to start a small business seeing how years of their work was destroyed overnight. There will be a multi-year chilling effect on new business formation. Rents will fall – perhaps significantly.

In fact, not long from now it will be a great time for small business owners to start thinking about how to re-negotiate their lease and options.

CD Rez
CD Rez
7 months ago
Reply to  russ

I’m not as pessimistic that new entrepreneurs wont step up when our local economy opens up. I think there are definitely tough times but people are resilient and there’s still a shitton of money here. The rub is, do you prolong the death of a business by let it dig a deeper hole. you could be setting yourself back a few months which could then be your death nail. Youre mortgage still due and have mouths to feed. There are lot of variables. I’m glad that I’m not making those decisions right now.

Jim98122x
Jim98122x
7 months ago

Look at the “bright side”. When smaller landlords fail and have their properties foreclosed on, guess who will buy them up at a nice discount? That’s right, the big rich landlords, the ones that always have plenty of cash. The same ones who bought foreclosed on houses and started renting them back to people who’d lost their homes. And then the assumption that everyone has always made– that “all landlords are rich”– will really be true.

Remember when parents use to tell a balling kid, “if you don’t stop crying, I’ll give you something to cry about”?.

Well, here you go. Be careful what you ask for– you just might get it.

Glenn
Glenn
7 months ago
Reply to  Jim98122x

Bingo!

nisha mittel
7 months ago

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IrvSmallBiz
IrvSmallBiz
7 months ago

I wish there were a way to pause time-value-of-money related payments since the economy is at a standstill. If only rents could be paused and mortgage payments for the period just tacked on at the end of the term to skip over these hard times, small businesses could’ve been in a better position to weather the storm. Gov’t’s PPP is focused on “keeping people employed” but it’s a short term solution for that, really risky for small businesses to take out the loan to pay employees if they don’t have business anyway, what if they end up being disqualified from loan forgiveness? Then they won’t be in a position to reopen and rehire once the economy starts back up.

Landlords should also realize that putting the squeeze on the short term increases their risk of losing tenants long term. Not only will they lose rents during this period, they’ll lose it as a slower economy reopens and might be left with vacant spaces for some time.