L.A. moratorium on business evictions could squeeze landlords
A Los Angeles moratorium on evicting restaurant operators and other small businesses that are losing customers during the novel coronavirus pandemic may cause pain to landlords while offering relief to their struggling tenants.
Early reports, however, suggest that commercial property landlords are not eager to boot tenants who have fallen on hard times because they might not be able to find new renters any time soon.
The planned moratorium on evictions of small businesses was part of sweeping measures approved by the City Council on Tuesday to protect people from being forced out of their homes or apartments because they have lost income and can no longer afford rent or mortgage payments.
The plan, which could be adopted as early as next week, will temporarily ban evictions and late fees, require landlords and residential mortgage-holders to work out payment plans with affected residents, reduce city business taxes and create a citywide rental assistance fund.
The council directed the city attorney to draw up an emergency eviction plan, which is expected to include more details about how the moratorium will be implemented. It could be finalized next Tuesday.
Similar measures were also announced Tuesday for unincorporated parts of Los Angeles County, including a moratorium on all no-fault residential and commercial evictions, retroactive to March 4 and lasting until May 31. Tenants will have six months after the end of the emergency proclamation to make rent payments they missed, Supervisor Hilda Solis said.
President Trump said Wednesday that he had ordered federal housing officials to suspend residential evictions and foreclosures until the end of April.
For commercial landlords, evicting a tenant is a drastic measure likely to harm both parties, and real estate brokers say they are instead renegotiating leases to secure reduced rents or even months of free rent for businesses on the ropes.
Similar deals were cut in previous economic recessions, but the coronavirus-related business lockdown presents an unprecedented challenge, said Stuart Gabriel, director of UCLA Ziman Center for Real Estate.
“Clearly we are confronting something we have never known in our lifetime,” Gabriel said. “There is going to be carnage all over the economy.”
A moratorium on residential foreclosures during the 2008 financial crisis was a balm for the reeling California economy, he said.
“You prevented further foreclosures, which in turn broke the downward cycle in house prices and helped forestall losses in the banking sector until the economy improved.”
The council’s latest measures are intended to be a similar “circuit breaker,” he said, that would give small businesses a chance to survive a crisis beyond their control and be in position to operate and pay rent when the pandemic abates.
The legal aspects of eviction may also become more difficult for landlords as courts face their own challenges to operate during the pandemic when public assemblies of all types are discouraged, he said. And should landlords succeed in evicting a failing tenant such as a restaurant or nail salon, they would be hard-pressed to find another small business able to rent the empty space.
“Eviction is not going to help the landlord in the midst of this crisis,” Gabriel said.
Landlords are often paying mortgages on their properties and have other costs that must be met, so they also stand to suffer as they lose rental income.
“The bank is the landlord’s landlord,” real estate broker Jay Luchs said. “Are the banks going to do anything?”
So far, he said, banks have not offered relief to their landlord mortgagors.
Luchs of Newmark Knight Frank and other brokers are negotiating rent relief for tenants, though.
He’s asked landlords for three to six months or more of reduced or free rent for struggling tenants in Beverly Hills and West Hollywood. On average, landlords have agreed on breaks for two or three months, he said, but more rent easing may be called for.
“In 2008, we had reduced rent for a year or a year and a half,” he said. “After that they went back to normal.”
The city moratorium on evictions wouldn’t relieve tenants from eventually paying rent, said property broker Lorena Tomb, chief executive of Urbanlime Real Estate, whose clients include restaurants and gyms.
“They still need to pay that rent in the future,” she said, which could overwhelm many businesses that have had to shut down or drastically reduce services.
“The smaller ones are going to get hit first when they have to let go of employees,” she said, because “their obligation to pay rents are not waived.”
If limits on public assembly last more than two weeks or so, more restaurants and stores will go under, she predicted. “There is kind of a sense of panic about how long this will go on for.”
Gabriel said the federal government is best positioned to block the collapse of small businesses, perhaps in part through emergency funding to help them survive and pay rent.
“An ordinance to put it all on the landlord is not the right solution,” he said. “We have to work with all parties, not just one. The building owner has to survive as well.”