The idea of lowering rents in a tenant mix strategy may not be a popular topic among shopping centre or shopping mall owners, but cash flow is still cash flow.
There is great value in communicating with your tenants and understanding their reality, as well as your own. Again, deal with each rental renegotiation on the specific circumstances of that lease. Know too, however, that a rental reduction, if necessary, may be recaptured in the following ways:
- Percentage rent increase. If the tenant’s sales are off during a bad economy, presumably they will go up when times get better. The landlord can then recapture from a lower base rent via increased overage rent.
- Deferred rent. If the tenant is having trouble, consider lowering the rent, with a deferred lump-sum payment at a specified date or on a stair-stepped basis to ultimately bring the rent back up to an acceptable level.
- Term extension. As a trade-off for a reduced rent for a quality tenant, ask for a lease extension with gradual escalations. This will help assure long-term occupancy and profitability.
- Advertising. Require that the tenant agree to spend a substantial percentage of any rental reduction toward advertising and promotion, in an attempt to increase sales.