A typical quarter at MAPP would see 85% of rent and 80% of service charge paid by the due date. After seven days we would ordinarily have collected 92% of rent and 86% of service charge. Bear with me on the numbers.
The fun and games normally start after that as we push hard on the tenants who just want to hoard cash, agree payment plans with others and sometimes enforce obligations with some. Service charge takes a more circuitous route, but we tend to end up somewhere similar after shaking and climbing up the tree a few times. We are always mindful to manage our clients’ customers with skill, transparency and fairness.
MAPP’s credit controllers literally worked into the early hours and we broadly tripled the resource before and immediately after the March quarter. As a result, the numbers were a little better than we anticipated, but well down on the normal rates and with stark differences across the sectors.
The collection statistics in the retail and leisure sector reflected the enormous challenges they face. An industry staggering under the weight of structural change, oversupply, and debt fuelled growth was given another, or in some cases, a final blow. We managed to collect only 33% of service charges and 42% of rent by Day 7. I know of another portfolio which we do not manage where only 12% was collected.
Service charge collection rates at this level would have immediately fed through to cash flow challenges in our service charge accounts, with obvious impacts on payments to suppliers and remuneration payments to the site team, if our clients had not all committed to funding these depleted service charge accounts. Most want to keep on site teams intact and to ensure that the supply chain is secured.
The industrial and logistics sector did a little better with 55% of rent and 58% of service charge collected by Day 7.
The office sector fared better with 80% of rents and 70% of service charges collected by Day 7. Whilst the lockdown had reduced building populations to around 5% of their norm, skeleton teams maintain infrastructure or fulfilling office-based functions. The dialogue with office occupiers showed an understanding of the need to keep their premises operational and there was a willingness to find solutions. Diversity in what firms do and deliver was key.
Most clients found common ground on the need to understand the reasons for non-payment and deal with requests for holidays and deferrals on a case by case basis. Sector differences and challenges only take you so far. The collective sense was that well capitalised and funded retail and leisure operators should pay and not stowaway for free, but that support should be given to SME’s who were facing real challenges. One client with a heavy exposure to retail and leisure operators gave a conditional green light to a rent holiday. Another gave us instructions to press ahead as if nothing had happened.
Two long term strategic positions helped us deliver in these exceptional circumstances:
- Firstly, we have chosen not to follow the pack with offshoring our credit control teams to reduce costs. All of MAPP’s accounting teams have been kept in close proximity to our FM’s and surveyors allowing for an integrated and reactive approach. That means they know each other really well and when working remotely that really helps.
- Secondly, we have rehearsed and invested heavily in preparedness for such an event given the amount of data and money we handle. We have even paid firms to stress test us under such a scenario. We purchased 15 extra laptops and sent all 200+ of our office based team home. They reconnected and worked the next day as if nothing had happened (although one or two struggled to find the mute button on video calls….).
Hats off also to our clients who responded quickly and effectively when we needed instructions, and to our competitors as we temporarily put competitive advantage to one side. The Heads of Property Management across the larger firms, Workman and MAPP worked together on a weekly Zoom call to share ideas, best practice and to forge a collective response. Dealing with these once in a career changing market conditions needs collaboration. Thinking solo slows outcomes and can result in mistakes
Perhaps the biggest virtual high five needs to go to our credit control team (we need to change that mantle) who worked well beyond their allotted 8 hours a day from bedrooms, balconies and bathrooms to deliver what was needed.
This week will see the MAPP team continue to focus on reducing service charge costs and managing hundreds of repayment plans.
So what about the future? Maybe one for next week but our FM teams are starting to plan phased re-occupancy and its impact on our operations, service partners and ability to source key supplies. If it helps, we are planning on a phased return to business and shopping with strict social distancing rules in place from the middle of May. That timeline has come in a little since last week as infection rates slow, NHS capacity remains available and the economic challenges of a lockdown are laid bare. Leisure operators, bars and restaurants are likely to face a longer wait. All of this also has an impact on the approach to requests for rent and service charge deferrals or holidays as every business will be impacted differently. It also impacts hundreds of other decisions – how long to furlough, do we need a new budget and do we need to employ a medic to take the temperature of returning occupiers. Mid May may be optimistic but we need to be ready.
Our business planning process continues to change on a weekly basis. People are many things, but they are remarkably adaptable and our new norm feels as though it has been in place for months. I fear the old normal may still be a year or more away and in some cases may never return. Some of that (dull meetings, inconsequential drinks and standing jowl by jowl on the tube because the offices open at 9.00) may be very welcome but I am looking forward to normal.