I was first made aware of that when managing the Pallasades Shopping Centre in Birmingham (now defunct) and the owner of a restaurant, seemingly annoyed with having received a quarterly rent demand, rocked up to our offices with his meat cleaver.
At Briant Champion Long (also defunct) I sat with members of a notorious gang to chat through the rent they owed on an illegal ‘nightclub’, whilst gazing nervously at the pile of guns they had deposited in the middle of the table. Another memorable occasion involved repossessing a shop, only to find that it had been emptied (literally emptied – floors, ceilings, plaster off the wall) apart from a WC hanging off a wall. Waiting inside was a little ‘present’.
We are expecting the June Quarter to be bad but not that bad.
The Government’s code of conduct will help, but perhaps only at the margins.
So how do we prepare? What goes on before, during and after the quarter day to make sure that the Funds, REIT’s, Investment Managers backed by Private Equity, investors scattered all over the world and some individuals all wake up on the 25th June with money in their bank account?
Phase one is all about data and we have a detailed pre-quarter process, which begins with the team analysing data. All 6,500 occupiers are then ranked and given a priority rating. Frequent late payers, those with high value rents and properties with new service charge budgets will be towards the top of that list.
Tenants in buildings that we have taken on during the quarter appear on a different list. Eliminating the defence that a tenant had not realised that the building had been sold or moved to MAPP is always a top priority, and despite the lockdown some buildings have transferred this quarter.
This quarter we are using our data to split tenants into three main groups. Those who we/our clients believe can and should pay, those where concessions have been agreed or where we/our clients are in discussions with and finally the circa 20% where the tenants are not engaging.
Many of the normal recovery remedies are temporarily no longer viable or legal which means we need to somehow engage with that 20%. That has been and remains a priority for the whole team this week.
All the demands were sent out by the 1st June.
Phase two involved providing our surveyors and property managers with data and trend analysis to support recommendations around obtaining pre-CRAR approval. Since the legislation changed in 2014, conversations around enforcement action need to start much sooner.
Phase three (2nd June onwards) involved the team hitting the phones and slowly working down the priority list – checking that tenants have received demands and intend to pay.
Phase four (starting now) sees us move into reporting and recovery mode. We will report to clients, track the income trends across all the portfolios and previous quarters and make recovery recommendations where required. We have and will continue to contribute to REMIT Consulting’s ReMark survey which has helped industry groups and Government during the pandemic.
COVID-19 has meant some changes to our strategy, but many of our working principles remain the same and we are much better prepared than we were last quarter. One of the challenges is that clients have different requirements and approaches. Some are fully understanding and are willing to agree payment plans, rent holidays and in the case of Shaftesbury have permanently moved to monthly rents. Others still want us to use every means to collect 100% by the quarter day.
Post COVID-19, data will become increasingly important. We will no longer simply view performance and trends at fund or property level, but by sector and geographical location which our clients will use to drive future investment decisions.
Whilst commercial considerations continue to drive decisions, our clients have on the whole been fair, patient and in some cases extremely generous throughout this crisis. Everyone understands that we need to work together to allow the real estate sector and economy to return to a new normal.
So next week we will know what the June Quarter is going to deliver. My hunch remains that despite all of the work we will be down on the March Quarter.