PRLA Restaurant & Lodging Matters Spring 2020

10 •  PENNSYLVANIA RESTAURANT & LODGING matters  •  Spring 2020 Landlords Joe McKesko is a real estate pro in Chicago and makes his living sparring with landlords. On a webinar I moderated last month, he told the audience what he believes will happen to rental rates after a near-total shutdown of the industry: “What restaurants pay in rent is only going to be based on what they can afford based upon their economic model,” said McKesko. In other words, rents are coming down. You’ve probably sat with your landlord to discuss your immediate cash flow crisis, but don’t do anything rash. Now is the time to be a long-term thinker. Your landlord may allow you to defer rent for a few months, but how are you going to pay that all back in the fall, or even into next year. Try for abatement or percentage rent first, but realize a deferment must be spread out. Also, don’t agree to a lease extension unless it’s in your best interest. You may not want more term on a location that’s borderline. Wall Street restaurant analyst Mark Kalinowski suggested a week ago in his weekly report that percentage rents might become the new industry norm. Restaurant landlords probably will disagree. They have loans, too, and they like fixed rent. For years they’ve demanded, and received, a fixed minimum rent based on the greater of the market rent, or a capitalized rate on their investment. If your landlord has a better alternative standing by than you, and you want to stay in the location, then you have to accept his terms. If not, it’s time to do battle.