By MAE ANDERSON, AP Business Writer
NEW YORK (AP) — Rent is due for America’s small businesses, and at a very inopportune time.
Landlords were lenient on rent payments during the first two years of the pandemic. Now, many are asking for back rent, and some are also raising the current rent. Meanwhile, most of the government relief programs that helped small businesses get through the pandemic have ended, while inflation has pushed up the cost of supplies, shipping and labor considerably.
Martin Garcia, owner of the Gramercy Gift Gallery gift and décor store in San Antonio, Texas, survived the early part of the pandemic in part by paying his landlord as much rent as he could each month. Then, in August 2021, after the federal moratorium on evictions ended, the landlord requested the full amount of back rent he owed.
“I needed $10,000 in 15 days,” Garcia said. He took out every loan he could find, often at high interest rates, and barely met the deadline.
A good holiday season helped him pay off his loans, but sales have slowed so far this year and he used credit card financing to pay his June rent. Garcia believes some of his clients are cutting back on non-essentials to pay for higher gas prices and other must-haves.
Thirty-three percent of all US small businesses were unable to pay their May rent in full and on time, up from 28% in April, according to a survey by Alignable, a small business referral network. And 52% said the rent has increased in the last six months.
“A lot of small businesses are still frankly recovering from what was the last phase of COVID,” said Chuck Casto, head of corporate communications for Alignable. “Plus, they’re dealing with a year of rising inflation on top of that. It has made it difficult for small businesses to really make it.”
Ris Lacoste owns a namesake restaurant, Ris, in Washington, DC, and stays afloat using help she received from the Restaurant Relief Fund to pay her rent. But the money must be spent before March 2023.
“What I have to do to stay alive after that, every penny I can save has to go into the reserve,” Lacoste said. To save money, he’s refinishing tables to cut linen costs, not printing color copies of menus, and working with 22 employees instead of the 50 he once had.
Before the pandemic, the 7,000-square-foot restaurant was often full, but it hasn’t “returned to full occupancy at all,” Ris said. At the same time, inflation is compounding the cost of doing business.
“Payroll went up, labor went up, cost of goods went up, utilities went up,” Lacoste said. “I wear 20 hats instead of 10 and I work six days a week, 12 hours a day.”
But the rent is not something she can control, and that adds to the stress.
“You are working for the owner, how long do you want to do that, how long will you survive?” she said. “It’s not sustainable.”
Data from commercial real estate financing and advisory firm Marcus & Millichap shows rent rose 4.6% in the first quarter of 2022 compared to the prior year quarter as the vacancy rate fell to 6 .5%, the lowest since before 2015. But Daniel Taub, national director of retail for Marcus & Millichap, said inflation will make it harder for landlords to impose rent increases as consumers begin to feel pressured.
“Consumers can only spend so much when the dollar doesn’t go that far, and retailers can only pay so much to carry space and have enough inventory to pay employees,” he said. “It’s a tough retail market and something is going to have to give.”
Charleen Ferguson owns the building that houses the technology business she owns with her husband, Just Call the IT Guy, in Wylie, Texas. She also has 13 tenants, so she sees the dilemma from both the small business’s and the landlord’s point of view.
During the pandemic, Ferguson agreed with his tenants, who range from a massage therapist to a church, to put a moratorium on rent. Once things started to reopen, he worked with tenants with back rent. All caught up in three months, except the church, whose debts she forgave.
But he had to raise his rent by about 5% starting in May to keep up with his own building maintenance costs. Prices for utilities and cleaning supplies have gone up, as have property taxes. So far, it has not lost any tenants.
“I did enough to cover the raises, I didn’t do more,” he said. “We’re not making a lot of money, but we’re keeping people in business.”
For some small businesses, a higher rent is simply not an option. The solution: go remote.
Alec Pow, CEO of ThePricer.org, an 8-employee credit management consultancy in New York, said the landlord planned to increase the rent by 30% when they renewed the lease. Pow expected a smaller raise. The landlord said that he had a prospective tenant who would accept the lease for the full asking price.
So Pow decided to lose the office and let his New York staff work remotely for two months while they looked for cheaper space. The company also has an office in San Francisco and two in Europe.
“We were in the process of increasing our employees’ salaries to offset rising inflation,” he said. “Our annual budget didn’t have room for these two expenses, so we had to choose one.”
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