One Big Thing
One potential problem in this sort of business environment is that, in the middle of all of the chaos, everyone is sort of on the honor system. What do I mean by this? Let’s say that several tenants in a shopping center are struggling and go to the landlord for help and the landlord agrees. What’s to stop other tenants who are not financially impaired but sense that the landlord is now in a vulnerable position from doing the same thing? Apparently very little and the latest to prove this point is none other than Starbucks. From The Seattle Times (emphasis mine):
“Effective June 1 and for at least a period of 12 consecutive months, Starbucks will require concessions to support modified operations and adjustments to lease terms and base rent structures,” read a May 5 letter to landlords, signed by Starbucks Chief Operating Officer Roz Brewer.
Starbucks company-owned shops have long been considered a gold standard of sorts for landlords looking to fill smaller spaces in shopping centers. Much like Staples skipping rent while remaining open, what they are asking for here is straight-up looting in the midst of a crisis. Starbucks has more US locations (8,900 company owned) than nearly any other chain so the impact of this will be felt far and wide. Their primary business of selling coffee and prepared goods is much more suited to our new social distancing reality than so many other restaurants, especially since they already have a robust mobile app. In addition, its an investment grade credit and has over $2.5 billion of cash on hand as of the end of the first quarter of 2020.
In normal times, if Starbucks tried to pull this, their landlords would collectively tell them to f&%k off and remind them of their obligations to pay per the lease agreement. However, in our current situation, they are likely to get more traction since landlords are going to be concerned about the consequences of losing a shopping center anchor and having to sue for the their lease payments. Every dollar of landlord assistance that goes to Starbucks is a dollar that doesn’t go to a struggling mom and pop restaurant or store that doesn’t have billions of dollars in the bank and is on the verge of going under. Perhaps the biggest problem with this sort of corporate behavior is that, if successful, it will embolden other bad actors who see an opening to lower their rental costs, leading to a worse crisis. I hope that I am incorrect.
What I’m Reading
On the Hot Seat: Colleges are finding out the hard way that no one wants to spend $50k+ a year for a bunch of Zoom lectures. Students at more than 25 schools are already suing their colleges for their spring tuition money and campus fees back. If colleges end up being virtual in the fall, this will turn into a blood bath.
Uneven Impact: Nearly 40% of low-income workers lost their jobs in March.
Feeding Frenzy: It’s a landlord’s market in the Hamptons this year as well-healed New Yorkers look to escape the tight confines of the city.
Armageddon: OpenTable is forecasting that one in four US restaurants will go out of business due to the pandemic shutdown. See Also: RIP JC Penney. The long-beleaguered retailer is being put out of its misery.
Chart of the Day
I wonder what all the people who bet on sports are doing now that they can’t bet on sports….
Ricochet: Police are looking for a woman who (allegedly) flung human waste on employees at a Georgia Taco Bell.
Cut Off: When drug kingpin Pablo Escobar was killed in 1993, 4 of his “pet” hippos escaped his compound and have been breeding. Now there are up to 150 of the aggressive animals in Colombia and local vets have begun castrating them in an effort to control their numbers.
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