The operator of Metropolis Fremantle says the nightclub faces a difficult rebound from COVID-19 if and when it can begin operating again, with a stalled rent negotiation a demonstration of the uncertainty building over commercial property leases.
Tension between commercial tenants affected by COVID-19 and their landlords is rising over how to best work through the ramifications of possible rent-free periods or rental abatements under business hibernation plans floated by the federal government.
Prime Minister Scott Morrison last week placed a moratorium on evictions, and at the same time told tenants and landlords to work out mutually satisfactory arrangements that would allow many businesses to go into hibernation.
However, the federal government is yet to provide guidance on how landlords and tenants negotiate and contractualise a pause in rental payments, or how any repayment plans would be handled.
Major retail chains across the country have shuttered stores amid the uncertainty, with brands such as Kathmandu, Premier Investments and Adairs closing national operations until guidance can be provided.
Lease Equity managing director Jim Tsagalis told Business News all of the landlords he had spoken with in recent weeks had expressed a willingness to work closely with tenants and be mindful of their situations.
“Certainly our advice to landlords is to wait and see, from the perspective of what stimulus packages will emerge that will directly influence the way commercial real estate leases are handled,” Mr Tsagalis said.
But he said a wide range of factors would determine future rental arrangements and the appropriateness of rent-free periods or abatements.
“Landlords want to understand the effect that the COVID-19 pandemic is having on a particular business category, and then they want to work appropriately and accordingly,” Mr Tsagalis said.
“I think it will be handled on a case-by-case basis, because it is very contextual to the situation.
“If you are a general store in Bridgetown I suspect it’s a very different effect than if you are a deli in North Perth.
“What will be assessed is the category, the tenant’s financial capacity, the landlord’s financial capacity, where it’s located demographically and where it’s located physically.”
For Metropolis Fremantle, Capitol Corp managing director David Heaton said the way forward proposed by landlords Jamelia and David Wallace would make the nightclub’s post-coronavirus future “unnecessarily hard”.
Capitol Corporation has operated Metropolis since 2009, while Mrs Wallace is the sole shareholder in Victor Gubgub Pty Ltd, the long-term owner of the property.
“Basically, what they want us to do is continue to pay variable outgoings, across the term of the pandemic, and then they will give us a rent abatement for whatever period that might be,” Mr Heaton told Business News.
“They will then add the unpaid rent to the rent going forward, and we will have to pay them back in 12 monthly instalments.
“It essentially puts up our rent for 12 months by another 50 per cent. It is going to make it extremely difficult.
“The assumption is that everyone is going to come running back in one big hit, but that’s not the case.
“It is probably going to take us 12 months after the fact that the coronavirus is gone to resume normal trading.”
Attempts by Business News to contact Mr and Mrs Wallace were unsuccessful at time of publication.
“At this stage we’re still paying rent, we pay it on a weekly basis, around $18,000 or $19,000 a week, including variable outgoings,” Mr Heaton said.
“It is obviously painful when we’ve got no income and all our venues are closed.
“We’re all supposed to be in this together and we all should be operating.”
Mr Heaton said the Metropolis situation was unique among the Capitol Corp portfolio of venues, which includes The Newport, The Breakwater, The Lookout and Amplifier-Capitol.
“All of our other landlords have … taken a long-term view,” Mr Heaton said.
“We have Primewest, which has given us a complete rent-free holiday, we’ve got Wyllie Group which has given us a rent-free holiday, because they want to make sure that they’ve got a tenant at the end and one that pays.”
Lease Equity’s Mr Tsagalis also acknowledged that operating conditions would likely be difficult for many in retail and hospitality, as well as other commercial property sectors, in the initial stages of a post-COVID-19 economy.
Mr Tsagalis said the encouraging aspect for tenants and landlords was a willingness by Australian banks to assist by restructuring commercial property loans.
“The truth is, when we come back, we won’t be coming back to a flat road,” he said.
“We will be coming back to either a hill or a mountain, and everyone will find that relatively difficult to climb.
“So it’s just about understanding which of those tenants, banks are basically saying, generally speaking, ‘give us an assessment of the risk as you see it, and we’ll be here to try and help you’.”
