Outdoor climbing gym CityROCK, which employs 40 people, could shut its doors permanently as the company battles to pay rent.
The company, which has gyms in Paarden Eiland, Cape Town and Johannesburg, is one of a number of small businesses that were hoping to benefit from the rental relief fund created by the property industry.
However, they do not meet the requirements of the property sector fund aimed at helping them to pay rent. One of those requirements is that they operate out of a shopping mall.
Small businesses cannot afford to pay rent after being forced to stop operating because of the government-imposed economic lockdown, which is in its fourth week. While some landlords are offering rental discounts, others say their tenants are in breach and could be evicted.
Two weeks ago the Property Industry Group, which includes three big representative bodies for real estate in the country, unveiled a R2bn rental relief plan. This package is designed to help retail space tenants who couldn’t pay all of their rent because they haven’t been able to operate in the lockdown.
The three big bodies that came together in late March to form the Property Industry Group are the SA Real Estate Investment Trust Association (SA Reit), SA Property Owners Association (Sapoa) and SA Council of Shopping Centres (SACSC).
Retail landlords would offer relief in the form of rental discounts where rent would be waived partially or completely for April and May. They would also offer interest-free rental deferments where the deferred rental will be recovered over the six to nine months from July 1. Rental relief includes basic rent, operating costs and parking rental but excludes all rates and taxes and utility costs, as well as insurance, which all tenants will be required to pay in full.
Robert Breyer, a co-founder and co-owner of CityROCK, says his business is battling to meet its rental obligations and one of its landlords in Cape Town, Inospace, isn’t showing much pity.
Inospace is an industrial property group formed by former Auction Alliance head Rael Levitt and former Investec banker Nicholas van Eeden. Breyer said Inospace sent CityROCK a letter in which it said the tenant was in breach and was facing eviction.
Breyer said CityROCK just couldn’t meet the rental payment for its Cape gym. Its business has customers who pay monthly but it also gets a chunk of its revenue from walk-in customers and cash.
Inospace doesn’t rent out retail space to shops in shopping centres and malls so it doesn’t fit into the Property Industry Group’s relief programme, which is focused on helping retailers who rent from retail landlords.
Inospace converts buildings often located outside Johannesburg and Cape Town’s premier business nodes into flexible office business parks, which it says are designed to appeal to small and medium enterprises. Its parks include studios, storage and traditional warehouse space, which makes CityROCK an ideal tenant for the company.
Inospace’s offer is that CityROCK pays 50% of its April and May rent payable now. The landlord will then recoup this 50% of relief over six months to assist CityROCK when its trading returns to normal after the lockdown.
Levitt says CityROCK’s opinion is that despite contractual obligations it wants Inospace to write off rent and not recover losses.
“We are offering CityROCK the same rental relief as most landlords, in the form of temporary cash flow reduction. We cannot afford to write off debt and not recover it,” he says.
“More importantly, unlike most landlords, if CityROCK cannot pay their rent we are open to amicably and immediately cancelling their lease altogether and releasing them of all their obligations. We will rather risk an empty space and find a tenant that will pay us,” he says.
A neighbouring tenant at the Paarden Eiland property, clothing retailer Traders Warehouse, has also received the letter. Traders Warehouse owns about 50 stores, which it rents from a number of landlords.
Anthony Vassilatos, the CFO of Traders Warehouse, says he is in talks with his landlords, including Inospace, about rental arrangements but it can be difficult to make headway in negotiations because of the uncertainty about when and how the economic lockdown will end.
“Things are changing on a daily basis. Normally I can plan for three years ahead and at least budget for a year but I can’t do any of that at the moment. Landlords and tenants are in a tough position and we have to meet somewhere. Landlords must bear in mind that whatever decisions are made in April and May could affect them badly later on if their tenants have to close,” he says.
Other much larger clothing retailers, such as Truworths and Foschini, have said they will only pay a fifth of their due rent. This remains a fraction and won’t give landlords much cash to use to help smaller struggling tenants, a landlord says.
“They’re negotiating in bad faith and acting like bullies. They can sell their stock post lockdown and can call on large banking facilities. Small mom-and-pop stores are in a much tougher position,” he says.
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