Philly’s coronavirus response

Rent disputes and broken leases: How Philly businesses and landlords are handling the COVID crush

Some commercial eviction proceedings are underway, while other developers are negotiating.

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Mark Henninger / Imagic Digital
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Like so many businesses in Philadelphia, the Walnut Psychotherapy Center went entirely virtual back in March. But the $10,000-a-month rent for its abandoned office space on 15th and Walnut still came due.

Owner and founder Danna Bodenheimer said the LGBTQ-focused counseling center has taken a major financial hit as a result of the pandemic. Many of her clients lost work, and with it their healthcare. Even with scholarships available, several have ended their treatment.

“Right now, we’re just trying to stay alive,” Bodenheimer said. “We have about 400 clients in the LGBTQ community who really need us.”

The situation with Bodenheimer’s landlord has grown ugly.

After paying full rent through July, she proposed making a reduced payment of $3,500 a month. Equivest Property Management, which manages leasing in the Center City building, wouldn’t budge on the monthly amount.

Instead, the landlord offered Walnut Psychotherapy a $125,000 deal to terminate the lease six years ahead of schedule — plus $5,000 to cover the landlord’s legal fees. It’s an impossible sum, Bodenheimer said. She’d prefer to remain at the office, and is just looking for flexibility until in-person operations can safely resume.

Equivest President Phil Rosen said ownership has offered COVID lease amendments to all its struggling tenants, but acknowledged no agreement was reached with Walnut Psychotherapy. He maintained the contract severance was a generous deal at “at 15 cents on the dollar.”

“The tenant does not seem to realize the extent the landlord has gone to resolve the tenant’s problem,” Rosen wrote in an email.

Lawyers are now involved. Bodenheimer’s name is on the lease, not her business. Attorneys for Equivest have asked her to list her assets, including any jewelry and cars she owns, according to emails viewed by Billy Penn.

Bodenheimer has only faced a notice of default on payments and no case has yet been filed in court. But her situation is one that could send a number of small businesses into financial ruin — or get them evicted.

Small business advocates in Philadelphia have urged the city to extend a commercial eviction moratorium. It hasn’t happened.

Last week, City Council passed a bill providing a 180-day grace period for restaurants, but eviction remains an option in other industries, and proceedings are underway, the First Judicial District confirmed. A court’s spokesperson could not immediately provide an exact number of eviction petitions filed by commercial landlords at this time.

Some advocates wonder what the incentive is to boot a business when demand is low.

“I would think they would have a vested interest in helping their tenants stay alive as long as possible, so that when additional relief hopefully comes, they don’t have to fill a vacancy,” said Anna Shipp, executive director of the Small Business Network of Greater Philadelphia.

Councilmember: The city should do more. City: We don’t have the funds

In cities across the U.S., downtown office towers have become ghost towns.

Since March, Philadelphia health officials have urged or mandated that everyone who can work at home do so. One Philly building manager told the Inquirer last month only 30% of workers were regularly showing up. More than 1 in 10 retail storefronts are currently vacant, per a late November Center City District survey.

Where does that leave tenants looking to renegotiate? There’s been little guidance, said several local proprietors, including Bodenheimer of Walnut Psychotherapy.

Philadelphia Commerce Court, which handles commercial landlord-tenant disputes, launched a program this summer to help struggling businesses negotiate with creditors to keep their doors open — with debt repayment required down the line. The courts, however, can not offer legal advice, per a spokesperson.

Councilmember Allan Domb, who holds an extensive Center City real estate portfolio, said he wasn’t aware of a business closing down because the landlord refused to negotiate on rent. “A tenant who was not a good tenant before the pandemic, that’s a different story,” he added.

But Domb said it’s the city’s responsibility to help businesses stay in their spaces, and mediate potential resolutions with landlords, though it’s unclear how that would look.

“The city needs to be a partner in helping them,” he said, suggesting Philadelphia could give out more small grants to help float enterprises on the cusp of going under.

Lauren Cox, a spokesperson for Mayor Jim Kenney, said the city has directed “over $100 million in government, philanthropic and private funding” to businesses and nonprofits, including $30 million to the commonwealth’s small business assistance program in recent months.

Facing a major municipal budget gap, the Kenney administration joins small business owners in hoping for a second federal stimulus package, which remains under discussion in Washington.

“We simply don’t have limitless resources to support the outstanding need,” Cox said.

‘The next generation of operators will have an opportunity’

For some Philly businesses, paying even partial rent remains impossible.

Voltage Lounge, an 8-year-old performance venue in Callowhill, has had almost zero cash flow since March. The independent music hall hasn’t made a rent payment since March, according to business manager Sean Salm — and now the landlord wants them out.

Lack of rent payment is being put forth as a reason to quash discussions of renewing the lease, Salm said. Property owner Arts & Crafts Holdings, which bought the building at 7th and Willow in 2018, according to deed records, told Billy Penn Voltage hasn’t paid rent in about a year and half.

Salm acknowledged issues predated the pandemic. He said Voltage, along with neighboring Franklin Music Hall (fka Electric Factory), has helped bring more business to an otherwise desolate commercial strip. He doesn’t want to move, and is just asking for a few more months forgiveness.

“They got us in this position where we’re vulnerable and we really can’t fight back,” Salm said. “We just want them to see the value of independent music venues and what we bring to the community.”

Craig Grossman, a partner at Arts & Crafts Holdings, said this is the only payment dispute he’s had with 100-plus commercial tenants, which include Franklin Music Hall and concert house Union Transfer. He emphasized the Voltage Lounge issue predated COVID: “They haven’t been paying rent for an exorbitant amount of time.”

Some small business owners say commercial rent in Philadelphia amounts to 10% or less of gross sales.

Even with relative security of owning the bricks at his OCF-branded coffee shops, developer Ori Feibush said he doesn’t foresee the cafes surviving the next year. Sales are down by 90%.

“I’m losing my shirt on this stuff,” Feibush said. “There is no math that shows any of these bars, restaurants or gyms will break even next year.”

He highlighted a potential opportunity created by the current crisis. Closing an OCF coffee shop, for example, would leave a retrofitted cafe ready for the next entrepreneur. Widespread shutters could mean low up-front costs for the post-pandemic wave of proprietors who want to fill the gap.

“The only sliver of encouragement is that the next generation of operators will have an opportunity that comes once in a lifetime here,” Feibush said.

Leo Voloshin, a developer focused on Fishtown and Kensington, said only about half a dozen of his 75 commercial tenants have moved out since the pandemic began. The low turnover is a result of having the conversation with his small business owners, he said, and working with them to a reasonable degree.

“We’ve had some people defer payments for some time,” Voloshin said. “They want to stay, and I try to support small business.”

Want some more? Explore other Philly’s coronavirus response stories.

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