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One Palo Alto landlord gave rent breaks to mom-and-pop tenants. Will others follow suit?

McNellis Partners proposes 'Retail Marshall Plan' to help reeling business community

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As local businesses struggle to survive the coronavirus pandemic, one Palo Alto developer has stepped up to assist his tenants by waiving rent for the month of April. And he hopes others will follow suit.

John McNellis, whose Palo Alto-based company McNellis Partners is a major commercial property owner in Palo Alto, is leading the way with an effort that he calls the "Retail Marshall Plan." As part of the initiative, which McNellis announced Tuesday in his column in "The Registry," an industry publication, his company is forgiving rent and other charges for the month of April for all mom-and-pop tenants that have been forced to close, regardless of their business types or reopening dates.

Since he announced the initiative, other developers across the nation have reached out to him to ask him about the relief effort and indicate that they plan to do the same, McNellis told the Weekly.

"It's the right thing to do and I've been very pleased with the response," McNellis told the Weekly. "I've had any number of local developers write to me and say, 'Great idea. We're going to do it.'"

McNellis, whose properties include 428 University Ave. (the Lululemon building), 180 University Ave. (the West Elm building) and the Alma Village shopping center at Alma Street and East Meadow Drive, among others, said the economic shutdown has had a devastating — if uneven — impact on the retail industry. While some of the anchor tenants at his developments — most notably, supermarkets — are doing great, the small businesses are struggling.

"The news was so bleak starting a week ago, when it felt like suddenly America is taking this very seriously. And when they announced the shutdown, we said, 'Our tenants are screwed.' It's just trying to do the right thing."

The plan offers different types of relief to different types of businesses. All that are required to shut down will get a rent-free April, even if they reopen at the beginning of the month.

For franchisees of national companies such as Subway and 7-Eleven, the company is offering to match, on a dollar-for-dollar basis, the credits that franchise owners get from their parent companies. Thus, if a company gives a tenant a $2,000 franchise credit, McNellis would give it the same rent credit.

"Because our financial resources are a light-year from infinite, we will need the big guys to help us help their franchisees," McNellis wrote in "The Registry," describing the different approach to these businesses.

McNellis said that after April, his company will consider further relief on a case-by-case basis. In some cases, tenants that need more than one month's help will be asked for some concessions, which may include extending the lease term or agreeing to a downstream rent increase, his column noted.

McNellis said that since he wrote the column, he's heard from about a half dozen building owners and shopping center owners, asking for details about making the relief plan work. Some have indicated that they will implement similar measures.

"I've had a number of people say that they're going to do it, but talk is cheap and free rent costs money," McNellis said.

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Comments

8 people like this
Posted by Fairmeadow
a resident of Fairmeadow
on Mar 20, 2020 at 1:19 pm

Thank You McNellis!


6 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Mar 20, 2020 at 2:15 pm

Good for him! It would be great to hear our City Council members, Planning & Transportation commissioners and City Manager urging other landlords and developers to do the sane.


Like this comment
Posted by relentlesscactus
a resident of another community
on Mar 21, 2020 at 12:59 pm

I have been saying that the economic BOOM is gonna hit when residential tenants without jobs, and commercial tenants with low or now income, hit April 1st - and landlords are going to have to be the relief valve with reduced rents, as their just won't be the money out there to support the rent bubble anymore. Of course, some landlords are no better off and won't be able to take this hit, and others who can but will hold on to the belief of forever-bubble rents, but will end up with people/businesses that just can't pay. This is an amazing thing this commercial landlord is doing.


3 people like this
Posted by Good business decision
a resident of South of Midtown
on Mar 21, 2020 at 1:43 pm

Better to lose a few months rent than have the tenant close up
and result in an unrentable empty space.


Like this comment
Posted by Palo Alto
a resident of Southgate
on Mar 22, 2020 at 3:29 pm

I have a small business on California Ave, and I asked my landlord if he would be giving any rent concessions and he said "NO".


Like this comment
Posted by Anon
a resident of Another Palo Alto neighborhood
on Mar 24, 2020 at 2:58 pm

Posted by relentlesscactus, a resident of another community

>> I have been saying that the economic BOOM is gonna hit when residential tenants without jobs, and commercial tenants with low or now income, hit April 1st - and landlords are going to have to be the relief valve with reduced rents

Many are waiting with bated breath to ss what Vittoria Management is going to do. Vrent has a market-leading (some would say monopoly) impact on the Palo Alto rental market.


Like this comment
Posted by Palo Altan
a resident of Crescent Park
on Mar 31, 2020 at 12:12 pm

Great initiative! It's going to be rents that kill businesses. If they're laying off employees and suspending new inventory orders, they will reduce their operating costs significantly. But if they have to pay high rents with no income, this is what is going to put them in a hole they'll never dig out of, in other words, a grave! So kudos to the landlord here. I hope others are in financially strong enough position to do the same.


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