It's not too huge of an assumption to make that many Houston startups and small businesses failed to pay their rents in full yesterday. Since the city's stay-at-home mandate on March 24 — and even preceding that — most businesses have seen a slowdown of revenue as a result of COVID-19-caused business disruptions.
Business owners are frantically looking in their leases and searching online to see what rights they have and what sort of protection they have in such an unprecedented time.
"People are confused. They don't know what to do, and finding information is hard," says Meredith Wheeler, co-founder and chief creative officer of Sesh Coworking, which opened earlier this year.
Wheeler and Sesh's co-founder, Maggie Segrich, have created a petition to get on the radar of local elected officials to challenge them to pass legislation to protect small businesses in this time.
"At the end of the day, it would be so wonderful and idealistic to say that we could rely on the niceties and the moral compasses of our landlords, but it's probably not true for everyone and so that's why we need legislation to dictate what is right," Wheeler says.
But landlords are also in unchartered territory, says Josh Feinberg, who has worked in Houston as a commercial real estate broker and co-founded CRE tech platform, Tenavox.
"There's this idea that there's this acrimony between tenant and landlord, and I think, as a former broker, we're set up that way to get our side the best deal. But in reality, that's just not true," Feinberg says. "The majority of commercial real estate is owned by regular people — not usually some faceless, gigantic corporation."
And they have a piper to pay too, Feinberg adds. Ninety percent of CRE is owned by debt, he says. If the government steps in anywhere, it should be on the lender level, as well as creating some sort of tax relief.
"If there's any relief here, it's going to have to come from lenders, and I think you'd hear that from owners and brokers," Feinberg says.
In somewhat convenient timing, Tenavox has recently co-founded a new company that provides a bit of a solution for small businesses. Otso provides landlords with an alternative to cash security deposits. Traditionally, deposits are held onto by landlords — they aren't legally allowed to spend it unless the tenant defaults.
"In general, I think cash deposits are wasteful," Feinberg says. "It's critical capital that the business can hire with, invest, and use."
Tenavox teamed up with Euler Hermes, a 135-year-old credit insurance company, to create Otso, and the credit company backs the lease performance of each tenant that is approved by Otso. The transaction calls for a fee added to the rent, but no large cash deposit would be required.
The tool can be used on new leases, and, in light of the current situation, Otso can also be used to create an addendum in existing leases so that the tenant can get back their deposit and use it in this time of crisis. Either landlord or tenant can apply online and hear back that same day — Feinberg says he's focused on a speedy response to help get this deposit money back to the tenant.
"If we can get some liquidity back into the hands of the business, they have some a better chance of survival," Feinberg says.
Other than looking into Otso, Feinberg has some other recommendations for small business owners. He says they should be applying for relief from the Small Business Administration, which has more money to dole out than they have ever had. And, as it pertains to working with their landlords, communication is key. Show financials and specific information — like what March 2019 looks like compared to 2020 — so that landlords can take that to their lenders.
"An unprecedented crisis is going to require unprecedented solutions," Feinberg says.