Blog: “There’s life, but not as we know it”
June 11, 2020
To paraphrase Mr Spock of Star Trek when he landed on a strange planet, “there’s life, but not as we know it”. Undoubtedly, that phrase will ring true in the post-Covid-19 world.
I have been comprehensively immersed in the leisure industry for 55 years as a specialist property adviser, operator and property investor. Covid-19 has posed more threat and collateral damage by far in the last three months than in all of my encounters with eight recessions, banking collapses and statutory changes such as The Counter Inflation Act, combined, in my career thus far.
The challenges for operators are immense and well documented and go far beyond the food and beverage sector; theatres, cinemas and other major visitor venues which feed into the food and beverage market throughout the UK are in critical condition. As a resident and lover of London’s wonderful, historic, central entertainment area, I am naturally concerned about the impact of public confidence about congregating and social distancing on London’s cultural scene. This has been exacerbated by the Mayor’s deal with the Government, to increase the Congestion Charge tax to £15 until the hour of 10pm, not only on weekdays but on weekends as well. In addition, most of the arterial vehicular routes from north to south across central London have been closed, the net result being it will be very difficult to visit central London by car unless you are a cyclist or are able to walk very long distances without problem – at a time when many are cautious about using public transport.
I know many London landlords who are working with local authorities and stakeholders to encourage cautious consumers back to the West End including providing cleaner, wider and more appealing streets, sanitisation stations, and many other measures. Whilst we have several mountains to climb at this point, our sector has shown great creativity in the face of adversity in the past and I am optimistic that they will be able to carve a way forward. In the short term, I can see a cultural change to localised leisure including the greater support of regional theatres, clubs, bars and restaurants.
It has been disappointing to hear about some confrontations between landlords and tenants when there was no need. Landlords do have a bona fide contract by way of leases with tenants and many would welcome discussion to see how that agreement can be adapted but tenants do need to communicate and enter into a dialogue of mutual support. Currently, I fear that the Government protection of tenants with rental moratorium and the suspension of the recovery provisions of the Insolvency Act may be a short-term fix but equally when this protection is withdrawn there could be a bloodbath of insolvencies and CVA’s.
Whilst some landlords out there will see an opportunity of repossessing units with much of their infrastructure intact – thus enabling an easier re-let possibly by way of a turnover agreement to a new tenant – the landlords we are advising are certainly engaging in constructive dialogues with their tenants and seeking to help those in distress where they can. These landlords are concerned not just with how and when their estates ‘re-open’ but making sure this process is as collaborative as possible.
There will be a need for the remodelling of some leases and within that must be a partnership of landlords, tenants and funders to meet the growing awareness of the need for change. This will require greater financial transparency from tenants and also a commitment to reward landlords for taking on the additional risk.
The property industry has naturally seen diminished transactional levels although our teams at Davis Coffer Lyons have continued to talk to the entire market in preparation for the return to a basis of worthwhile activity and still several deals have been agreed. Indeed we are now seeing the early shoots of serious activity.
Valuations have continued to take place throughout lockdown with many lenders accepting valuations based on external inspections. We are now able to carry out most inspections in person when these can be done safely.
Our lease advisory team are busy advising clients and negotiating solutions to the current impasse on rents, rent payments and the issue of outstanding rent reviews and unfavourable lease terms, using a collaborative approach.
There are signs of enthusiasm for investments in leisure property which is a healthy sign that the blood of financing may be starting to surge through the veins of our damaged sector.
There is no doubt that many operators have taken the opportunity of reducing historical and incremental costs and will come out financially slimmer and in doing so have better chances of expansion – many others sadly will disappear.
For decades we have experienced a lemming-line desire from some private equity-backed operators to acquire sites and operate possibly second-class outlets. Many mistook turnover for profit so that expansion was geared towards corporate capital exit. Many of those groups now have branches which are empty, overrented and returned to landlords. However, within the leisure sector one common fault is that memory is poor. I would anticipate that it will not take long before there will be keen expansion once again as groups endeavour to build with a view to exit at high values.
I hope that there will be cooperation between all elements of our wonderful sector including landlords, tenants, and funders. We need to do so if we are to avoid wholesale unemployment throughout the country let alone London. Nonetheless, I am a perennial optimist and believe that the biggest rule in life is ‘everything will change’. I only hope it will be for the better going forward, through structuring more mutual and collaborative working arrangements.
David Coffer is Chairman of The Coffer Group comprising Davis Coffer Lyons and Coffer Corporate Leisure. He is also the Chairman of CG Restaurants. David is past Chairman and a major shareholder of Earls Court & Olympia.