Washington Prime Group owns regional malls and shopping centers. When I first came on board, I was adamant we not use the word ‘mall’ until a good friend and titan in our industry told me to stop worrying about semantical nuancing and just make it better. As a matter of fact, WPG and many of its peers have done just that by diversifying tenancy, activating common areas, capturing the nexus between physical and eCommerce (think BOPIS and fulfillment) as well as respecting the demographic constituency we serve.
Our particular bread and butter is Middle America. This is not necessarily a geographic reference (albeit we do own assets in Kansas). It is more of a sociocultural perspective which, by the way, captures pretty much every race, color and creed which define our country and quite frankly makes it interesting. Our guests are folks who drive trucks, fix things, prepare your income tax returns, pull you over for a speeding ticket on the way to Columbus from Chicago and very well may be the first responder or healthcare professional who’ll save your life if, God forbid, you contract this awful Coronavirus.
As our assets are primarily situated within a robust secondary trade area, we serve as a major component of their local as well as regional economic base. In many instances, the commercial property and sales tax revenue generated from a WPG asset is essential to the municipality within which it is situated. There is also the second order GDP impact relating to repatriation of the income of tenants and employees back into the locales where our assets are situated e.g. they eat, work, shop and reside where they work.
WPG assets conservatively account for the following nationwide (think places like Johnson City, Tennessee, Missoula, Montana and Columbus, Ohio to name a few):
- Nearly $7B of total sales volume;
- The aforementioned sales generate ~$500B of sales tax receipts;
- Tenant employment within WPG assets total ~110,000;
- These tenant employes earn ~$2.5 billion of wages;
- Said wages result in ~740 million of payroll tax receipts; and
- WPG pays ~119 million in annual properties taxes.
The reason I bring all of this up is straightforward. As subsequent economic stimulus packages are introduced, it is imperative we consider the deleterious impact of tenants, big and small, not paying rent until there is a return to normalcy.
The most relevant emergency stabilization programs which need to be enacted include:
- Loan forbearance until sector stabilization;
- Mandating Coronavirus financial impact as nonrecurring, hence, an allowable material adverse change (MAC) deduct regarding financial covenant calculations;
- Loan guarantees whether in the form credit enhancement or purchase of lower rated risk tranches;
- Retroactive and prospective business interruption insurance coverage; and Loan maturity extension.
In addition, capital should be made available to retail oriented landlords not eligible for Small Business Administration and other CARES Act programs. While we have over 500 employees which exceeds the CARES Act threshold, one should consider each of our assets to be a self-contained entity serving its locale. While assisting small business is of crucial importance, it is all for naught if they have nowhere from which to conduct their business.
Remember, one heck of a lot of the ~$6.7T of US consumer activity is conducted within such physical assets as those owned by WPG.
The bottom line is if we don’t receive rent for a quarter or so, we can’t pay debt service and permanently closing an asset ain’t good for Kokomo, Indiana.
Louis G. Conforti is CEO of Washington Prime Group.