Posted on Jun 01, 2020
The recent “health” crisis (which has now become a true economic crisis) changed the behaviour of many overnight. The fear of a pandemic turned the majority of the population into a compliant horde who hung off every word of the daily one o’clock talking heads. There were many aspects of the handling of the crisis which were commendable, but just as many that call into question the management skills of the bureaucracy, and the understanding, or lack of it, of how business works, of the elected government.
Close to home, one of the interesting aspects of the economic response was the way in which commercial landlords were turned into whipping boys. The Government told commercial landlords to "step up now with rent relief" . ( Minister of Small Business Stuart Nash speaking at Parliament's Epidemic Response select committee).
Did they ask electricity companies , internet suppliers, insurance companies, local councils or any other of the myriad of suppliers of goods and services to the commercial sector to “step up now with relief” ?
A group of business groups, including Retail NZ, Franchise Association of New Zealand, Hospitality New Zealand, the Restaurant Association, the Auckland Business Chamber, the Baking Industry Association of New Zealand, and the EMA called for the government to take “decisive action to ensure a fair allocation of the risks and to protect jobs” with respect to commercial rents. The slogan promoted by the government was "He Waka eke noa - we are all in this together".
But in true Animal Farm fashion, we are all in it together – but some more than others. The pigs who control the government in George Orwell’s novel Animal Farm proclaimed the absolute equality of their citizens. But then gave power and privileges to a small elite. The expectation in our situation was that commercial landlords would shoulder a disproportionate share of the financial cost.
What was missing in all the clamouring and wailing with regard to commercial rents was the understanding that commercial landlords are businesses. The group of business groups chose to be blind to the fact that they were asking the government to regulate (as the Australian government did) one group of service suppliers as to how they could charge for their services.
Most landlords and tenants took on board the reality of the situation and took a pragmatic approach to negotiating. But underlying that pragmatism was a widespread belief that commercial landlords should be taking more of a hit than other businesses. Did we expect supermarkets to discount 50%? Is our rates bill discounted by 50% ?
Why did the expectation that commercial landlords should be expected to slash rents come to be generally accepted? And why did the group of business groups including the Auckland Business Chamber and the EMA, turn on a sector of the business community in such a public way?
Our explanation is that to a large extent we have brought it upon ourselves. The common perception is that commercial landlords are not businesses.
Of course they are! A landlord just has a different business model from a hairdresser or a marine shop or a restaurant. The mix of capital and labour is different, and the contract term is different. Nevertheless it is still a business.
Yet to the public eye, the term “passive income” is loosely translated as “fat cats sitting on their backsides raking it in”. From there it is an easy step in logic for many to believe that if landlords are raking in their “passive income”, then they should be the first to give away free money in times of crisis.
In times as we have experienced recently, logic is not always to the fore. Combined with the generally abysmal standards of financial literacy, it is no wonder that the immediate expectation was for commercial landlords to discount their services. But perhaps it has been a salient reminder that the perception of the industry is far from the truth – but that perception is our own fault as long as we allow terms such as “passive income” to be used.
Commercial Real Estate is a business, and whilst there are many very professional operators, there are also those that treat the industry as a hobby, with an amateur approach to business. Unfortunately the touts who say that “ We’ll show you, step-by-step, how to generate true wealth and financial security through real estate…” and use the term “passive income” also promote a poor public image.
In part because of that poor public image it has been easy for government and others to see commercial real estate landlords as convenient targets.
If we want to remove the target on our collective backs, then we need to change that image. And changing that image is in our own hands.