It is always sad to see a business go under, however much it might have deserved its fate; careers, jobs, livelihoods, fortunes, hopes – they all go up in smoke. Nonetheless, I couldn’t help but feel a degree of gratification on seeing Intu Properties, the shopping centre operator, collapse into administration.
It was of course Covid that finally tipped Intu over the edge, but the company had been on life support for a long time. It has taken the pandemic for creditors finally to admit to the blindingly obvious – that this kind of heavily indebted form of high rental retailing is all out of time. At least investors had the sense to spurn a £1.3bn cash call earlier this year.
Intu’s bankruptcy is as it should be. There will no doubt be some kind of a future for its shopping centres; people still like to physically shop. But nobody is any longer going to pay the sort of rents that support a debt-heavy construct such as Intu. Landlords are deluding themselves in thinking otherwise.
According to data collated by Re-Leased, retailers had paid just 15pc of next quarter’s due rent by last Wednesday’s payment deadline, a shortfall of more than £2bn. It wasn’t much better for commercial property as a whole, where receipts were just 18pc of those demanded.
These are shocking figures, but shouldn’t altogether surprise; the Government has given tenants the right not to pay rents for the duration of the lockdown, making it a wonder that landlords got anything at all.
2020欧洲杯体育投注开户Yet with some exceptions, landlords are not treating this hiatus as rent forgiveness. Many instead plan to recoup the money due when the rent suspension comes to an end. Having sat there for three months with little or no revenue coming in, leaseholders are not going to take that kind of demand lying down. Many would rather close than borrow to pay.
Good luck with finding new tenants if they do, or indeed going after delinquent tenants for rent arrears. Pret A Manger’s unilateral announcement that it will only pay 30pc of its next rent bill makes an interesting interpretation of the law of contract. Such actions also seriously disadvantage those who have been prudent, and have built up the resources to ride out the storm. Even so, I suspect landlords will get little sympathy from the courts if they determine to pursue matters among the “can’t pay, won’t pay” brigade.
But that’s not all. Most retailers are demanding a very considerable reduction in future rental payments in recognition of the fact that many high street outlets are simply not worth what they used to be. So good luck to the Government too in seeking to revive past levels of revenue from business rates.
2020欧洲杯体育投注开户In any case, previous levels of revenue from retail, hospitality and entertainment venues are going to take a long time to come back, if they ever do. Banking covenants on property loans are going to be broken right left and centre accordingly. Many loans are predicated on valuations that are no longer realistic. Banks are therefore left with the unenviable choice of either calling time on all that leverage, thereby threatening capital ratios with an incoming tsunami of bad debt, or engaging in further forbearance and allowing the bad debt to fester on balance sheets into the indefinite future.
It was the latter approach which dominated after the financial crisis. Many businesses survived, staggering on in zombified form, if only because banks couldn’t afford to put them into administration. There were admittedly massive debt write offs after governments provided banks with the capital to allow them, but also a lot of ongoing forbearance.
2020欧洲杯体育投注开户This kind of approach tends to prevent a big surge in unemployment, but is otherwise extremely bad for economic renewal, starving new industries of the capital they need. Capitalism’s natural healing process of creative destruction – out with the old, in with the new – gets interrupted, with all kinds of unwanted attendant anomalies, such as very subdued productivity growth.
As it is, the business world has been forced into borrowing far more than it would otherwise have done just to tide things over to the other side of lockdown. At the last count, there was approximately £100bn of additional lending under the various Governmen- guaranteed and Bank of England business support schemes2020欧洲杯体育投注开户 alone. It’s hard to get at the numbers, but there has been extensive extra lending to business on top.
2020欧洲杯体育投注开户It can be argued that with interest rates at close to zero, it doesn’t much matter that everyone is taking on a lot more debt, though you would be surprised at how much of this additional lending is at well above bank rate. Even so, it’s almost bound to crimp the pace of recovery once the pandemic is over. Whether costing much or not, most business leaders are uncomfortable with excessive debt, and will instinctively starve their enterprises of investment and additional cost until it is paid off.
Creeping into public policy is an unfortunate perception that there is no limit to what can be borrowed to survive because the interest rate is so low and the duration so lengthy; as long as the price is zero, then there is no cost to much higher levels of debt. If money is now free, why stop at this year’s £300bn-plus deficit2020欧洲杯体育投注开户? Why not cancel all student debt as a gift from one generation to the next? Why not completely forgive the £100bn in guaranteed business loans; much of which will never be repaid anyway?
All this is magic money tree stuff cannot be right; eventually markets will rebel, yet as long as central banks keep expanding their balance sheets, investors are loath to call that moment. What in any case is the alternative? Mass liquidation and unemployment. No one would thank the Government for that.
Throughout this crisis, I have reserved any praise I’ve had for the Government to just one individual, Rishi Sunak, the Chancellor – so much so that one reader recently accused me of being besotted with the man. That’s going too far, but I’m certainly guilty of being a fan; he’s the only member of the Cabinet who seems to talk any sense, and the only one who can be said to have had a good crisis.
2020欧洲杯体育投注开户This is faintly ironic, because the Treasury tends to be thought of by the Johnson Government’s revolutionary guard as the beating heart of everything that has gone wrong in Britain over the past 40 years. Yet in a crisis, it repeatedly demonstrates itself as the only part of the machine with any competence.
So in praise of Sunak again, I’d say he’s right to be pushing back on the pressures to further open up the Government’s chequebook. He’s right to insist on an “exceptionally high” bar for companies seeking taxpayer-funded bailouts as he prepares to set out measures to revive the economy next month.
And he’s right to be saying: “This is not my money. This is taxpayers’ money. I shouldn’t be sitting here trying to pick winners.”
2020欧洲杯体育投注开户A line has to be drawn somewhere.