US buyout group Blackstone and London-based Telereal Trillium paid Network Rail £1.5bn for The Arch Company, owning more than 5,000 commercial properties, including a large portfolio of railway arch units, in 2018.

The sale of the property portfolio by the state-owned rail network owner was one of the largest ever UK real estate deals for which the private equity firm and their UK based developer investment partner Telereal are now seeking seek higher returns.

Many of their small businesses tenants, often in prime trading locations near railways stations, benefiting from high footfall, have thrived in these spaces before Covid-19. However, things have changed dramatically with the pandemic; trade is down or in some cases non-existent.

Consequently, small businesses occupying these arches, owned by the private equity group Blackstone and developer Telereal Trillium, say they are facing financial ruin because of the rent increases being imposed on them.

In some cases rents on review could be increased by a multiple of three, despite incomes being hit hard by the virus.

One company quoted by the FT, florists Wild at Heart, pays £54,000 a year for its arch premises in south-west London, a legacy rent rate from 2014. The Company has now re-assessed the market value of the property at £92,300 per annum and that’s what they are now demanding.

Wild at Heart’s accountant Mr Bhamra is quoted as saying: “We can’t afford to pay these sorts of rents. The increase they are suggesting is just not viable,” as the business has been been badly affected by the pandemic.

According to the FT, The Arch Company has set aside a £10m ‘hardship fund’ which is being offered to its struggling business tenants, including Wild at Heart, giving them a rent holiday for the three months from last March. However, Mr Bhamra says that given the dramatic change in circumstances the landlords should make allowances for the rent his company is able to pay.

Wild at Heart has made a counter offer of £64,800, or alternatively moving on to a new turnover lease, a method to link rent payments to the tenant’s income. Typically, turnover leases entail a lower base rent topped up by a percentage of the firm’s takings.

Although the turnover rent method is becoming more popular, landlords generally don’t like to share the business risk with their tenants, they don’t like the extra administration involved and it only works when there’s a high degree of transparency and trust between the parties.

The landlord has offered to reduce its demand to £83,400 per annum coupled with what it calls “Covid-related assistance”.

Leni Jones, MD of Guardians of the Arches, a UK wide arch tenants’ association, told the FT that the threat of rent increases right now was “causing intolerable stress for many hundreds of small-business owners struggling to stay afloat.”

A spokeperson for The Arch Company said:

“Our targeted financial support has helped retain nearly all of our 3,800 businesses, helping to keep over 25,000 people employed across our properties,” adding that it has offered some tenants “reduced or more gradual rent increases”.



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