Taubman Centers (NYSE: TCO) sent a letter to tenants last week saying that they must honor their leases and pay rent despite the spread of coronavirus. In a letter dated March 25, the mall operator said that it needs the cash flow to meet its obligations to utility companies and mortgage lenders.

“Landlord’s obligation to pay its lenders, utility companies, insurance companies and the like, to ensure the safety and security of the building and maintain the appropriate level of operations, remains,” the letter reads. “The rental income that we receive from Tenants is essential in order to meet these obligations. All Tenants will be expected to meet their Lease obligations. Further, Tenants are encouraged to look to their business interruption insurance policies to assist in making the Tenant whole.”

Taubman Centers Sets Tone

The letter comes at a very difficult time for commercial real estate operators. Last week, Cheesecake Factory (NASDAQ: CAKE) said it would forego payments on rent, furlough 41,000 employees, and shut down its 294 locations. Taubman Centers has one Cheesecake Factory among its properties, but many believe that the restaurant’s decision will set precedent for a number of other organizations.

Simon Property Group (NYSE: SPG), which is in the process of purchasing Taubman Centers, has 29 Cheesecake Factory locations.

A significant number of unknowns exist for the month (and even months ahead) for the real estate industry. Not even Green Street Advisors – one of the top research firms in the real estate space – appears to have knowledge of what could come to the industry.

“I have no idea where this is going to shake out,” Vince Tibone, an analyst at Green Street Advisors, told CNBC last week. He suggested that the mall operators and retail operators will need to share the burden.

However, Cheesecake Factory’s aggressive actions could be a sign that many tenants are operating without an action plan for a stoppage in commerce.

It’s clear that we are operating with a series of unknowns. While few are providing data, some of the top analysts in the country paint an ugly picture.

Alex Zikakis at Capstone Advisers said that COVID-19 has had a dramatic impact on commercial real estate. Meanwhile, Philip Voorhees,  vice-chairman of CBRE National Retail Partners – West, said, “If the COVID-19 threat persists, many small businesses will have no other option than to close permanently.”

Icahn is Shorting Commercial Real Estate

Two weeks ago, hedge fund manager Carl Icahn said he was shorting commercial real estate. Icahn cited a large number of loans given to hotel operators, shopping malls, office buildings and retailers starting in 2012.

“A lot of these bonds now are in grave danger,” Icahn said in the interview. “It’s like selling insurance to someone who’s going to go to the electric chair in a couple of months.”