Shopping Centers Today

DEC 2016

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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100 S C T / D E C E M B E R 2 0 1 6 traffic into the mall for your tenants. Without high sales, you cannot get high rents." But if more leeway is a general trend, this does not mean anchor co-tenancy clauses have vanished as a potential head- ache for landlords. Many older leases, drafted years or even decades before the latest wave of anchor closings, still contain painful penalties. "When you lose a department store, there are a lot of co-tenancy issues that have to be addressed," Green said. "It has to do with the age of the lease: the older the lease, the more likely there is to be a clause about losing the de- partment store." Moreover, it is one thing to lose anchors at a well-located and generally healthy mall, and quite another for this to happen at a mall with slumping sales in a secondary or tertiary market. In struggling malls such as these, in-line ten- ants could be eager to take advantage of the escapes afforded them in their leases. "In general terms, if it is a sorry mall in nowheresville and JCPenney pulls out, it is an enormous prob- lem," Bomar said. "If the mall is in a great area, everyone will make lemonade out of lemons." Nor are all in-line tenants created equal when it comes to winning co-tenancy concessions. Historically, in-demand re- tailers have used their leverage to push for strong protections in their leases, such as paying only percentage rent, or even half rent, if the landlord fails to replace the anchor after a year or so, Bieri says. In contrast, landlords often negotiate leases that require weaker tenants to prove their sales have been hurt by any anchor vacancy. "If you're a strong specialty tenant, you don't have this kind of sales test in your lease," Bieri said. "But if you're a medium-strength tenant, the landlord is going to say, 'Unless your sales go down, you do not get any remedy.' It is the old 'no harm, no foul' rule, from a landlord point of view." And of course, the in-line tenants with the least strength — mom-and-pop operators — typically have no anchor-relat- ed co-tenancy protections. "It's all about leverage," Bieri said. Despite any challenges triggered by the language in in-line tenants' leases, landlords do appear to be making strides in their efforts to repurpose vacant anchor spaces. Bieri cites Star- wood Retail Partners' overhaul of The Shops at Willow Bend, in Plano, Texas. Now under way, this $100 million redevelop- ment includes demolishing the 125,000-square-foot building formerly occupied by Saks Fifth Avenue to make way for a new structure to be filled with retailers and restaurants. Starwood also plans to add a hotel and office tower to the site. "It is easy for Starwood to show that their new tenancy is going to >> W E I G H I N G A N C H O R S From the editors of Shopping Centers Today, SCTWeek is an e-newsletter delivered to your inbox every Friday morning with the week's most important news and announcements. Sign up at www.icsc.org/sct/sct-week

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