Retailers Say Rent Relief Is Working

Another interesting article appeared today on rent relief at shopping centers.

Apparently Starbucks has had success in receiving concessions from landlords, in its quest to lower rents by as much as 25% at some of its locations. Additionally, jeweler Zale Corp. earlier this week joined the ranks of retailers looking to catch breaks, and we wrote about Charming Shoppes’ strategy yesterday.

ICSC’s RECon meeting last week in Las Vegas was interesting because of the different viewpoints we received on this subject. Many landlords told us that they weren’t negotiating with tenants and were insulted with form letters they were getting asking them for relief when the particular stores in question were doing fine.

Others, particularly William Taubman of Taubman Centers, claimed that anyone saying they weren’t giving concessions was lying. We also spoke with Matthew Bordwin, a managing director at KPMG Corporate Finance who is helping Blockbuster try to renegotiate. He told us that rent concessions could prevent Circuit City-like scenarios from happening again.

So should landlords hold their ground against these requests or are they a need in a battered industry right now?

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12 Responses to “Retailers Say Rent Relief Is Working”


  1. 1 bobgreenfest May 29, 2009 at 7:07 am

    Ian – Like any other financial decision a business makes, whether times are strong or weak, rent relief decisions must be addressed in a prudent manner. A landlord needs to weigh all of its considerations – i.e., co-tenancy provisions, importance of specific tenant to a center, tenant’s true ability to pay the contractual rent, etc. Conversely, tenants need to be realistic too. When have you ever seen a Starbucks without a long line? Giving rent relief to a tenant that typically doesn’t report its sales merely because they ask isn’t prudent either. See http://www.bobgreenfest.wordpress.com for additional insights.

  2. 2 James May 29, 2009 at 7:35 am

    Landlord’s need to decide how they want to deal with responsible mom and pop tenants who are paying high rents against significant downturns in sales. These tenants cannot do much to increase their sales and there are very few opportunities to replace them. With nationals like Starbucks whose sales reportedly were averaging $1200 plus PSF, I don’t seem to remember getting percentage rents or an extra 20% rent from them when times were good. My opinion is they need to suck it up. Any rent concession negotiation should begin with a truthful and full financial disclosure on the tenants part. Last time I looked Starbucks had no meaningful debt and their minimum store criteria was at least $600 PSF gross sales. They were selling something like $7B a year in coffee and yet they had no developed scientific sales projection tool to analyse new locations. Now they want rent reductions? Does disingenous fit their new image??

  3. 3 Jim C May 29, 2009 at 8:07 am

    To say rent reduction’s would have saved Circuit City is laughable. After over a decade of trying to re-invent themselves, expanded in ways they should not have in the first place, could not get there internal operating systems under control, and when they were most vulnerable, the financing community rules changes and pulled the rug out from under their way of doing business. When your margins are being decimated, your customer service is weaker than your competitions, and the financing rules change, it is a scenario that a 20% – 30% – 40%+ rent reduction won’t even come close to solving. The reality is, there are rent concessions being offered, but it is a very small percentage of the requests being made. Today’s times are like having a beautiful lake dry up and boats sitting on the newly exposed bottom showing they were looking pretty when they were afloat, but were in precariously shallow water all the time. Many of the “work out” teams had the conference calls with their staff, Vendors and Landlords, in many cases these requests for concession did not avoid the Filing for Bankruptcy protection (General Motors?).

    Retailing is cyclical and the innovating retailers that change with the times rise to levels of success, but when a category is over stored, or the companies internal systems (customers service, debt, value, etc.) are not duplicatable or conducive to the times once a retailer becomes the national commodity, they sometimes fail. How far back do we need to go to see this: Linens n Things, Lee Wards, Goody’s, Sterms, Gimbles, Mervyn’s, Caldor, Bradlees, Jamesway, Drug Fair, Levits, Child World, Ames, Hollywood Video, Grand Union, Today’s Man, The Wiz (nobody beats’m by the way), Service Merchandise, Channel Lumber, Rickles, yadda yadda yadda. To the contrary, people like Wal*Mart, Family Dollar Stores, AutoZone, etc. are good examples of company policies that have kept expenses low, maintained profitability, and have the ability to weather the difficult times like these. Landlords have been put in similar positions by the rash of vacancies and they are scrambling to keep there worlds upright too. When you have a center w an anchor and 3 storefront vacant, how is it the rest of the tenants think reducing their rents are a good thing? I know a residential property owner and would NEVER let his tenants see him in his new shiny convertible Mercedes. One day he did drive to one of his buildings where the tenants paid on time in it, and mysteriously a few rents started to be late the very next month. It is truly the survival of the fittest amplified by the shallow waters we are all swimming in……………..

  4. 4 chabay May 29, 2009 at 8:19 am

    See GGP bankruptcy:

    I find it ironic that a Mall landlord has the nerve to point out that they are insulted at receiving a form letter from a tenant asking for rent relief when some particular stores may be doing fine.

    Why doesn’t the same hold true for GGP who dragged many performing malls into the parant company bankruptcy when they were up to date in their financial obligations?

    Landlords seem want it both ways, can you explain that? In addition GGP is borrowing 400 million from some of the same entities for DIP financing who drove them to banruptcy. Then to take 225 million of that to pay a pre petition loan, what is going on here?

    Where is the justice? Next up maybe we will give them taxpayer $ to buy their way out of BR. Why not everyone else is in DC with their hand out, except for the small retailer.

  5. 5 Dealmaker May 29, 2009 at 8:49 am

    I agree with William Taubman: Anyone saying they weren’t giving concessions was lying. It’s happening everywhere. Spin doctors for troubled major REITs spin to placate myopic analysts and worried stockholders

    It’s always a case by case situation. There are situations where a tenant has a kickout right and can back you into a corner because there are no valid replacement tenants, and you might even be facing a cotenancy default. So you do what you have to until times change for the better. I don’t mind trying to help some one who needs it and can demonstrate they will benefit and recover because of our relief. But…. when times are better I’ll remember those who took advantage of us for no good reason. When times are good…landlords usually don’t go to tenants mid term and ask for steep rent increases because they are doing better or a tenant with a better rent offer wants their space.

  6. 6 greendiamond May 29, 2009 at 8:56 am

    Asking for a rental reduction or simply calling it “blend and extend” seems to be in vogue. The landlord still has certain fixed cost to meet each month as well as an expected return to its investors. Be creative if you have a healthy balance sheet by asking the landlord to return all or a portion of the security deposit.

  7. 7 John G May 29, 2009 at 11:25 am

    It has to be case by case. As a landlord, I can tell you we denied three Starbucks requests for rent relief as their sales were too strong to warrant help. In each case they renewed, extended or continue to operate. Fairness is a two way street.

  8. 8 Weed Removal May 29, 2009 at 12:59 pm

    As a small-box tenant of hundreds of spaces, what I have seen recently is a move away from “meaningful” reductions to merely technical reductions i.e < 10%. Those we ARE turning down, holding that thought in abbeyance for a rainer day than Right Now – which could be a matter of time w/out the reduction. Even so, don't think that miniscule offer won't be remembered at renewal when there is real Inventory to review.

  9. 9 Casablanca May 29, 2009 at 4:20 pm

    After years of gouging retail tenants on rents, “I’m shocked, SHOCKED, that they’re now requesting rent reductions.”
    – Casablanca Landlord

  10. 10 Todd June 7, 2009 at 2:14 pm

    Most landlords I have spoken with are very open to temporary rent reductions, being very realistic about the chances a retailer could go dark now.


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