Life Preservers
Sep 1, 2008 12:00 PM, By Mike Janssen
There's nothing like a crisis to bring people together.
With more and more retailers shuttering locations, filing for bankruptcy protection or reining in expansion plans, landlords are putting more emphasis than ever on doing what they can to keep a grip on existing tenants — especially those that are candidates for shutting down.
Proactive landlords are not just offering rent reductions — a common request from troubled retailers — but they also point to increasing marketing efforts, speeding through renovations and doing whatever they can to keep traffic up. They are doing this, in some cases, even before there's a sign that a tenant may need help.
“We have to recognize that we're all in this together,” says Joseph Coradino, president of both PREIT Services LLC and PREIT-Rubin Inc., the companies that handle leasing and redevelopment for Philadelphia-based regional mall owner Pennsylvania REIT (PREIT). “Getting through a difficult environment like this requires a partnership — that's the foundation for the discussions.”
But because it requires that owners share the pain, rent relief ranks among the least appealing options on the table. As a sign of the subject's touchiness, several owners declined to discuss the matter with Retail Traffic. When asked how much relief PREIT has negotiated since the economy began going south, Coradino replies, “Too much,” with a laugh.
Like most owners and managers, PREIT evaluates each request for rent relief on a case-by-case basis, examining a range of factors to determine whether the relief would aid the tenant in question or amount to throwing money at a lost cause. Such factors can include credit checks, assessment of inventory levels and more.
PREIT sizes up the performance of other tenants in the same center, Coradino says, and also scrutinizes the tenant's history in the location. “We're trying to find out if the tenant is viable. Do they have a positive track record? Have they done business consistently, and is this just a blip?” he asks.
In some cases, factors such as a recent personnel change may be behind a decline in business, rather than larger market trends. “You can tell the difference when a retailer has a good manager in place in their store,” Coradino says.
An accurate assessment of a tenant's finances hinges on honesty and transparency regarding their status, says Mitch Salmon, senior vice president of New York City-based Mall Properties Inc. This can be difficult to attain, however. Larger companies can be slow to authorize sharing of financial data, Salmon says, while smaller ones are often private and may provide information that is less trustworthy.
“You really have to understand how they go about getting their merchandise,” Salmon says. “That's a very important component.” Also significant is a tenant's standing with lenders. Those unable to borrow “are not worth negotiating with,” he says.
Landlords confronted with the possible loss of a big-box tenant — the “Linens 'n Things of the world,” as Salmon says — may face an especially dicey situation. Replacing such tenants presents a challenge because relatively few retailers are able to occupy such large spaces. And losing one can start a landlord down a “slippery slope,” with neighboring tenants taking a hit after the big anchor drifts away, Salmon says.
Furthermore, by not doing anything to help a potentially troubled tenant, owners leave themselves open to “midnight moves” — that is, when a tenant takes matters into their own hands and disappears without warning in the dark of night. Big national tenants rarely do this sort of thing. But regional and local mom-and-pop retailers do sometimes do this to escape leases. Columbia, S.C.-based Edens & Avant, for example, says it has lost a handful of tenants in midnight moves earlier this year in Florida, a state hit particularly hard by the subprime mortgage collapse. But such moves have since declined, according to the company.
