The Times They Are A Changin

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A major supermarket, once the largest retailer in the United States, closed in bankruptcy after 156 years in existence. People much smarter and knowledgeable that we are could better explain the cause of its demise and, in hindsight, could explain how they knew, years and years earlier, it would happen. Ruminations can only offer that the facts and circumstances changed, but the company (meaning its people in charge) did not. But, this blog isn’t about history other than to use it as a platform upon which to stand when engaging in another fool’s errand – forecasting the future.

The reason this now-gone supermarket comes to mind is “Uber.” We’ll get to that, but for now, please suffer along with us.

This supermarket chain to mind insisted on “controlling” the retail projects where its stores were located – because it could. No community shopping center could “be” without a supermarket anchor. Who decided what uses could be located at the center? What about parking ratios? Entrances and exits? On and on? We won’t say. You guess.

So, what’s the big deal? Absent this supermarket there would be no shopping center. And, what’s good for a tenant is good for its landlord (or, was that General Motors). Right? The problem (for landlords) with this particular supermarket was that for every release or waiver of a restriction in the supermarket’s lease, there was a price. If a landlord wanted to add floor area at the far end of the center, that would cost 25 cents a square foot in rent. It didn’t matter that the additional tenants would bring more traffic to the property without affecting the supermarket’s parking field. It didn’t matter that the shopping center would be more attractive and it would be worthwhile for new customers to come there and shop in the supermarket because they could “hit” more stores on the same trip. If the landlord wanted to add the space, it would have to drop the supermarket’s rent. That was the culture (or those were the rules) within the supermarket chain.

So, what is this thing about “Uber”? Patience please, we’re not ready.

In the past, we’ve written about how obnoxious uses such as tattoo and massage parlors have been transformed into mainstream uses. [To read such a posting, click: HERE.] We’ve written about how definitions have changed or have become clouded. For example, what is meant by a “mortuary”? [For that one, click: HERE.] We’ve written countless times about how exclusive use rights granted to a tenant, restrictions that once seemed reasonable and not very limiting, became, over time, impediments to maintaining a healthy retail project. More mundanely, we’ve written about how things we thought would never change, would always “be,” have disappeared, such as some benchmark U.S. Treasuries. Watch out – LIBOR will be gone. Today, our sole objective is to forecast a major change, an avalanche, rolling down the mountain.

The parking, it is a changin. Private vehicle ownership is on the way out. Shared use vehicles are on the way in. Garages and driveways will become superfluous. OK, there will always be some of us, rooted in the past, and even for good reasons, who will own the tools of our own transportation, but the car companies know better. They are getting ready for the transformation – they plan to retain ownership of what they produce (assuming governments allow that). What does that mean for shopping centers? It’s simple; the parking lots will be too big. The minimum parking ratios in existing leases will be too restrictive. The extra land can be reused for additional retail or for non-retail. But, the leases, even the ones being signed as this blog posting is being read, will be too restrictive by any objective measure. And, while there are many, many cooperative tenants, there will always be that supermarket we wrote about above.

Our crystal ball is still out for service, but the cloudy picture we got before it finally stopped working altogether was about store to home delivery. In how many leases did landlords restrict overnight parking of their tenant’s delivery vehicles? How much though was given to the “back” driveways historically used for inbound deliveries and fire vehicles, but not for outbound deliveries. Though a smaller side, this is the flip side of the same coin.

So, that’s the “Uber” in this posting. Writing “Uber” is a shortcut way of writing about transformative changes in technology and culture. And, our industry needs to get ahead of the curve. No, don’t look further down to find a magic lease provision. We’re not smart enough to write one. We doubt there is any one person who can do so. But, collectively, we can and must develop leasing concepts that allow our agreements to transform themselves, in a positive way, to work in a changing environment. In that vein, Ruminations tosses out this very vague thought. We need to start writing fewer fixed rules into our leases and start writing more formula-based rules, ones whose results adapt to changing parameters. We don’t know how to do this but, for our parking ratio example, we might want to base obligatory ratios on vehicle utilization at each time in question and not on what it was in the 1970s.

Has anyone out there done anything like this? What are readers doing to allow for flexibility while still protecting the legitimate expectations of landlords and tenants? Ruminate with all of us. Post your thoughts by clicking on the place for comments below.

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Comments

  1. Jack O'Rourke says:

    Totally valid and thank you. Unfortunately, We cannot do anything at this time about the “supermarket” who still has 20 years of options which in this case is not a supermarket but a major retailer who seems more intent on inflecting pain on EVERYONE, the community, landlord, etc., in a malicious display of their power. Your example of rejecting tenants, site plan changes and an expansion of the center that would benefit all the tenants, including the “Supermarket”, is exactly the pattern and behavior of this specific Tenant who is held in disdain by the majority of the real estate industry.

  2. I’ve been gone from NY Metro since 1985. RIP A&P gone belatedly (by 30 or 40 years). So you don’t think parking in 2060 and beyond (we all have leases that long) will be the same as today. Will there even be a “supermarket” then or will the drones deliver the staples, the veggies and the meat. This guy won’t live that long but I will keep picking my own – but that may be at a farmers market b/c it may not make sense to keep 60,000+ sf markets open. What change is coming can’t be fully anticipated. You must write for what you can foresee and count on goodwill and business judgement to amend when reality hits us. A&P was unwise and that was part of their demise. In 1945, Los Angeles had 3,000 miles of operational commuter railroad/trolley tracks. By 1965 none. How did that affect retail? My grandmother’s mantra (she was born in 1902 before Kitty Hawk and flew on mundane cross-country jet travel) was “adapt”.

  3. Jeremy J. Deeken says:

    One possible method to adjust the parking ratio would be to peg it to the average vehicle per day count for the cross streets (that are not highways) nearest the shopping center. Many government agencies provide this information.

  4. Jason Kirkham says:

    Thank you for another thought provoking article. Consider a shopping center encumbered by the Win-Dixie exclusive (quoted in the 11th Circuit’s decision). If a tenant operated its space within that shopping center solely for delivery of groceries ordered and paid for online, would that violate the exclusive? In that case, are groceries actually being “sold” from the premises? What if customer could pick up groceries ordered and paid for online?

    If the issue isn’t currently being litigated by Amazon against Kroger or some other grocery store, I bet it soon will be.

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