No One Is At Fault: It’s Time To Rethink Our Leases And Loan Documents

Print

A few weeks ago when COVID-19 kidnapped our blog postings, we wrote about recognizing the differences between individual catastrophes and community catastrophes. As further evidence that Ruminations has little if any influence on our industry, it seems to us that we stand almost alone in the way we are analyzing the current situation. While newspapers, other media, law firms, industry gurus, and general analysis sources are predicting the future from a global perspective – i.e., what will the “new normal” look like; will this coronavirus rear its head again, over and over; will it morph and be with us for a long time to come – the industry blog postings and law firm memorandums we are reading (by the hundreds) seem to focus on weaponization. Yes, how can one of the three: landlords, lenders, and tenants, defend or protect themselves against the others?

Articles about “force majeure” are an example. Those that look backward analyze how clauses written without any thought of a pandemic can be retroactively reinterpreted to provide rent relief. Those that look forward seem to be encouraging that tenants (in their leases) and landlords (in their loans) insist on a provision giving relief either for a pandemic or, in essence, for any situation not anticipated at the time the binding documents are executed. We’ve seen “advice” from respected sources suggesting that, in situations such as what we are all facing today, payment modifications or workouts be treated just like “we always did,” beginning with a review of the payor’s financial statements, business plans, financeability, etc. [Read more…]

Print

COVID-20 And Beyond – What Will It Take For Brick And Mortar Retail To Thrive?

Print

The news is full of information about the current “novel coronavirus”: (2019-nCoV), as the Centers for Disease Control and Prevention identifies it. A “novel coronavirus” is a new coronavirus that has not been previously identified. So, there will be further coronaviruses. They will be just as novel. Hopefully, they will be no more disruptive than the common cold, also caused by a coronavirus. The keyword in that last sentence is: “disruptive.”

COVID-19 has swept swiftly over society and our industry. So has the disruption it has brought. We’ve seen many disruptions before. In fact, they overlap one another. The difference this time is its swiftness. In the 1920s, as the developed world was transitioning from an agrarian society to an industrial one, although the future was imponderable, there was time to adjust. Today, although on-line merchandising and sales are shifting the retail paradigm, the disruption has been slow and progressive. “Slow and progressive” allows time to adapt. [Read more…]

Print

The COVID-19 Crisis Is Now Over – What Is Next For Retail Real Estate?

Print

If you are like we are, you’ve been receiving dozens of COVID-19 emails or other messages each DAY. On the “law” side, they discuss and dissect the legal rights and remedies implicated by the current crisis – force majeure, impossibility, impracticality, material adverse changes (effects), foreclosure moratoriums, and on and on. On the “business” side, they opine on holding off the payment under mortgages or leases, or the applicability of insurance coverage, and on and on. The now 94-year old Newton Minow, when last to speak on a panel, is reported to have said something like: “By this time, everything to be said has already been said, but not everyone has had a chance to say it. Now is my turn.” That’s the feeling we are getting about the nearly 200 messages we are receiving weekly.

Some “advice” is well thought out; some is authoritative; some is important; some is trivial; some are well-meaning but dangerous. To us, the common factor is that all (that we have seen) are backward-looking. What about tomorrow? In the words of Bishop T. D. Jakes, “Never make a permanent decision based on a temporary storm. No matter how raging the billows are today, remind yourself: ‘This too shall pass!’” [Read more…]

Print

Today, Hubris And Existentialism, Not “The Missing Comma”

Print

Hubris (hu·​bris), n. [Gr. Hybris].wanton insolence or arrogance resulting from excessive pride or from passion. That’s what it would be if we were to present today’s blog posting as if our subject matter was important in the current situation. It is also what all of us, unknowingly for sure, have demonstrated in thinking that our agreements could cover every possibility. If any reader had a COVAD-19 provision in their documents before January, we invite you to share it with the rest of us.

Countries have shut down walk-in commerce. In the states and Canada, stores, large and small, are closing “temporarily.” Restaurants, the “saviors” in today’s shop-on-line world, are closing “temporarily.” Hours are being cut back. Rents won’t be paid. Some, mainly marginal, tenants won’t be coming back. Some (pretextually) will use their co-tenancy right to “skinny down” their portfolios. We’ll all fight about the meaning of “force majeure.” We’ll be picking through our leases, open purchase agreements, and loan documents (including loan commitments) in an effort to “get out.” [Read more…]

Print

Landlords Can Be Retailers And Never Sell Any Goods

Print

At one time (and even today), when you saw a closeout bookseller or a Halloween store at a shopping center, a good guess was that the property was sucking wind or its functional equivalent. Though these are generally unattractive uses, they do bring revenue and customer traffic. So, the impact of their presence lies in the eyes or the pockets of the observer.

Temporary uses don’t have to tarnish a shopping center. If you call the Halloween store a “pop-up,” its image improves. There’s an idiom from as early as 1833, adjusted to 21st Century English: “Call me anything you want, just don’t call me late to dinner.” That would seem to apply to filling a property with rent-paying, foot traffic generating tenants.

Temporary tenants don’t have to be solely discount or low brow ones. Landlords have the power to create a shopping environment. Seemingly perennially vacant spaces can be converted to above-market rental opportunities. And, this isn’t just for the large properties. Permanent pop-up spaces can be created. Outfit a single store or more for use by a continuing series of fashion retailers. That would be like having a regular tenant that turns over its inventory every month. Just as furnished houses rent for more than vacant houses, “furnished” stores can rent for more than empty ones. Earn money on more than real property. Rent the improvements and the fixtures as well.

Fashion doesn’t tickle your fancy? Then, how about pop-up restaurant space? Invest in a fully equipped, first-class commercial kitchen with front-end restaurant fixtures. Then, rent the space out for a month at a time. Be even more adventurous, outfit a kitchen that can be rented every Tuesday by one “chef,” and every Friday by another. That’s seven tenants each week on a rotating basis. With a single day in the space, a once a week tenant could pay more than 1/7 of what a full-time, long-term tenant would pay. How about creating incubator space just like the high tech people do. You might even want to exchange use of the space for a percentage of any permanent restaurants growing out of your shared kitchen (or any shared retail space).

You can call the spaces “pop-up” or call the spaces “concept,” but whatever you choose, call them Kaching-Kaching, the sound of a cash register. Restaurants, art, jewelry, fashion, shoes, whatever – create a permanent marketplace of your own.

Think out of the box. When you’ve got an empty space and can’t easily rent it, you get hurt, and, importantly, so do your tenants. Quality traffic rises all boats.

These kinds of opportunities aren’t just for property owners. There’s a business in operating shared spaces. After all, many mall food courts are “that” business. One master tenant providing fit-up space to a variety of operators. The master tenant pays “wholesale” rent and charges “retail” rent to the restaurants. Why not be a tenant operating time-shared space?

What brought this to mind was Macy’s announcement last week that it would be bringing its brand to community shopping centers (strip malls) and closing about 125 mall stores over the next three years. Supermarket-based properties, especially ones with drug stores, remain stable, somewhat (but not wholly) insulated from today’s evil villain: THE INTERNET. They have decent foot traffic because people keep running out of food and toothpaste. We can’t speak for Macy’s and its planned 15,000 square foot “Market by Macy’s” stores (carrying apparel, accessories, home goods, and beauty products), but we think its thought is that customers, once at the property, will visit these smaller stores. Sephora and others are thinking the same thing.

What’s the connection? Why did the Macy’s announcement drive today’s blog posting? That’s simple. Foot traffic is the key to brick and mortar success. Tenants create foot traffic, but they don’t have to be the only ones. Landlords can do the same and make money doing so. Some tenants own their own properties. More landlords can own their own retail businesses and not even have to run them.

Why does Ruminations think today’s topic belongs in a blog focused on retail real estate law? Here’s our thinking. There was a time before condominiums, cooperatives, time shares, fractional ownership, and commercial mortgage-backed securities. Entirely new real estate industries and practice areas have been built on these concepts. Smart readers, especially those fearing declines in brick and mortar real estate, need to think outside the box. Retail real estate, and by extension, retail real estate law, doesn’t have to be stagnant. There are new ways to think about drawing customers away from their desktops. So, by example, some of the simple ideas we’ve tossed out today might work better with licenses, not leases. Or, perhaps, with an entirely different way to structure an occupancy agreement. Our readers can make that happen. Go for it!

Print

Words Are The Skin Of A Living Thought

Print

“A word is not a crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in color and content according to the circumstances and time in which it is used.” [Justice Oliver Wendell Holmes, Jr. in Towne v. Eisner, 245 U.S. 418 (1918).] We have loved that quote for nearly 40 years. It tells a lot about the agreements we write.

Consider the word: “maintain.” We looked at how web-based dictionaries define it. According to www.merriam-webster.com, it means: “to keep in an existing state (as of repair, efficiency, or validity).” https://www.ldoceonline.com/dictionary offers that “maintain” means to: “look after something: to keep a machine, building, etc. in good condition by checking and repairing it regularly.” www.collinsdictionary.com similarly offers: “If you maintain a road, building, vehicle, or machine, you keep it in good condition by regularly checking it and repairing it when necessary.” www.lexico.com (powered by Oxford) agrees when it tells us that “maintain” means to: “keep (a building, machine, or road) in good condition by checking or repairing it regularly.” [Read more…]

Print

Read It Or Lose It, Or How Access Was Lost

Print

You don’t have to be in the retail property industry for very long before you first come across an access agreement. After all, not all properties are sitting right out there on a prime highway. A plot might be developable if it could be moved to a spot right along the “best” road, but it doesn’t work that way. So, deals are made allowing those traveling to and from one property to cross over an adjoining property. Often, these arrangements are mutual; sometimes they are not.

When we come across such an arrangement for the first time, we probably read the documents pretty carefully. Likely, when we get to our fifth or tenth such agreement, we skip over the boilerplate. One of those provisions is the one that reads something like: “will be binding upon and inure to the benefit of ….” After all, these provisions aren’t much more than, “blah, blah, blah.” We’ve seen them many times before and they are always the same – until they aren’t. That’s what a car dealer discovered about a combined access and sign license with the following provision: [Read more…]

Print

Why? Why Not?

Print

Many have a tradition of making (and breaking) resolutions at this time of year. In fact, many have a tradition of making (and breaking) the same resolutions every year. So, why not try a new one this time?

Ruminations suggests that we all resolve to ask two questions, over and over: “Why?” and “Why not?” Let’s stop mindlessly copying and pasting from documents in our files. Let’s start by reading them carefully, something we think most of us haven’t done for a long time, if ever. We’re not just suggesting that the provisions be read as if being proofread. Instead, let’s really read them. Why does this work this way? Why wouldn’t it work another way? [Read more…]

Print