Better late than never seems to be the new theme for retail landlords. Instead of simply evicting struggling tenants, several retail developer/managers are deferring rents to maintain occupancy levels. The largest retail developer in the U.S., Simon Property Group, noted in its recent year end conference call that it is working with tenants on a case by case basis to keep its centers occupied. And it's not alone.
"We are holding our margins and our rents where we can, and that is in virtually all of our very good properties. And where we have a tenant that we believe is in extreme financial distress, we're trying to work with them to come up with a mutually acceptable basis for maintaining their occupancy in the portfolio," said Rick Sokolov, Simon's president and CEO.
With large malls housing up to 200 stores, anywhere between 20 and 40 stores come up for renewal annually during a normal time, noted Steven Greenberg, president of the Greenberg Group, an advisory firm based in Hewlett, NY. Today's climate is keeping leasing representatives busier than usual. "The good news is that there are some great locations available at good rents," Greenberg said. Tenants that are either suffering, pulling back or out of business have vacated some of the country's premier centers.
Some retail centers are offering inducements to remain occupied. One way some developers are helping is by deferring rent for limited periods. "Landlords will take 10 percent, 20 percent and just tack it on," said Lon Rubackin, managing partner of GFI Retail Group, New York. "We'll want it a year from now, two years from now."
Rent forgiveness, however, is not in landlords' plans, said Howard Kline, a lawyer and real estate broker based in Los Angeles. Landlords must establish a rent that tenants can live with to keep a center filled. He acknowledged that assistance to tenants is available. Among the options are short term leases just to keep a center occupied. Beyond collecting the rent, it is in landlords' interest to make their centers stay lively and draw traffic, these experts noted.
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