Strolling the Agora: What Is Causing Agitation Among Landlords Is The Demand By Tenants For Rent Concessions

Strolling the Agora column from the October 15th, 2009 issue of Shopping Center Digest “The Locations Newsletter”
What has been causing agita among landlords in this industry over the last year or so is the pandemic of retailers rushing for rent concessions as an inducement to remain in a shopping center, renew a lease, or to make a new deal. As we've said several times before, the balance of power – due to the increasing number of vacant stores and the decreasing number of chains that are aggressively expanding – has for the first time surged to the tenant side.
It's a basic rule in the ledger of investors and accountants that supply and demand determines what is the “true value” of a retail project, whether a strip, mall, lifestyle center or what have you. Some landlords have used this for years, establishing the “market rent” on what other tenants would be willing to pay for that specific location in a center; some tenants have grudgingly “overpaid” for these locations as a way to keep out a competitor and avoid a loss of market share. 
It is certainly not the replacement cost of the brick and mortar and numerous other variables that went into building the development in the first place. Value has been based on ROI, Return On Investment, and been used to establish various “cap rates” for years.
And when a retailer, as Rite Aid did recently, boasts that it obtained rent concessions of 20% on its worst-performing units, or when Finish Line states it is seeking serious reductions from landlords for the nearly 300 units coming up for renewal next year, the value of the centers housing those stores is substantially diminished.
It is why Taubman Centers has said it will write down the value of The Pier Shops at Caesars by $106-$111 million, and Regency Square by $55-$58 million to about $30 million, and now is turning over the Atlantic City project to the lender, Centerline Capital Group.
It is also why a number of landlords are actively seeking tax reductions on the value of their projects, such as Inland Western, owner of Maple Tree Place in Williston, VT; it is in superior court in Chittenden County seeking a $15 million cut in the $80.9 million assessment. 
It is also why Standard & Poor's Rating Services cut its ratings a notch on Regency Centers Corp, a major landlord of supermarket-anchored shopping centers.
It is also why the new owners of Highland Park Village in Dallas, Steve Summers and Ray Washburne, paid $170 million for 200,000 sq. ft. of retail and 50,000 sq. ft. of offices. Annual sales at the National Historic Landmark are over $1,000 per sq. ft., well above national averages and pretty good even for a luxury-oriented complex, that is going to get even more luxury-oriented. 
And it's also why countless, well-funded investment companies are patiently circling overhead waiting for cash-strapped owners “to get real” on the value of their assets and take them to market. When this finally happens, there will be a flood of shopping centers changing hands and the entire landscape of this industry is expected to change, with some landlords getting even larger.
The dismal state of the economy is blamed for just about everything under the sun right now. And numerous state, counties and towns are passing on to their citizens their need for more dollars, either by directly raising taxes, passing new taxes or establishing numerous new kinds of fees, and/or increasing audits on businesses in effort to collect on unpaid back taxes.
And then, there are other methods, related to the above – but not as numerous – that some communities are using as a reaction to these challenges. 
In East Alton, IL, village officials have established tax-increment financing and special sales tax districts to improve business areas that include three small shopping centers: Eastgate Plaza, East Alton Plaza, and Wilshire Village. The action is designed to counter the spread of vacant storefronts in parts of the districts, and to retain existing businesses in a currently viable area from going into decline. Tax collections will begin in January, and then it will be determined how much would be spent on revitalizing the areas with better lighting, sidewalks, streets, utilities, and general cosmetic upgrades.
What this is all leading up to, I guess, is that just about everything is inter-connected – a giant, intricate arrangement of dominoes – and when the first one topples it causes numerous others to follow. 
More information on the twice-monthly SHOPPING CENTER DIGEST and our associate publications, EXPANDING RETAILERS and DIRECTORY OF MAJOR MALLS, may be obtained from our website, www.shoppingcenters.com.


Strolling the Agora was a twice-monthly column discussing trends, issues of importance, and commentary on the leasing/development aspects of the shopping center/retail chain industry in the US and Canada. Called Strolling the Agora, it was a part of Shopping Center Digest, a newsletter founded in 1973 published until September 2010. The column provided expert insight into various retail focused topics. It was primarily authored by Murray Shor, Editor & Publisher as well as industry and veteran retail experts.  A smattering of archived columns are presented here for your reading “pleasure”. It's an interesting “look back” at what were current hot topics at the time with regard to shopping center/retail industry focus, development and leasing expansions and processes, retail mix, opinions and more.
About Murray Shor:
Reporting and writing on the shopping center/retail industry since the late ’60s. Began as editor at Chain Store Age, founded Shopping Center World (now Retail Traffic), Shopping Center Digest “The Locations Newsletter” in 1973, and the Directory of Major Malls in 1979. Each issue of Shopping Center Digest contained a column called Strolling the Agora which provides commentary on trends, activity, issues of concern to development and leasing in the shopping center/retail industry.
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