Strolling the Agora: Dealmakers Look at the Shopping Center/Retail Industry

Strolling the Agora for Jan. 27th, 2009 Issue of SHOPPING CENTER DIGEST–(Recap of ICSC NY Dealmaking In December '08)

“We have been through many hard times since I negotiated my first lease in this industry over 40 years ago,” said Cuthbert, “but it has never been so rough and terrifying for landlords, tenants, and lenders. And, it will be a longer, wilder ride to recovery than anyone anticipated just a few months ago,” he told the Dinosaur Chowder and Marching Society as it recapped results after the ICSC New York Dealmaking.

“Yeah,” said Developer Dan. “The only time I spoke to a retailer was when he was asking to re-negotiate a lease and threatening to close his store.”

“What's my alternative?” asked Expanding Ed. “My costs are up, my sales are down, the customers are coming and looking and not buying despite deep discounting.”

“Fine,” said Dan. “Show me your sales figures from last year, your P & L, and certainly if they're legitimate, we can reason together and re-structure a deal that we can both live with, maybe extend the lease for a couple of years.”

“But,” chimed in Roger the REIT, “if I see that your sales are up 5%, or in some cases 10 and 12%, no way am I gonna drop the rent because your home offices says get a reduction because everyone else is getting one. It's not fair or right and we're partners in this shopping center.”

“You can't base it only on increased sales figures,” said Ed. “I've had to compete against competitors who are liquidating, so I've cut my prices, have almost no profit margin, and my distribution and marketing costs have gone through the roof. And I'm also competing against internet-based companies that don't pay for brick and mortar, and are offering free shipping. My sales may be up, but not my income.”

On The Other Foot

“And what about a few years ago,” said Apparel Al, “when you landlords had all the leverage and I needed this location and you said 'take it or leave it,' Joe over there is willing to pay $2 more a foot? You said then that you owed it to your Wall Street investors and stockholders to get the most possible for them. Now you can't take it when the shoe's on the other foot.”

“If you're not going out of business and you try to close this store, in which you're making money, go ahead, I dare you, I'll sue your ass and I'll win,” shouted Roger.

“Relax, hold it, calm down,” said Cuthbert. “We've negotiated thousands of tough deals over the years and have managed to remain friends and continue a working relationship.
We've done it so often that we can punch in all our operating costs, the financing, taxes, anticipated sales, bumps, terms, put it all together and come up with the numbers. It was a science. Now, however, all of that has gone by the wayside and we have to go back to the drawing board– leasing has become an art again.

“There's no question,” he continued, “that the smart retailers understand what's taking place and are exploiting it as much as possible. They're making long-term deals with no bumps, percentage rents, turnkeys with allowances folded into the rent, that'll be paying off for them years down the road. I've heard of new deals where it's straight percentage for three years, then they'll average out the monthly rent and that's what'll be for the next seven years.”

Right On Both Sides

“I've been told that the deals have to be incredible in order to get them approved by the real estate committee,” said Statistics Sam. “So if I hear that the landlord is covering the full cost of fixturing and finishing the store, and the tenant doesn't start paying back for 2½ years, why shouldn't I ask for it also?”

“Or,” says Listening Lenny, “a friend tells me he's paying nothing, zero, period, because he threatens to leave and that'll trigger more vacancies as other retailers exercise co-tenancy clauses to close their stores? It becomes almost a herd instinct,; if he gets it why shouldn't I?”

“It's rough here, and that's part of the reason more retailers are looking at Canada,” said Toronto-based Canuck Carl. “Most of my retail clients used to be Canadians wanting to do business in the US. Now, only one is; all the rest are Americans looking for locations from Ontario to British Columbia, even to Nova Scotia, Newfoundland and the whole eastern seaboard.”

“There's a lot of right on both sides of the negotiating table,” said Reasonable Ruth. “Much of the friction is caused by the uncertainty; the situation is changing daily, we don't know where we stand, we're out of our comfort zone, and with so much up in the air, we don't even know how to structure the deal.”

“You got a point there,” said Acquiring Al. “I've been talking to a few owners for a while on buying some properties. They have no concept that times are changing and there's a wide gap between price and value today compared to a short time ago. They insist on taking out their total investment in a center, and I tell them it's not worth that today. We're maybe 5% apart from making a deal. Now, comes January and more of their tenants go dark and out of business, and their vacancies increase, the value of the project is going to drop even more. If the occupancy is at 95%, and in a month it drops to 85%, where's the value? What do they do on price then if they still want to sell?”

Lot of Cash Waiting

“And,” added Vulture Victor, “with some of the big owners being forced to sell off important parts of their portfolios to cover their debt, and the stock prices of these REITs going in the toilet, that's all the more reason for me to sit back and make 'em come to me. I have the cash right now, and I can buy from anyone.”

“Quite true,” said Cuthbert. “There are a number of new investment companies formed within the last few months to take advantage of the current recession and begin buying real estate from strapped owners. Even the banks that were given federal money to lend and put into the economy, are sitting back waiting to buy or to invest.

“No matter what side you're on, there's not going to be instant gratification. Most dealmakers I've been talking to don't see any light at the end of the tunnel until 2010, and if it's approaching quickly it could be an oncoming freight train.”

“I have a long memory,” said one major landlord. “What goes around, comes around.”

Further information on Shopping Center Digest and a sample copy of a recent issue may be obtained by going to 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.

NY Deal Making 2018