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Shopping Centers Today -> February 2002
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2001 PROVED TO BE ROCKY YEAR FOR SPECIALTY LEASING
By Debra Hazel
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| Some kiosks shut down during the holidays, after their employees’ deportation. |
Last year may go down as one of the strangest years in history for specialty retailing, which was plagued by recession, war and even immigration problems that resulted in the sudden disappearance of some tenants.
An already uncertain economy got even shakier after the Sept. 11 attacks on New York City and Washington, D.C., and the subsequent war in Afghanistan. For some developers, that meant a lot more hand-holding — and in some cases, rent relief — for the entrepreneurs that typically populate carts and kiosks.
“It’s been a tough year,” said Coleen M. McNelis, vice president of specialty leasing for Santa Monica, Calif.-based The Macerich Co.
Specialty leasing has been all over the map in sales terms, with some developers reporting gains, while others are flat to down. Normally, cart and kiosk sales rise during a recession, as customers who are loath to spend $500 on a stereo system will take a closer look at the unusual and less expensive offerings of temporary tenants.
Recently, however, keeping some tenants in business has required creativity.
“I completely remerchandised one unit myself,” said Carol Ann Sivek, San Diego-based senior vice president of specialty leasing for TrizecHahn, whose centers are located mostly in hard-hit tourist meccas. “You do it as an office, as a team, as an individual.”
Other developers have in some cases offered rent relief or allowed a cart to close early.
“The essence of the program is hand-holding,” said Keith C. Laird, vice president of specialty leasing for Westfield America, Los Angeles. “You’re taking a retailer who has never been exposed to our environment and selling them on the value of the environment.”
But in the oddest side effect of Sept. 11, a number of carts shut down not because of retail problems, but because of legal ones. The FBI and the Immigration and Naturalization Service (INS) investigated foreign workers at the carts and found some to be in the United States illegally; the employees were detained and, in a few cases, deported. The investigations, undertaken in early November, shut down some carts just as the holiday shopping season began, making the re-leasing of the spaces difficult and sometimes stranding landlords with unsold and unclaimed merchandise.
The Rouse Co., Columbia, Md., lost 30 merchants (out of 2,500 portfoliowide) in the investigations — and perhaps about $250,000 in business, said Karen Duffy Weir, CMD, vice president and director of specialty retail. Inventory from the affected carts has been stored for pickup.
Westfield also lost some 30 to 40 carts out of about 400, Laird said. Because the closures took place so near the holidays, the firm was not able to re-lease all of the space.
“It certainly is a hit,” Laird allowed. “It’s a loss of that product to the customer and the loss of that income to Westfield.”
The investigation of cart operators began after a suspicious customer called the FBI in early November about one cart worker who was found to have overstayed a visa, according to mall operators.
Despite the difficulty, few developers say they will institute new security procedures for temp tenants. Weir said her leases already include a clause in which the lessee affirms obedience to the laws of the United States. Should that turn out not to be true, the lease is automatically broken, she said. Failure to open for business at the designated times is another deal breaker.
Other management firms remained relatively unaffected. At Philadelphia-based Preit-Rubin, only one cart was closed. But the company will be much more careful about identifications than in the past, said Elaine Berger, vice president of specialty leasing. Holiday deals had long been in place by mid-September and rents paid up by early December, she added.
“We’re definitely discussing our options to ensure our tenants are in compliance with the law,” Berger said.
The INS problem is an aberration; the real key to the health of the
industry, all say, will come later this year, particularly with
deals put into motion at this month’s ICSC Temporary Tenant
Conference, being held Feb. 22 to 26 in Dallas. This year may follow
the typical specialty-leasing pattern during an economic downturn:
laid-off corporate executives trying their hand at entrepreneurship.
“It’s been a marketing business opportunity — let’s turn a negative into a positive,” Weir said. “While there have been layoffs, we may be able to inspire them to do business with us.”
The nonholiday season will also be more telling in terms of sales.
“It’s the local and regional retailers that drive the nonholiday period,” Westfield’s Laird said. “We’d like to talk to more nationals who’d like to incubate a new concept.”
One positive development since Sept. 11 is a new spirit of cooperation between permanent and temporary tenants, who have in the past fallen out over product lines and sight lines.
“People learned to be human to each other again,” Macerich’s McNelis said. “There’s been no bickering.”
Landlord-tenant relationships have improved, too.
“We’re working with each merchant,” Preit-Rubin’s Berger said. “If anything has come out of Sept. 11, it’s that we need to be more flexible in how we do some of our leasing.”
Consequently, even as McNelis brands 2001 a hard year, she acknowledges that it was “not as tough as it could have been.”
And some have found the challenges, if not the circumstances that created them, almost enjoyable.
“It’s gotten more fun,” TrizecHahn’s Sivek said. “It’s forced me to get off the chair.”
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