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Shopping Centers Today -> April 2001
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RELATIONSHIPS KEY, TEMP TENANT ATTENDEES TOLD
By Debra Hazel & Donna Mitchell
BALTIMORE — The growth of specialty leasing has created some new twists in the relationship among temporary tenants, inline retailers and landlords. “We’ve caused some retailers to despise us; we’ve prostituted common areas in search of NOI [net operating income] growth. [Inline] retailers object to the sheer magnitude of merchandise and the ‘cloud of merchandise’ they find in front of their storefront,” said Duffy Weir, vice president of specialty leasing and marketing for The Rouse Co., Columbia, Md., during a joint retailer/developer panel at ICSC’s Temporary Tenants Conference. As heard at the conference, held here in February, temporary tenants’ relationship challenges include trying to achieve a sense of parity with permanent inline retailers and garnering respect from mall owners. All of those factors come into play on both sides when laying the groundwork for a temporary license agreement (TLA). Typically arranged for a one-year period, a TLA has loose-knit terms that heavily favor mall owners, said Michael Habib, vice president of sales for Fantasy Entertainment of Hudson, N.H., which operates photo-entertainment booths in malls. When negotiating, the parties should “be clear on points that could be a surprise,” said Paul Kiratzis, vice president of specialty leasing for Zamias Services, the Pittsburgh-based independent mall developer, at a session on negotiating such agreements. Two clauses that should be clarified before an agreement is drafted: usage and cancellation. “Retailers must understand that cancellation clauses are there to make the landlord more comfortable, in the event that they make a bad decision,” Kiratzis explained. “It’s what distinguishes it from a lease [for permanent retailers]. It can be negotiated but not removed.” Crown American Realty Trust, Johnstown, Pa., seeks input from its temporary tenants, said Kimberly Colosimo, a senior specialized leasing representative. She said an agreeable cancellation clause may come down to a close give-and-take relationship between the landlord and tenant. The regional mall developer uses the input as “idiot notes” — simple comments and questions — that are included in proposals and given to all parties involved in negotiations.
“The defense is having a good relationship with the developer. They have it in there for everybody, but they’re not going to use it for everybody,” said Seth Hudson, a director of real estate for Hickory Farms, the specialty food retailer based in Maumee, Ohio. As for usage, retailers and developers should make clear what items a retailer can purvey before it becomes a point of contention, especially if they want to avoid product duplication like during last Christmas, when almost all retailers sold scooters.
Also, retailers got a pointer on dealing with developers that seem intractable when it comes to changing a TLA’s language. Separate addenda can be added to license agreements. “Every document, lease or license should be negotiated,” said Kevin Kern, real estate manager for Ann Arbor, Mich.-based Borders Group. He noted that in one instance his company felt it necessary to add a 10-page addendum to a two-page license agreement. Island Carousel President William Christ said his company has used addenda for several leases with Simon Property Group, Indianapolis.
“We talk to them and let them know what’s happening beforehand. We’ve added addenda, and we get them back signed,” Christ said. “The important thing is not to spring it on them but to have a discussion.”
“From a developer’s point of view, [face-to-face meetings] make a difference. They remember that,” Kiratzis said. On the retailer’s side, the travel can be worthwhile: Seeing a property is critical, particularly for new sites, said consultant Bill Anderson.
“I’ve always been an advocate of going to look at properties. You can’t valuate a location until you see it,” Anderson said.
By following some of these suggestions, temporary retailers and their landlords can create agreements that work — and a trust that will work for them later on.
“You want a strong presence in your center,” said Kendyle Baldwin, group specialty leasing manager for Los Angeles-based Westfield America, during a session on valuing space in the center. “You must build strong relationships.”
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