Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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COMMERCIAL INVESTMENT REAL ESTATE 18 November | December 2017 W ith the ever-changing face of retail development adversely affecting traditional anchor tenants, such as Macy's, J.C. Penney, and Sears, shopping center owners are facing unforeseen challenges. As some anchor tenants decide to shutter stores, many shopping center owners may be left with large, vacant spaces, often at key entrance points to their malls. However, shopping center owners have the ability to mitigate the negative effect of a closure. When shopping center owners receive word that an anchor tenant is scheduled to close its doors, they should first review the relevant lease and any related documents, such as covenants, con- ditions, and restrictions. For example, contractually the anchor tenant may not be allowed to close for business during the term, which immensely increases the owner's bargaining power. An unauthorized closure would likely be deemed a breach of the lease and may entitle the owner to damages through acceler- ated rent. Many anchor tenants, however, have the upper hand in lease negotiations because of the foot traffic their stores bring to a shopping center and may not have agreed to an operating covenant in their leases. Negotiate for Flexibility Without an operating covenant in the lease, however, the lease terms may provide other options. For example, the owner may have the right to recapture the anchor tenant's premises by ter- minating the lease and taking back the space. Such a resolution allows the owner to market and fill the vacant space with one or more tenants. Of course, if the anchor tenant is required to continue to pay rent following a closure, the owner receives some solace through monthly payments. However, a dark space in excess of 50,000 sf may have a chilling effect on the overall success of a shopping center, so the owner may prefer to end the lease and regain control of its space. Absent an operating covenant or a recapture provision, a land- lord may want to negotiate directly with the anchor tenant for a buyout of its lease. Such a resolution may make sense for both karakoc/Getty Images Anchors Away A landlord can mitigate damages if a major tenant closes shop. by Dan Villalpando LEGAL B R I E FS