Mall owners holding retail tenants to leases

Both sufficiently strong to see through existing contracts, as conditions have stabilised

(NEW YORK) US mall operators are holding retail tenants to their leases as the industry remains in waiting mode for growth to return, possibly not until 2011, a retail real estate insider said recently.

During the height of recession last year, mall landlords got a 'reality check' about the state of the economy and modified leases for retail tenants to help prevent them from falling into bankruptcy.

But now conditions have stabilised. Mall owners and tenants alike are sufficiently strong to see their existing agreements through, even if the economy recovers in fits and starts.

'It is business as usual,' Nina Kampler, executive vice-president at Hilco Real Estate, told the Reuters Consumer and Retail Summit.

At the same time, it has not translated into a real pickup in the commercial business.

'There's very little retail closures right now,' she said.'There's very little retail expansion. There's very little retail activity.'

The economic crisis forced a number of US retailers to fail last year, including electronics chain Circuit City and department store Mervyn's, squeezing in turn the malls that had housed them.

General Growth Properties went bankrupt, setting off a bidding war between Brookfield Asset Management and Simon Property Group, as declining demand spurred consolidation.

But the 2009 holiday shopping season saw a slight uptick in consumer spending, and contrary to expectations, the wave of retailer bankruptcies seems to have subsided.

These days, mall owners know their surviving tenants are not likely to file for bankruptcy. For their part, the retailers know that they are going to need healthy relationships with their landlords when they want to grow again in 2011 and 2012, Ms Kampler said.

Until growth picks up significantly, most retailers will likely cut their store counts and sizes when current leases expire, Ms Kampler said.

'You trim the deadweight off your otherwise healthy growing tree,' she said.

The United States' overall store count is still a bit too high, especially in secondary and tertiary markets. In prime markets such as the New York City area and Southern California, there are malls with no vacancies, Ms Kampler said.

But even there, landlords have a price.

'Someone who wants to get into a top centre can get into a top centre, if they are prepared to pay those dollars,' she said. -- Reuters

Source: Business Times, 24 Jun 2010