The B Malls

record-bloago2.png

Don’t worry about the A malls, or even the C malls, because their futures are pretty certain. The A malls will continue to do well in a healthy economy, and the C malls will soon close due to abandonment and/or repurposing.

But owning/managing B malls requires some of real estate’s most energetic and creative effort. The greatest challenge is in replacing (or retaining) existing anchors resulting from the demise of numerous regional and national department store and discount chains.

Mall operators previously enticed inline tenants (the smaller stores) to sign long term leases by offering them co-tenancy clauses that provided relief if the anchor tenants left the property. These clauses allowed the inlines to terminate, or remain at reduced rent, if the anchors left.

But times have changed for co-tenancy negotiations:

  • Landlords are pressuring to restrict co-tenancy clauses for renewals.
  • Landlords are also removing co-tenancy clauses for new leases.
  • New and renewing inline tenants are only signing shorter term leases.
  • Inline tenants now demand renewal options at static or even lower rent levels.
  • The definition of what constitutes an anchor store is changing; expanding to include shadow anchors (stores that are present but not attached to the mall or center), key specialty shops, and even entertainment venues.
  • Long term tenants without co-tenancy protections have been resorting to bankruptcy to extricate themselves from lease obligations.

So with excess retail store space estimated at 25% in the country, the shakeout continues and the bottom line for B malls is clear… greater leasing effort for lower rents.