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Fallout: The Financial Crisis

Empty mall space helps stores with rent

Ashley Milne-Tyte Jan 7, 2009
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Fallout: The Financial Crisis

Empty mall space helps stores with rent

Ashley Milne-Tyte Jan 7, 2009
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TEXT OF STORY

Kai Ryssdal: We’ve all heard how bad this economy’s been for retailers. It was the worst holiday season in decades, right? Well there’s a whole chain of things that happens once consumers stop spending, and it starts with the physical retail space itself. A survey out today from the real estate research firm Reis says vacancies at malls and shopping centers are approaching a 10-year high. The sight of a darkened storefront does nothing to attract foot traffic, of course, so landlords are eager to keep as many tenants as they possibly can. And that is putting retailers in a pretty decent negotiating position. Ashley Milne-Tyte reports.


Ashley Milne-Tyte: Jonathan Plotkin is a partner with real estate developer The Jaffe Companies in Illinois. One of their properties is a strip mall in the Chicago suburbs. Plotkin recently got a call from a national retailer who occupies a third of the space. The retailer told him they were closing stores all over the country.

Jonathan Plotkin: And that this one was on the list to be cut unless they could figure out how to operate more profitably there in a declining market. Well one way is to cut your costs, i.e. rent.

Retailer and landlord did a deal and the store stayed — paying 15 percent less rent than before. Bryan Eshelman of Alix Partners helps worried retailers avoid the slide into bankruptcy. He says when banks won’t negotiate, landlords are an obvious next step.

Bryan Eshelman: Many retailers with whom we’re working, we are advising to do this quickly, because our feeling is that the first companies that do ask for concessions have a better chance of getting them.

Even if they don’t strictly speaking need the break. Real estate developer Jonathan Plotkin again:

Plotkin: I had a conversation with a director of real estate from a national chain, who told me, that they had a mandate come down — and they’re very successful — from, you know, management, saying that whatever deal that you’re working on right now, cut the rent by 20 percent.

He says retailers definitely have landlords over a barrel. But he’d rather give ground on rent than lose a tenant that helps keep the entire mall busy.

In New York I’m Ashley Milne-Tyte for Marketplace.

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