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November 2008 Minnesota Real Estate Journal Page 27
<br /> Responding to changes in retail real estate
<br /> •Debra Page must be taken to ensure that the Reconstruction and Remodeling
<br /> transportation needs of that customer Consumer requirements are not
<br /> are consonant with the center.This limited to product and service
<br /> tail real estate has experienced may require changes in parking lot demands.David Luick,Manager of
<br /> ome of the harshest responses to configurations, revised access to Strategic Development Initiatives for
<br /> current economic problems.Retail- public transportation, or expanded Real Estate, works to enhance
<br /> ers are not only faced with decreased points of egress to public streets. greater sustainability for Target Cor-
<br /> consumer spending, but also Where a change requires a dispro- poration.Luick accurately observes
<br /> encounter pressures from their portionate use of shopping center that while sustainability is environ-
<br /> lenders with increased cash margin services, neighboring tenants may mentally responsible, makes good
<br /> requirements and decreased credit _ require revisions to pro rata formu- business sense, and can be cost-
<br /> lines, and from their vendors with las or carve-outs of certain services effective,it is also responsive to the
<br /> reduced payment terms.These forces to better allocate the costs of those customer's interests and expecta-
<br /> can result in insufficient inventories, services among all tenants of the tions.Target is one of many retailers
<br /> which not only reduces sales poten- center. with energy-efficient stores that
<br /> tial,but can also create loan defaults reduce emissions and waste products
<br /> due to financial covenants.ClosuresReconsidering Loan Requirements that have also increase offerings of
<br /> of neighboring stores further .,�,_ ,.w._�.. Jill Noack, Vice President and environmentally friendly products
<br /> decrease foot traffic, resulting in Page General Manager of Gabbert & for sale to customers whose environ-
<br /> even lower sales. And operating Beck,observes that successful long- mental expectations have changed
<br /> costs continue to rise in response to need to revisit their use provisions to term retailers are those who operate dramatically in recent years.
<br /> tax and fuel increases. How will provide greater flexibility for prod- stores that are relevant to their cus- When retail changes require
<br /> retailers respond when faced with uct mixes and radius restrictions that tomers' current lifestyles and are reconstruction or remodeling, con-
<br /> these myriad forces at work? may not comply with current retail unique.She believes,however,that sents may be required from a multi-
<br /> Notwithstanding these changed environments.It would be easy for the most important criteria for retail tude of entities.In addition to land-
<br /> circumstances,owners and tenants of neighboring businesses to reject new success is the ability to change in lords and lenders, approvals from
<br /> retail real estate may be living with concepts.But greater flexibility may response to customers' demands. municipal or other governmental
<br /> terms negotiated in a different eco- bring increased customer counts and Noack notes that those demands entities may be required for building
<br /> nomic time. Leases, mortgages, improve sales for the entire center. include both offered products and permits,zoning compliance,and to
<br /> exclusive use clauses, operating Once the concepts can be agreed on, the entire shopping experience pro- accommodate prior development
<br /> covenants,maintenance agreements, leases and shopping center operating vided. agreements and governmental
<br /> and municipal development agree- documents must be revised to allow But credit documents may limit a financing restrictions. Most cities
<br /> ments continue to dictate retail oper- for expanded uses,revised exclusive retailer's ability to change because prefer a viable use to no use of coin-
<br /> ions despite economic and con- uses,and changed co-tenancy Claus- they require lender approval for mercial properties,but owners must
<br /> er changes.How will these con- es to accommodate new sales oppor- modifications in concept or signifi- include governmental approval
<br /> ctual obligations affect retail's tunities. In those revisions, care cant expansions of product lines. processes in the timelines for chang-
<br /> ability to recover from this econom- should be taken to protect existing Retailers need to keep an open dia- ing uses of certain properties.
<br /> is cycle? retailers' uses while encouraging logue with their lenders about the
<br /> Experienced Minnesota real estate newer forms of sales. customers'changing faces to allow Cooperative Efforts
<br /> professionals provide various ideas for prompt responses to shifting con- Any retail real estate forecast must
<br /> about the future of retail real estate, Recognizing Common Area sumer demands. Once both parties assume that change will be a compo-
<br /> but everyone agrees that the cus- impacts reach agreement about the expanded nent of economic recovery.As retail-
<br /> tomer will dictate the manner of suc- Nancy Karason,President of NAK use, loan documents should be ers and owners consider changes to
<br /> cess as the retail economic cycle Retail Management, Inc., cautions amended to clearly allow for the new products, concepts, and physical
<br /> moves into recovery. that today's urban market indicates retail image and to describe new use improvements, they must incorpo-
<br /> that successful retail requires finding covenants. rate lenders,tenants,shopping cen-
<br /> Revisiting Use Provisions the right balance of independent and David Shea,founder of Shea,Inc., ter participants, and governmental
<br /> For seasoned veterans,this is not big box retailers to create a shopping agrees that consumers drive,dictate, entities in the process.With cooper-
<br /> the first recessionary cycle. Mike experience that matches the neigh- and can destroy retail real estate with ative efforts,the parties can restruc-
<br /> Scott of NorthMarq Brokerage borhood. Shoppers look for an their habits,responses,and available ture retail to responsibly respond to
<br /> remembers well the downturn in the atmosphere consistent with the cul- resources.Shea finds that consumers consumer desires and retain viabili-
<br /> late '70s and early '80s. Retail ture of the local community,which seek value,focusing not only on cost ty in the retail market.
<br /> looked different when the economy may change over time. but also on -convenience, service,
<br /> improved that time.Customers had In evaluating acceptable use and comfort.Successful retailers fre- Debra Page is a partner in the Min-
<br /> become accustomed to significant changes, all parties will need to quently reevaluate their offerings neapolis office of Lindquist& Ven-
<br /> and repeated sales events during that determine if the particular change and respond to changing consumers num. She is a member of the firm's
<br /> recession and continued to expect fits the community.This evaluation by rebranding or reimaging,if nec- Real Estate Practice Group and is
<br /> similar sales activity following the requires consideration of existing essary. certified in Minnesota as a Real
<br /> recovery.Scott recalls that this men- neighboring retailers,as well as seri- Revised retail concepts may also Property Law Specialist.She can be
<br /> tality ushered in a wave of new dis- ous consideration of the existing require revisiting financial models to reached at 612-371-3528 or at
<br /> count stores, providing changed shopper within the subject commu- allow for reduced cash flows during dpage®lindquist.com.
<br /> competition for existing department nity. Owners will need to bring all remodeling or rebranding and for
<br /> stores and boutiques. For brokers, parties with an interest in the cus- increased capital expenditures, as
<br /> this meant creatively selling spaces tomer to the table for discussion and well as for advertising and other
<br /> previously used for other purposes. consideration of changed concepts. costs. Lenders brought into these
<br /> Scott believes that retail will emerge When faced with the changed use discussions early in the decision-
<br /> from this economic cycle in another of a neighboring retailer, shopping making process may facilitate
<br /> changed form in response to cus- center tenants will be concerned change.Retailers and landlords not
<br /> mAififfer expectations. about the impact of the change on only avoid defaults by this engage-
<br /> f the recovery from this current the use of the common area and ment,but can benefit from a lender's
<br /> Illonomy brings a new store concept whether the change affects pro rata experience with other retail cus-
<br /> or a new focus of location,landlords costs.If the change attracts a differ- tomers.
<br /> and shopping center owners will ent type of customer,consideration
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