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ICSC Florida 2002:landlords & tenantsshow some love

An embrace between Craig Sher and Michael Folio was the crowning moment of the series of panel discussions held today at ICSC’s 2002 Florida Conference in Orlando. The playful hug between The Sembler Co.’s CEO and The Home Depot’s senior VP of real estate defused tensions that arose during a panel discussion titled "Tenants and Developers: Why Can’t We All Just Get Along?"

CAM charges, exclusivity clauses and preferential relationships were among the tenant/landlord conflicts covered in the session, which also included panelists Laurie Burns, senior VP of development for Darden Restaurants, which includes the Red Lobster, Olive Garden and Bahama Breeze brands; Jeff Chamberlain, director of marketing strategy for Publix Super Markets Inc.; Thomas Nash, senior VP of real estate for Eckerd Corp.; and Scott Nelson, VP of real estate for Target Corp.

As moderator, developer Sher hit the retail panelists with some of the tough questions many shopping center landlords have wanted to ask their own tenants. Among the nuggets of insight revealed in the discussion:

Retailers still want to be located in shopping centers in spite of the appeal of freestanding locations. "The synergies centers offer are important," said Publix’s Chamberlain. Target’s Nelson said his company is eager to be part of the right kind of shopping center. "The centers we want are brand-conscious. They respect our brand from the curb to the doors." The notable exception to this rule was Eckerd’s Nash. "We prefer outparcels at centers," he said. "Going freestanding makes a 30% sales increase for drug stores."

Parking is more of a concern than merchandise when retailers consider co-tenancy restrictions."Adequate parking is our main concern," said Publix’s Chamberlain. "We shy away from centers with supercenter-type stores because they require lots of parking and our customers are convenience oriented." Darden Restaurants’ Burns agreed. "We don’t mind being in an outparcel close to another restaurant, but we don’t want to be near an outparcel that is parking intensive," she said.

Though tenants usually surprise landlords with the announcement they are jumping ship, smart developers can read the signs and halt the mutiny before it begins."We relocate 10-15 stores per year," said Target’s Nelson. "We usually relocate those stores because they’ve outgrown their space. So when we go to a landlord and ask ‘How can we expand the place?’ that’s our code for ‘Target will leave soon.’"

A vacating tenant would usually rather sit on its lease than sell it back to the landlord. "We don’t like developers to buy stores back," said Target’s Nelson. "Nobody ever performs quickly enough. We’re in the best position to re-sell the property to our own preferences." Home Depot’s Folio concurred. "We always try to give developers a chance to buy a store back. But we can never agree with the developer on a price," he said.

When a retailer vacates its space for greener pastures, developers will still be expected to uphold any exclusive use clauses included in the lease. "We usually replace a store because it is successful and we want to add more sq. ft. We don’t want to give up our exclusives," said Publix’s Chamberlain. Eckerd's Nash said his company operates in the same way. "When we relocate, it’s usually to a space as nearby as possible," he said. "We’re not going to give up that space to a possible competitor." Nash said Eckerd will often swap restrictions with grocery chains to avoid providing a competitor with a point of entry into the market.

Retailers are reluctant to pay broker fees in lease transactions."We don’t use many brokers," said Home Depot’s Folio. "Don’t developers always build the broker’s commission into the deal anyway?"

Retailers will go to great lengths to avoid paying CAM charges. "CAM shouldn’t be a profit center for developers," Target’s Nelson said. "We have CAM caps built into our department store leases." Home Depot’s Folio said his company maintains its own sites if it can to avoid high CAM costs.

Retailers value the bonds of trust formed with their "developers of choice," but will not hesitate to go with a different developer to land a prime piece of real estate. "We end up forming close relationships with preferred developers because we trust them with a lot of confidential information," said Target’s Nelson. "In return, we expect to see the best sites first." Darden Restaurants’ Burns said her company rewards preferred developers with prompt and honest responses about available sites, "but we won’t hesitate to go with an unknown developer over a preferred developer if the unknown one controls the No. 1 site."

In a prelude to the aforementioned hug, Home Depot’s Folio said, "Out of the 200 deals we do per year, 150 will be with our preferred developers. The other 50 are tough, but in the end we have to consider our shareholders and go with the best site. In those cases, all I can do is offer the developer a hug and say ‘There’s another one just down the road.’"

And last but not least, retailers still need their developers."We opened 76 stores this year," said Publix’s Chamberlain. "We found out we’re great at selling groceries, but not so great at building grocery stores and shopping centers."

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