This Is What Happens When Retailer Asks Landlord for a Rent Reduction
This Is What Happens When Retailer Asks Landlord for a Rent Reduction from Wolf Street
The practice of renegotiating rent is older than selling Thanksgiving turkeys as loss leaders, but there is a relatively new, ugly wrinkle to the game.
By John E. McNellis, Principal at McNellis Partners, for The Registry:
The International Council of Shopping Centers, far better known as the ICSC, gathers this weekend for its annual meeting in Las Vegas. Retail’s leading trade organization, the ICSC counts as members the tenants, developers, contractors and brokers who have built almost every shopping center in the country. Tens of thousands of them will be attending Vegas, swapping hopes, plans, dreams and lies, congratulating one another just for showing up. It’s fair to predict the mood in Vegas will be considerably more ebullient than that back at the players’ home offices, especially those of the owners of America’s retail.
A week ago, Business Insider reported that retailers have announced closures for 6,400 stores thus far this year, already more than in all of 2018. Against this loss, 2,264 new stores are slated to open, the majority of which — Dollar Tree, Dollar General and Family Dollar—sell the cheapest of all merchandise.
Despite these dreary facts, retail is actually in reasonably good shape (good enough for us to be constantly on the look-out for acquisitions), but any developer who tells you she isn’t having issues with at least some of her tenants is spinning facts faster than Disney’s teacup ride. In truth, a week rarely goes by without at least one tenant calling us, asking for a rent reduction. Some of these requests are legitimate — the tenant is truly struggling—but some, perhaps many, spring from profitable retailers’ rapacity, companies seeking to take advantage of weak landlords in the climate of fear engendered by the near-constant retail Armageddon headlines.
The temptation to say b*** me to this importuning is nearly irresistible, but — here’s the public service announcement — resist it.
With little more than personal experience and anecdotal evidence as support, I would suggest that tenants are bluffing at least half the time when they threaten a store closure if their demands are not met. But that means that sometimes they aren’t. In this context, you might do well to recall that “Go ahead and shoot” are purportedly the last words most often uttered just before dying.