The Dirt Dictionary, Part I

How to talk the talk of shopping centers

margolis foto for tco The Dirt Dictionary, Part ISHOPPING CENTER: A group of retail and other commercial establishments that is planned, developed, owned and managed as a single property. On-site parking is provided. The center’s size and orientation are generally determined by the market characteristics of the trade area served by the center. The two main configurations of shopping centers are malls and open-air strip centers.” – from the I.C.S.C. website

The hallmark of the shopping center lease is the interdependence of various tenants on one another and the special relationship between landlord and tenant, with each looking to the other to promote the “product.” The shopping center lease has many unique aspects and, in fact, a different vocabulary from the office or urban retail lease. “G.L.A.,” “CAM charges,” “go dark,” “exclusives” and the like pepper the deal-making dialogue.

While the shopping-center world is sometimes thought of as indeed from another planet, the savvy broker or his counsel should have at least a passing familiarity with the nomenclature employed in this specialized area of leasing.

So, here goes.

Anchor stores: Typically the department stores (in regional enters) and supermarkets (in community centers) that figuratively anchor a shopping center. Usually located at the ends or corners of the center, Macy’s, Sears, Belk’s and the like are the main draws and thus the economic anchors of shopping centers.

 

Big-box stores: Large stand-alone stores, featuring a single line of products, with varying market niches. Examples include pet stores (Petco), toy stores (Toys“R”Us), office supply stores (Staples) and no-frills discount stores that sell in volume (Target). See “category killer.”

 

Black Friday: The shopping day after Thanksgiving in the United States when retail stores generate their highest sales. Black refers to the accounting term as a business moves from loses in red ink to gains in black.

 

Brick and mortar: Traditional retail establishments as distinguished from online stores.

CAM: Common Area Maintenance.

 

CAM charges: Reimbursement to a landlord of expenses incurred in Common Area Maintenance. Examples include electricity, insurance, security and maintenance of the parking lots.

 

Category killer: A large national chain store specializing in one line of products, such as home improvements, office supplies or toys, that can overwhelm both smaller and more diverse competitors because of its size, variety of merchandise and prices. See also “big-box stores.”

 

Common areas: The areas of a shopping center shared by some or all of the co-tenants, such as walkways.

 

Continuous operations: Mandatory days and hours that a tenant is required to be open, fully stocked and operating. Notes: (1) Landlord: Tenant must operate, not simply pay rent and go dark; a “dark” store diminishes foot traffic in the mall and is bad P.R.—also means no percentage rent; landlords try to keep all tenants in line; (2) a “major” tenant will not agree to a continuous-operations clause; (3) relates to other clauses such as exclusives granted to tenant; (4) if a tenant is not operating, that tenant should not have benefit of the exclusive; (5) right to “go dark” under certain circumstances—see below; (6) tenant wants to make sure landlord agrees to keep parking areas lighted during restaurant’s special hours—also adjacent common areas (esp. for restaurants).

 

Co-tenancy: Tenant’s obligations (especially rent) are subject to the opening/operating of other tenants in the shopping center; lease stipulates that a reduced rent or no rent be paid until an agreed-upon percentage of the center is occupied.

Notes: (1) Landlord will say no penalty for co-tenancy “default” as in “Don’t blame me, I’m trying my best to keep this center fully leased. If there’s a closing, it’s not my fault.” (2) Tenant: Needed to assure flow of customers—also relate to opening requirements; tenant: I need anchor X to be open and operating, or a remedy if less than a specified percentage of in-line tenants are open and operating; (3) landlord may also insist on a sales percentage decline test, with tenant getting relief only if it can objectively establish a loss; (4) compromise: allow tenant to pay percentage rent only; (5) a restaurant lease might provide no required opening until adjacent movie theater has opened; (6) as to anchors: Open? What if an anchor closes? As to percentage of other inline tenants—need minimum percentage of same open and operating; some special emphasis for restaurant tenant where, for example, having movie theater open and operating is essential to tenant’s business; (7) if co-tenancy criteria not met, tenant remedies: convert over to percentage rent only, go dark, terminate lease.

 

Exclusives: Tenant granted the exclusive right to sell certain merchandise lines and or items in the shopping center.

Notes: (1) Focus on categories, rather than specific products; (2) issue of what land is burdened by the exclusive: entire shopping center? Adjacent land owned by same or related entities; (3) restaurant context: shopping center can support only so many pizza parlors and taco stands (distinguish from retail clothiers).