Summit News

U.S. retail landlords less willing to negotiate

NEW YORK (Reuters) - While retailers are likely to face another tough holiday season, it may be much more difficult for them to extract any concessions from their landlords to help ease the ride, a top restructuring expert said on Tuesday.

“We’re seeing now that landlords have pulled back some from negotiating,” Kenneth Frieze, who heads the business development and marketing groups at asset recovery firm Gordon Brothers Group, said at the Reuters Restructuring Summit in New York.

Earlier this year, as some retailers were on the cusp of bankruptcy, many demanded that landlords reduce their rent, saying they could not survive without such concessions.

“It was a symbiotic relationship, so the landlord didn’t end up with a dark store,” said Frieze, whose firm advises retailers on troubled real estate.

“At first landlords were very willing to work with the retailers,” Frieze continued. “There were many situations where if an anchor retailer went out of business it affected all the leases in that entire mall.”

But now, if landlords are going to offer a rent reduction, they want to see something in it for them, Frieze said.

“They’ve gotten a little tougher, now that we’ve been through this period in time,” Frieze said. “Landlords will work constructively with those retailers that also have something to offer back.”

For example, Frieze said, landlords want to see retailers extend their lease or give them some ability to share in an upside later. Otherwise they are more willing to say “a contract is a contract,” Frieze said.

Landlords are often only really willing to give rent relief when a company is viewed as being on the verge of bankruptcy because in bankruptcy landlords’ leases can be rejected.

According to a report in August from commercial real estate information company CoStar Group, the average asking rental rate at malls was down about 7.8 percent in the second quarter, but while tenants keep requesting rent relief from landlords, the pace of those requests has slowed.

A Simon Property Group Inc SPG.N executive said on an August conference call that if Simon thinks a retailer is "financially stable and they have an existing lease" the landlord is not really entertaining rent relief requests.

U.S. mall owner Developers Diversified Realty Corp DDR.N said in April that it received 672 requests for rent relief, rent abatement and rent deferrals, but granted only 20 requests.

Reporting by Emily Chasan; Editing by Phil Berlowitz