Malls · Retail leases · Shopping Center · Uncategorized

Are your tenants still contributing to marketing?

pettingI got in to the industry in 1987. At that time, there were still plenty of 10-30 year old leases still in effect. So many of those leases had requirements for tenants to participate in a merchants’ association (usually at some initial nominal rate with CPI increases). The tenants would control how those funds were used, with the landlord having representation in the association and often a requirement that the landlord contributed a 20-30% match of the funds.

But, in the early 80s, landlords realized that they could do a better job marketing their properties than a group of tenants could, and the weekend petting zoos and merchants’ associations started to fade away in favor of marketing funds controlled by the landlords.

By the early to mid 90s, in addition to marketing funds, many leases also started to have media funds. It was not uncommon for an inline tenant to be paying $6.00/sf or more in marketing and media charges.

(There was also a period where many leases required tenant to advertise in center-sponsored advertising 3-8 times per year with ad requirements that ran 1/8-1 page per program, but most of those were converted to media funds by amendments and letter agreements as the landlord wanted to control the spending.)

However, as the enclosed side of our industry started the steady march to fixed CAM in the early 2000s, we almost immediately saw media funds go away, and a slow fading of marketing funds.

Today, it is a rare occurrence to see a marketing fund charge in a new lease. You may still see a reference to a merchants’ association in an open air lease with a requirement that the tenant participate if an association is formed – but that is almost never invoked.

What that means is that landlords now almost exclusively fund the marketing programs at their properties.

So many facets of our industry are cyclical. Fixed CAM to prorata and back to fixed. Open air centers becoming enclosed and now being de-malled. Supermarkets and health clubs in malls, then being specifically restricted against being in centers, and now being courted back. I wonder if we will ever see tenants contributing to marketing programs as part of leases again.


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