commercial real estate · Malls · Retail leases · Shopping Center · Uncategorized

Bring back my favorite retail real estate memory of the 70s!

I was born in 1965. As much as I loved Space Port (an arcade) at Oxford Valley Mall and the wall of history dioramas at Neshaminy Mall (which I understand are still on display), I did not discover my favorite thing about 1970s retail real estate until I started reading department store leases and shopping center REAs (reciprocal easement agreements), OEAs (Operating and Easement Agreements), COREAs (Construction, Operating and Reciprocal Easement Agreements) and many similar documents.

Back in the 50s, 60s and very early 70s, in the  infancy of regional mall development, the anchors had certain rights and approvals – which other department stores could come in to the center, what type of stores could be in the center, and, often, especially in their own mall courts, absolute rights over which specific tenants could be nearby. It was common to see a long list of tenant names, so many of which are lost to the ages, that could or could not be located in mall or courts. And, there was regular correspondence  regarding those approvals.

Almost every department store in the country sent unilateral agreements to their landlords rescinding these approval rights

Then, in 1973 or 1974, apparently in response to some anti-trust legislation (feel free to chime in if you know the specific case), my favorite part of 1970s retail real estate occurred. I can’t say for certain that it was every, but I can say almost every department store in the country sent unilateral agreements to their landlords rescinding these approval rights. No use of the rescission as leverage to get something else from the landlords. For the good of the health of the property, for the good of a healthy tenant mix, landlords were then free to do their best to create a tenant mix that would maximize sales.

For years, those unilateral agreements created an environment for healthy regional malls.

And that is what I think we need to bring back. Another critical part of anchor leases and operating documents are specific approval rights over types of uses which may not be included in a  (often written as a “first class”) regional mall or shopping center. Some specific restrictions make you wonder. No funeral halls or crematoriums. No rendering facilities (so you don’t have to look it up like I did the first time I came across it, an animal processing plant). And, speaking of rendering plants, no abattoirs (slaughterhouses).

But, wouldn’t you love the opportunity (in the right environment) to have an Alamo Drafthouse? A Lifetime Fitness? A Whole Foods? A Main Event? Today, the majority of these agreements still specifically prohibit uses like movie theaters, health clubs, schools, supermarkets, automobile sales, entertainment facilities and so many other uses we would love to have in our centers – the uses that would make for a strong mixed use property, or for a city center type concept.

Residential? Office? No WeWork or multifamily permitted. How about a new city hall or library? Not permitted.

Naturally, you have the option to go to the anchor that has that restriction language in its agreement to try to get it released. But, as is so often the case in our industry, despite the fact that it would be good for all parties involved, the release of that restriction is going to cost the landlord – financial implications, and, much more importantly, time – often to the point where the opportunity for this currently restricted use goes away to another property where the restriction does not exist. And, that lost opportunity may have been a one time opportunity.

So, yes. Bring back the 70s. If I need to wear marshmallow shoes and wide ties and lapels so that we can see some unilateral releases from anchors, I will gladly do so.

This is a critical time in the evolution of retail. Give the landlords the opportunity to change the tenant mix at a property to what is now, and what will be in the future, the new highest and best uses for the center.

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