US DEPART­MENT STORES CLING TO POWER OVER LAND­LORDS ON MALL UP­GRADES

Shopping Center News - - NEWS­MAKER IN­TER­NA­TIONAL -

Depart­ment stores may be strug­gling to draw cus­tomers, but they have not re­lin­quished their hold on Amer­ica’s malls. The age­ing re­tail jug­ger­nauts are ex­ploit­ing con­tracts with land­lords that give them the power to dic­tate how a prop­erty can be de­vel­oped, cov­er­ing ev­ery­thing from park­ing to sig­nage to what types of op­er­a­tors are al­lowed into a cen­tre. Known as re­cip­ro­cal ease­ment agree­ments, or REAs, the con­tracts were put in place decades ago, when land­lords re­lied on depart­ment stores to lure sub­ur­ban shop­pers. A ma­jor­ity of malls in the US are en­cum­bered by an REA, ty­ing de­vel­op­ers’ hands as they try to keep up with rapid shifts in re­tail­ing, ac­cord­ing to Ryan Rivera, a part­ner at law firm Hart­man Si­mons & Wood.

“Twenty or 30 years ago, they made sense,” Rivera said. “To­day they are a hin­drance.” Depart­ment stores, hit par­tic­u­larly hard by the rise of e-com­merce and chang­ing con­sumer tastes, have been in de­cline for 15 years, ac­cord­ing to DJ Busch, a man­ag­ing di­rec­tor at real es­tate re­search firm Green Street Ad­vi­sors. The dated re­stric­tions im­posed by the REAs are partly why many malls have strug­gled to evolve, he said. In many cases, what worked 50 years ago is now ob­so­lete.

For ex­am­ple, “Depart­ment stores are ex­tremely pos­ses­sive of their park­ing spa­ces”, Busch said. “It’s not hard to ar­gue they don’t need as much as they used to.” One of the thorni­est is­sues for mall own­ers is that REAs give an­chor stores the fi­nal say over how a prop­erty can be used. De­vel­op­ers are of­ten blocked from in­stalling busi­nesses such as gyms, bowl­ing al­leys and med­i­cal ser­vices, ac­cord­ing to Rivera. Those are ex­actly the types of ten­ants land­lords are pur­su­ing, to fill space left by closed stores and of­fer cus­tomers ex­pe­ri­ences they can’t find on­line.

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