Curbside pickups, already trending in shopping centers before the pandemic, will likely become a permanent feature of retail stores…along with features long associated with bank branches: automated kiosks (ATMs), dividers between customers and clerks (tellers), and drive-throughs. As with the advent of mini-fulfillment centers within stores (see my earlier post), these operational and design changes will trigger all sorts of lease, building code and land use issues. Landlords, tenants and their host municipalities have no choice but to get this right; e-commerce may have created a competitive threat the past two decades, but COVID-19 poses an existential threat to all parties. When it comes time to swing open the doors, don’t just re-open— RE-IMAGINE.
Continue Reading Curbside Enthusiasm: Retailers Adapt in a Time of Crisis
Nordstrom Enters Used-Clothes Business
Yesterday’s announcement that Nordstrom is getting into the used-clothes business got me thinking again about the rapid evolution of retail and how so many of the “prohibited uses” in store leases of yesteryear are now embraced by landlords and fellow retailers, yet those uses remain off-limits because of “dirty dozen” restrictions in existing leases. Even worse, many leasing professionals (attorneys included) have failed to update their prohibited use exhibits; they are still using the same exhibits from the 1990s in new leases—in the process, further preventing evolving and new retail concepts from coming into many centers. An easy and by now well-known example is the “massage parlor” prohibition preventing the operation of a Massage Envy. “Used” or “second-hand” apparel stores have also been a dirty-dozen favorite…but now we have the venerable Nordstrom getting into that business. So it’s important to consider what’s next. Tesla is already selling cars from showrooms, but most prohibited use lists ban “car dealerships”—primarily to prevent a car lot out front, not because of the showroom—so this prohibition also needs tweaking. What’s next?
Continue Reading Nordstrom Enters Used-Clothes BusinessProposed New Accounting Rules to Eliminate Operating Leases
A discussion paper on potential changes to lease accounting was released in March by the U.S. Financial Accounting Standards Board and the International Accounting Standards Board. According to the discussion draft all operating leases for real estate and equipment will have to be capitalized on corporate balance sheets and rent expenses will be dramatically altered. This would effectively eliminate operating leases, significantly increase costs and reduce flexibility.
Continue Reading Proposed New Accounting Rules to Eliminate Operating LeasesTax Appeals: An Effective Way to Soften the Blow of Vacancies (and Cut Operating Costs for Those Tenants Still in Possession!)
The recent economic tsunami has already devastated the commercial real estate sector. But another wave of bad news is about to hit owners of commercial real estate. The economic downturn has drastically reduced state tax revenues, and state officials are responding by significantly cutting state aid to municipalities and school districts. Why is this bad for property owners? Because local governments will be unable to compensate for the cuts in state aid simply by making commensurate cuts in expenses (many of which are fixed costs such as debt service and binding labor agreements) – they will be forced to increase local property taxes to make up for budgetary shortfalls.
Real estate taxes are often overlooked by building owners in their search for budget items that can be reduced in order to soften the blow of vacancies or to lower operating costs as they attempt to attract new tenants and retain existing ones. Tenants, who typically reimburse their landlords for a share of real estate taxes, overlook this potential area for savings even more frequently – by failing to compel their landlords (through enforcement of lease provisions or simple persuasion) to consider a tax appeal. Yet, a review of the local tax assessment process may well reveal that an owner and, in turn, its tenants are paying more than their fair share of the municipal budget. This is especially true in the current depressed real estate market because many municipalities last conducted a revaluation or reassessment in the real estate boom of the last decade, and, as a result, the current assessment of many commercial properties is based on bloated values of yesteryear that no longer reflect market value.
Not only could a successful tax appeal mean tax savings for 2008, it could also mean a smaller tax obligation in future years.
Continue Reading Tax Appeals: An Effective Way to Soften the Blow of Vacancies (and Cut Operating Costs for Those Tenants Still in Possession!)