Anchor tenants exert power when it comes to mall upgrades

Contracts give department stores sway over how owners operate their properties

Sep.September 25, 2017 09:35 AM

Macy’s in the Sunrise Mall in Northern California (Credit: Facebook)

Mall landlords looking to breathe new life into their struggling properties are finding their hands tied by a decades-long tradition of giving anchor tenants say over how a shopping center is developed.

As landlords used department stores to draw in suburban shoppers years ago, they signed contracts known as reciprocal easement agreements that give their anchors the power to dictate things like parking signage and the types of operators allowed in a center, Bloomberg reported.

“Twenty or 30 years ago, they made sense,” said Ryan Rivera, a partner at the law firm Hartman Simons & Wood LLP. “Today they are a hindrance.”

REAs give anchor tenants the final say over blocking new tenants like gyms, bowling alleys and medical services – just the types of operators that landlords are courting to revive their struggling centers.

“These documents prohibit any other use that’s inconsistent with a first-class shopping center,” Rivera said. “Think of a bowling alley in a typical enclosed regional mall in the ’80s — they weren’t first-class operations.”

Ami Ziff, the head of national retail for Time Equities, said REAs are the first thing he looks at when evaluating an outdated mall to acquire and renovate. Signage, he said, can be a big sticking point with existing anchors.

“The anchors own the outside of your mall,” he said.

Many mall landlords pencil in a multimillion-dollar payment to the anchor tenant to resolve REA issues when redeveloping a property. [Bloomberg]Rich Bockmann

Related Articles

Bed Bath & Beyond CEO Mark Tritton (Credit: Getty Images, Mike Mozart via Flickr)

Bed Bath & Beyond to invest $1B in store upgrades and buybacks

Brookfield Asset Management CEO Bruce Flatt

“We underwrite every investment like we’re going to hit a recession”: Brookfield CEO

Kitopi CEO Mohamad Ballout (Credit: Kitopi and iStock)

“Smart” kitchen and delivery startup raises $60M for US expansion

Cadre founder Ryan Williams and Allen Smith

Cadre brings on former Four Seasons CEO as president

AKS Capital Partners Managing Partners Aaron Appel and Walker & Dunlop CEO Willy Walker

Walker & Dunlop acquires Aaron Appel’s AKS Capital Partners

From left: Publisher and founder Amir Korangy, Editor-in-chief Stuart Elliott and VP of Corporate Development Yoav Barilan

TRD’s founders share war stories from over the years

As the years go by_A look back at 17 years of real estate history

A look back at 17 years of real estate history

Vornado CEO Steve Roth and 595 Madison Avenue (Credit: Google Maps and Getty Images)

Fendi, Berluti take over old Coach flagship at 595 Madison