Getting back on topic, This whole thing with Dillard’s is such a farce that if you told people this story they would roll there eyes in disbelief. Truth be told I’m one of them, & I think I’m not alone on this.

As I said a few posts back this could result in copy cat situations across the country if the suit is successful.

Some JCPenney and Younkers / Boston Store locations here in WI also lease, rather than own, the buildings they occupy, most of the time leasing from the mall owner themselves.

If they just owned their own building there, getting out of the lease wouldn’t be as tough as it is in this scenario.

Definitely keep tabs on this story.

I’m going to play devil’s advocate here, and put myself into the scenario. Say I owned a mall, and the economy was doing fine. Tenants, per their lease arrangements, are OBLIGATED to fulfill the amount of time they agree to. (be it a year, 5 years, 10 years, whatever). They would not be getting out of it. If the location they have at my mall is not performing up to their goals, they would need to renegotiate terms. If they have a revised set of goals turned in to me, proving they will be able to turn around, along with the rest of the mall doing alright, I’d give them a temporary cut on their rent (for, say, the next fiscal year for that chain) so they may get back on their feet and on the road to profitability again . This is of course, how things are usually done.

Now throw in this monkey-wrench of a lackluster economy we’re in right now.

I, as the owner of the mall, still have to pay the bills…and these are VERY high, being a set of large buildings that have to be maintained, heated, cooled, secured….all that good stuff. Let’s not forget exterior work…parking lots, the building itself…. With THOSE costs going up, typically if the economy were doing good, you raise the rent-per-month when the lease comes up for renewal. However, the economy is NOT doing good right now. It’s more crucial for me during tough times to keep as many tenants around as I can, since we all know a mall with more shops looks better and brings in more people, but they (the shops) are seeing poor sales due to low foot-traffic (because people aren’t going out and spending cash like they used to), and even with all that going on, I still have to pay those high operating costs to all the various utilities and taxes to the city.

A VERY delicate balancing act indeed. If I raise the rents, per usual in a good economic climate, I wind up driving the shops out…they just take the short-term hit to their pocketbook, pay off the rest of their terms in lump-sum, and abandon ship. I’m left with vacancies that (for the time being) will be impossible to fill. If I keep the rents lower for tenants, then “I” can’t pay MY bills. I also don’t make money….worsened with vacancies (which make $0 ), and should worse come to worst, the big bank or city would be after me to foreclose on the mall.

Even though the anchor stores in most malls own their own buildings and the slice of land they sit on (including surrounding parking and possibly outlots), I think (I’m not entirely sure on this….correct me if wrong)… they still do pay a rate to the mall owners for being there. They just get a ’sweetheart deal’ (example: a lower common-area fee) than a normal inline tenant or kiosk would have to pay to reside there.

Hopefully mall owners and their tenants will find some middle-ground somehow during these times, but they have to get on the ball fast. Otherwise you’ll see a LOT more of these cases cropping up, and you’ll see in some cases, BOTH parties will lose in the end. The end resuit…. many more vacant buildings that’ll never get reused again and more lost jobs. Ouch!

GGP’s situation is because they took on way too much in way too short of a timeframe. Between 1999-2007, they were building out new mixed-used projects, remodeled or expanded quite a few properties extensively, they bought out the Rouse Company (probably the biggest thing that is hurting them right now), plus they had a lot of residential and office properties. They, and other REITs (even those that aren’t as in much trouble, like CBL, Simon and Westfield Corp), need to shed of all the fat and revert to what they know best….shopping center development and ownership.

This will be interesting to see where it goes. Lots of malls out there have few inline stores and one or two remaining anchors.

Actually Highland was not in such an odd location. Even though the area around it has declined in recent years, it is a central location, only minutes from UT and downtown. As far as the “two stores in the mall” strategy, the smaller store, a former Scarbrough’s Dept. Store, carries men’s and children’s items, and the larger one, a former Joske’s, carries women’s and home items. Might not be a bad idea to transform the larger store into a Dillard’s outlet.

Charles