The Shopping Center Lawyer

The Revenge of the Parking Lot

By: Ted Zangari

It’s true: COVID-19 has breathed new life into parking lots. As Neal Freyman of Morning Brew has observed:

• Churches, synagogues, and other places of worship have been holding radio broadcasted services in their parking lots.
• DJs in Germany have been hosting drive-in raves in parking lots.
• With libraries, schools, and coffee shops closed, parking lots have become a “digital lifeline” for many Americans needing to access wi-fi.

These adaptive uses may be temporary, but “curbside” delivery and “patio” or “outdoor” bar/restaurant seating may become permanent features of the modern-day parking lot (and shopping center sidewalks) long after the epidemic subsides.

 

> Click here to read "The Revenge of the Parking Lot" from Morning Brew

 

Landlords Brace for Fallout, Search for Solutions With Retailers Battered by COVID-19 Shutdown

By: Ted Zangari

I salute property owner, client and friend George Jacobs for his candor about the mess in which shopping center owners, managers, retailers and lenders find themselves. My thoughts about the shopping center landlord-tenant relationship in the midst of this pandemic can be found here: https://lnkd.in/d2QPz5G.

> Click here to read "Landlords Brace for Fallout, Search for Solutions With Retailers Battered by COVID-19 Shutdown" from Real Estate NJ

JC Penney Goes to Court to Try to Stop Sephora from Pulling Out of the Troubled Chain’s Stores

By: Ted Zangari

As malls and shopping centers re-open, a second default scenario looms behind the tenant’s failure to pay rent: its failure to “continuously operate” as required in many store leases. Just as JC Penney is fighting to keep Sephora’s store-in-store concept operating (see linked article), landlords can be expected to likewise enforce their rights to prevent the domino effect of impermissible store closings by some tenants triggering the go-dark rights of still more tenants. Courts around the country are divided on the enforcement of continuous operations provisions in leases; this will get interesting.

> Click here to read "JC Penney Goes to Court to Try to Stop Sephora from Pulling Out of the Troubled Chain’s Stores" from CNBC

Re-Imagining the Shopping Center Post-COVID: Zoning Changes Needed to Accommodate Store Features No Longer Deemed Convenience Amenities

By: Ted Zangari and Kevin J. Moore

Curbside pick-up lanes and “to-go” parking spaces—already trending in shopping centers before the pandemic—have become essential features of retail stores in the wake of COVID-19 and are likely to become permanent fixtures in shopping centers. Likewise, drive-throughs and walk-up or vestibule kiosks will no longer be limited to banks and pharmacies, as retailers of every type seek to adapt to the new public health normal and avoid risks and exposures to employees and customers alike. How does this sudden shift in shopping center design and layout square with existing zoning laws and municipal codes around the Garden State?

Rent Obligations on Retail Space in the Midst of a Pandemic: A Path Forward for Landlords and Tenants

By: Ted Zangari

Download Rent Obligations on Retail Space in the Midst of a Pandemic A Path Forward for Landlords and Tenants

Going Dark: Land Use Implications of Converting Retail Space to “Dark Stores” for Fulfilling Online Orders

By: Adam J. Faiella

In recent years, retailers have begun to convert unused space in their stores, including the sales floor area, to warehouse and distribution operations for online orders as e-commerce has increased. This trend has accelerated in response to the surge of home deliveries during the COVID-19 pandemic, and many retailers are utilizing even more floor area, and sometimes entire stores, as fulfillment centers. Re-purposing vacant or unused space can aid brick and mortar retailers in competing with pure-play online merchants and help property owners prevent lease defaults and maintain healthy occupancy levels. Municipalities also benefit when the rent roll of a commercial tax ratable of any kind, especially a shopping center, is stabilized. However, retailers and their landlords need to proceed carefully because converting unused retail space to “dark stores” for warehouse and distribution could have land use implications.*

Why Supermarkets Are Building 'Dark Stores'

By: Ted Zangari

Retailers are reportedly creating “dark stores” within their retail premises for use as fulfillment centers—raising a host of interesting questions:  At what point does such activity become a warehouse/distribution use that’s in conflict within local zoning ordinances?  Does such activity violate one or more of the prohibited use (“dirty dozen”) restrictions typically found in shopping center leases?  Will delivery trucks and vans stress the parking lot and internal roadways?  If such activity extends beyond normal shopping center hours, who pays for lighting, security, etc.?  If the tenant has agreed to pay percentage rent to its landlord based on sales made in the store, should goods delivered from the premises be included in sales?

If this was a temporary phenomenon in response to the current pandemic, it wouldn’t be news—what’s newsworthy is that the construction of automated “mini-warehouses” and “micro-fulfillment centers" inside stores appears to be a permanent trend.

> Click here to read "Why supermarkets are building 'dark stores'" from 
CNN Business

U.S. Retailers Plan to Stop Paying Rent to Offset Virus

By: Ted Zangari

Every businessperson will soon be tossing around the phrase “force majeure”— none more so than tenants, especially retailer-tenants. The waterfall on rent relief has only just begun and will intensify in the run-up to the April 1 due date for next rent payments. Tenants are already pressing landlords; landlords, in turn, are pressing their mortgage lenders; and tenants, landlords and mortgage lenders together will all be pressing insurance companies to lift their policy exclusions for pandemics and viruses. Unless Congress steps in, chaos and a cascading series of defaults will take place. It doesn’t have to be this way. Former Trump Administration economic advisor Gary Cohn has a brilliant proposal: allow landlords to write-down 2020 rent losses on their 2019 tax returns. (The same write-down could instead be accorded to any of the other parties in this four-ring circus.)

> Click here to read "U.S. Retailers Plan to Stop Paying Rent to Offset Virus" from Bloomberg

Curbside Enthusiasm: Retailers Adapt In A Time Of Crisis

By: Ted Zangari

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.

> Click here to read "Curbside Enthusiasm: Retailers Adapt In A Time Of Crisis" from Forbes

Nordstrom Enters Used-Clothes Business

By: Ted Zangari

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?

> Click here to read "Nordstrom Enters Used-Clothes Business" in
The Star-Ledger