Unique retail environment

Next week will be back to the regular lease administration blog, but, for now, a little more Mexican retail. One sight in Puebla that does not show up on TripAdvisor is truly “experiential retail” – Container City. Puebla is very much a university town, and Container City is an area designed for those students. It is an area with bars, restaurants and some retail all set up in former shipping containers. While my wife and I were (by far) the oldest people there at 10:30 pm (my son said it did not get really busy until 12:00 am) and were way outside of the target demographic, we absolutely loved the concept – and the experience.

Liability issues aside, it was exceptionally well done.

Buen Fin!

This week, the blog will not be about lease administration. Rather, it is just a few pictures to give you confidence going in to the upcoming holiday retail season.

My wife and I are visiting our son in Puebla, Mexico this week. We happened to arrive during Buen Fin – the Mexican version of Black Friday. Traffic around the city is ridiculous and is attributed to Buen Fin. And, traffic in the malls, shopping center and streets is absolutely unbelievable. While there is nothing scientific about it, I am still a fan of “bag checks.” No. Not the bag checks going in to a concert or sporting event, but the visual bag check of whether or not people were buying. And, yes! They were buying.

For me, these pictures are better than any motivational posters.

(Just a couple of quick observations. If you look at the pictures, you will see that the anchors do not have grand courts. They are flush with the rest of the inlines, and they may online have a 50-60’ front lease line. Instead of having wall kiosks, flush with the front of the anchors, you then have a series of smaller premises (maybe 750-1,000 sf), making it much busier (in a good way) than our US anchor courts. Also, with Puebla being in a much more temperate climate, they had a good portion of the mall covered, but open air (you should see it in some of the pictures), eliminating the expense of mall HVAC in the part of the mall. And, finally, I have never see a food court busier. In the picture, you will notice shoppers sitting and finding space wherever they could, often on the floors and half walls. My son said that the quality of the local food court tenants is exceptional.)

Prior defaults

This past week, we worked on a 40 tenant open air center acquisition. Often times, a seller severely restricts the information provided to our clients, the buyers. Fortunately, this time, we had almost free access to the seller’s files.

Many of the leases were leases that had been amended and extended 3,4,5 times since their original commencements – some from the 80s and 90s. And, many of the tenants had been defaulted numerous times. The defaults in the files only related to the current seller’s period of ownership – from about 2012. But, these defaults (most were cured) are pertinent to the buyer’s acquisition of the property.

Why? For one, it lets you know what to expect for your period of ownership. If the aged receivables shows a tenant is current, it may not tell the whole story. In many cases, a pattern of defaults lets you know, in advance, that management will have to stay on top of a tenant to keep them current. Rather than being into ownership four months frustrated with a tenant that is now four months behind, knowing in advance that a default on the 15th of every month will keep them current will ultimately make for a much better landlord-tenant relationship.

But, there are other option, restriction and covenant related reasons to be aware of prior defaults. Many leases will have language that specifically eliminates certain clauses in the case of some number of defaults. For example – renewal options. The language might read something to the effect of “Provided the tenant has not been in default more than three times during the term…” In some cases, a tenant will add “… beyond any applicable cure period …”

Options and exclusives are the two more common areas to see this contingent default language. Think about what that could potentially do for you in the case of a tenant with below market options! Think about what that would do in the case of an underperforming tenant with an exclusive. It gives you options!

We have often addressed that once a lease is executed, you HAVE to live with the terms of the lease. However, in some cases we can actually view it as you GET to live with the terms of the lease.

If you search, there may be a silver lining!