Flexible and short-term leases are one of the many new trends sweeping commercial real estate. Office owners have been playing with short-term and flexible leases—thanks in large part to start-up activity and co-working providers like WeWork. Earlier this year, in fact, Brookfield announced a partnership with Convene to service the growing demand for flexible office space. Now, retail owners are seeing more activity from pop-up shops and hybrid pop-ups. While this activity is a great way to fill vacancies, we wonder how lenders are responding to these short-term leases on the books.

“The days of credit have changed, and lenders have to look at things differently than they did before,” Gabe Kadosh, a VP at Colliers International that recently negotiated a hybrid pop-up lease at West Hollywood Gateway shopping center. “I think a lender would ultimately approve a deal like this, but it would be a process and take a little more time. It is part of the evolution of retail and the acceptance of new lease structures. Lenders may want more securitization with stronger personal guarantees with the principals involved. There will be other elements that lenders used to securitize it.”

Because lease structures are changing and there is growing demand for shorter-term leases, lenders are looking at a multitude of characteristics in properties and tenant mixes. “Now, lenders are taking different characteristics into account,” explains Kadosh. “There is less credit out there, so lenders will look at who the operator is and their experience. Some landlords almost don't want chain retails. They are looking for something mote unique, so lenders are making the necessary adjustments.”

The location of the shopping center and the surrounding demand will, of course, play a large role as well in a lender's analysis and acceptance of short-term leases. “I think that it will have a lot to do with where the property is located and how quickly a space can be filled,” says Kadosh. “That will illustrate the risks associated with it. If a retail market is not in a high demand area, it is certainly riskier.”

Kadosh recently signed the hybrid pop-up lease for Save By the Max, a new themed restaurant experience. The concept is moving into a space that was previously occupied by a restaurant, and to take advantage of the previous build out, the landlord waited to lease the space to another strong restaurant tenant. “In this case, we are in a such a good area,” says Kadosh. “We could have demised the space and lease it quicker. If our lender had pushed us because the leasing was taking too long, we would have done that. Lenders have to look at the deal from a different perspective, and it certainly will affect the way that a deal is looked at.”

Instant Insights /

How Do Lenders Look at Temporary Retail?

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