How Retail Real Estate Markets Are Changing

MIAMI—There are always challenges to getting retail leases inked. The key to success is persevering to overcome those challenges—especially in a changing market.

GlobeSt.com caught up with Jerry Welkis, president of Welco Realty and X Team International partner, to get his take on those opportunities, obstacles and changes in part three of this exclusive three-part interview. Welco has represented the likes of AMC Theaters, Marshalls, Toys 'R Us, Party City and Dress Barn.

(You can still go back and read parts one and two of this series. Part one is "Five Retail Leasing Trends You Need to Know." Part two is "Three Best Practices for Retail Leasing.")

GlobeSt.com: What are biggest challenges that you've come across handling retail real estate leasing transactions? Can you give me specific examples from deals?

Welkis: The biggest challenges representing a shopping center landlord is overcoming some of the difficult clauses that tenants are requiring, such as early termination rights, co-tenancy requirements and strong exclusive restrictions. This is especially challenging when you are leasing a new shopping center or looking to re-finance one because lenders are looking more closely at the leases to make sure that the rent flow will continue throughout the term of the mortgage.

GlobeSt.com: How do you overcome those obstacles?

Welkis: When we represent a landlord we try to limit the tenant's exclusive to a more specific primary use as opposed to a broader use that may encompass a lot more merchandise restrictions. In termination rights, we try to tie it to sales that are achievable so that a tenant does not have a right to terminate the lease unless they can prove their sales fall significantly below their projection.

On co-tenancy we will typically limit the tenants' reduction in rent due to a co-tenancy failure to a limited period of time and the reduction in rent will not commence until several months after the co-tenancy failure occurs, allowing our landlord client to remedy the issue before the tenant receives the rent reduction.

We also try to get as long a period of time as possible to cure the co-tenancy failure prior to the tenant having a right to terminate. However, if a tenant has a right to terminate, we will insist that they either terminate the lease or go back to paying full rent. This way, if the co-tenancy cannot be cured within a reasonable period of time, the landlord is not in a position where he or she has to take a much lower rent for a long period of time and has the opportunity to get the space back and release it at market rent.

GlobeSt.com: How do you expect the retail real estate market to change in 2014 and how will that impact how leasing transactions happen?

Welkis: I think there will be more new shopping center developments that will come on board in 2014 since the lending market has loosened up and there is now more demand for retail space. However, the uncertainty of the US government debt issue still looms. If the issue is not resolved early next year, and puts the government in a position that creates an insecure economic environment, the effect on the consumer and retail sales could be significant.