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Better late than never seems to be the new theme for retail landlords these days. Rather than simply evicting struggling tenants, developer/managers are deferring rents to maintain occupancy levels. The largest retail developer in the US, Simon Property Group, noted in its recent year-end conference call that it is working with tenants on a case-by-case basis to keep its centers occupied. And it’s not alone.

“We are holding our margins and our rents where we can and that is in virtually all of our very good properties and where we have a tenant that we believe is in extreme financial distress, we’re trying to work with them to come up with a mutually acceptable basis for maintaining their occupancy in the portfolio,” said Rick Sokolov, Simon’s president and chief operating officer.

With large malls housing up to 200 stores, anywhere between 20 and 40 stores come up for renewal annually during a normal time, notes Steven Greenberg, president of the Greenberg Group, a Hewlett, N.Y.-based advisory group. Add in today’[s troubles and leasing reps remain busy, particularly at the best centers.

"The good news is that there are some great locations available at good rents," Greenberg said. "[Bankrupt tenants] have vacated some centers you wait to get into.”

Other centers may not be as lucky, and are offering inducements to remain occupied. One way some developers are helping is by deferring rent for limited periods.

“Landlords will take 10%, 20% and just tack it on,” said Lon Rubackin, managing partner of GFI Retail Group, New York. “We’ll want it a year from now, two years from now.”

Rent forgiveness, on the other hand, is not, says Howard Kline, a Los Angeles-based lawyer and real estate broker. Landlords must establish a rent that tenants can live with to keep a center filled.

“[Assistance] will be all over the place,” Kline says. “But I’m not keen on just giving things away. A lot of times, you can simply defer rent, and it accumulates just like a loan. We will defer the interest, though at some point you might just have to write it off.”

That could mean offering short-term leases just to keep a center occupied: instead of a 10-year deal, a five- or even three-year deal can be considered. The key for landlords is to make sure their projects stay alive.

“There is nothing that’s not on the table,” Kline said. “Basically, landlords are trying to keep activity in the center.”

Unlike office buildings, which can come back from massive vacancy, shopping centers that lose a critical mass of tenants will just wither away. And rent shouldn’t be a landlord’s only concern. A tenant who is behind on rent likely is deferring other payments, such as insurance, Kline notes. If all else fails, he added, landlords should protect themselves in case of a failure, filing a United Commercial Code Lien that will allow them to recoup some losses by selling a store’s fixtures or equipment.

“Do whatever you can,” Kline said. “But don’t give everything away. Try to make it all optional. This is the big decision to survive.”

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