Rent’s Due

Retailers from coast to coast are hammering their landlords for relief. “Lower our rents,” they say, “or we may have to shutter many of those stores. And where are you going to get another good renter like us?”

Where, indeed. How likely is it that another renter is going to show up out of the blue?

A leading shopping center figure, David Simon, chairman and ceo of Simon Property Group, summed up the store real estate picture at the recent Financo Annual Industry Seminar in New York. Responding to a question from Financo chairman and ceo Gilbert Harrison, Simon stated he currently could “foresee a decade of no new development or very little redevelopment.”

Got that?

No new stores for 10 years.

The rent situation boils down to the question: “Is half a loaf better than none?”

Landlords have sharp choices to make. On the one hand, they will take major hits to their cash flow and likely their tax, interest and debt structure, by relenting on any substantial ratcheting down of their rental income.

On the other hand, when a store goes dark, they may be hard pressed to get the lights back on any time soon – without accepting significantly lower rent than they had been getting previously!

Many retailers say they will continue to negotiate with landlords on the leases for hundreds of stores. Just yesterday, Pier 1 said it had retained a real estate firm to do its negotiating for it – with the issue plainly stated: either get meaningful rent cuts by May 2009, or activate “early termination agreements” on as many as 125 locations. Clearly, Pier 1 is ready to take strong medicine.

Before beleaguered retailers and stressed landlords go to all-out extremes, let’s hope a “long-view” perspective settles over such negotiations. As 2009 grinds along and plans are formed for survival through 2010, these are two classes of business that now more than ever, are going to need each other.