5Qs for real estate attorney Jared Rothkopf on retail’s leasing frenzy
From his office at the Polsinelli law firm in Chicago, Jared Rothkopf aids shopping center owners across the nation in their dealings with national tenants and big-box retailers. Known for his long and varied experience in lease negotiations, we asked him to tell us how differently the game has changed during this time of historically low space availability and rising rents.
Developers at the recent New York ICSC show spoke to us of bidding wars for top spaces in their booths. Has this been an especially busy time for you, as well?
Over the past three years, my colleagues and I have been dealing with the heaviest volume of retail leasing transactions we’ve ever seen. People keep spending, so all retailers have needed to keep finding new space. Brokers always have a sense of urgency. Now retailers have a sense of urgency, as well. It’s been wild.
Are tenants who decide not to do their own buildouts--and pay higher rents instead—doing so because of higher interest rates?
I think interest rates have played a role with lesser-credit tenants not able to finance their own construction. Demand for tenant improvements from landlords is higher because of the great demand for diminishing space. In some cases, we’ve seen clients reduce the scope of their buildouts, but ultimately, they need the landlord and they need the space.
Equipment costs to keep rising. HVAC units are not only more costly, but more difficult to obtain. Is there a lot of haggling over equipment?
HVAC is one of the most important issues in the lease – especially in the Sunbelt. If the units in the space are old, you need to get landlords to agree to replace them up-front. Either they’ll replace them with delivery of the space, or they say they’ll maintain the units in place over a period of time – something like three to five years. After replacement by the landlord, maintenance and replacement costs are all on the tenant.
What about fast-expanding chains that commit to Wall Street to opening 100 new locations in the coming year. How are some of them overcoming the lack of available space to hit their numbers?
I think you see those brands opting for smaller spaces in markets they’ve pledged to enter. Ones with 20,000-sq. ft. footprints will settle for 12,000 to 15,000 sq. ft. and adjust their operations a little bit to fit that smaller store.
Rents continue to rise with availability at a low point. How high have you seen rents climb over the past two years?
This is a very difficult question to answer because so many factors go into the determination of rent and how the parties come together to make a deal. Rents are indeed up in many places and tenant improvement packages only further drive those numbers. But I’ve also seen unique circumstances where landlord’s offer big TI’s without a corresponding increase in rent. In that scenario, the landlord needs to fill a big and important space and is willing to take a haircut in the short term to help drive value later.
