MIAMI – Looking out over downtown Miami, business looks
great. People are out and about. There are cranes working on new construction
across the skyline.
closer inspection, however, commercial shopping centers across Florida are
facing financial issues.
past several years, investors were finding few ways to make money, so they
turned to real estate. Especially in south Florida, investors began aggressively
buying shopping centers.
were looking at real estate,” Alan Grunspan, Shareholder for Carlton Fields,
told the Florida Record. “With a lot of
buyers the prices went up.”
the growth of internet sales, there were few businesses able to fill the
available spaces or maintain the brick and mortar businesses they had.
will go to a store to see the product, then buy it online,” Jay Steinman,
shareholder for Carlton Fields, said.
addition to retail moving from brick and mortar stores to the internet,
landlords were beginning to become relaxed on their leases and developed a few
retail leases, tenants generally have to report their sales to the landlord. If
tenants push back on this requirement, landlords usually waive the requirement.
If the landlords know their tenant isn’t making sales, they don’t want to go
through the effort to enforce the requirement when the landlord won’t make
extra money anyway.
stresses the importance of landlords enforcing the reporting requirement.
“The landlord needs to enforce the
reporting requirement because it can assist the landlord to anticipate and be
ahead of problems like tenant cash flow issues,” Steinman said. “In this way, a
landlord can work with tenants before they go dark.”
In addition, landlords aren’t
enforcing radius restrictions. Some tenants may have multiple locations, all
within close radius, and are monopolizing the market.
“If the landlord waives or fails to
include radius restriction, a tenant may have another store nearby which
produces better sales results and the tenant elects to let the less productive
store go dark, which drives away traffic in that shopping center,” Steinman
Although there has been a rise in
commercial real estate foreclosures, Grunspan doesn’t think the situation is irreversible.
“There’s always going to be a cycle
and now we’re entering into a cautious part of the cycle,” Grunspan said. “Landlords
and lenders are taking precautions to protect their position.”
Grunspan and Steinman believe the
key to getting through this softened economy is compromise.
“In most cases I worked on,
landlords that were able to be more flexible were able to retain more tenants,”
Steinman has suggestions on how to
improve the market. With the changing trends in retail, landlords should
diversify their tenants by adding non-traditional retail stores like medical
facilities or offices.
Steinman also predicts that since
people need less retail space, there will be a rise in residency paired with
The market is not too bad yet. “It
won’t be as bad as it has been in the past,” Steinman said. “There is stress but not a crash.”