MIAMI – Looking out over downtown Miami, business looks great. People are out and about. There are cranes working on new construction across the skyline.
On closer inspection, however, commercial shopping centers across Florida are facing financial issues.
Shopping centers are closing
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In the 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.
“Investors were looking at real estate,” Alan Grunspan, Shareholder for Carlton Fields, told the Florida Record. “With a lot of buyers the prices went up.”
With the growth of internet sales, there were few businesses able to fill the available spaces or maintain the brick and mortar businesses they had.
"People will go to a store to see the product, then buy it online,” Jay Steinman, shareholder for Carlton Fields, said.
In 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 bad practices.
In 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.
Steinman 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 said.
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 said.
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 retail.
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.”