Mall Managers Lower Rents as Anchors Close

February 12, 2009
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General Growth Properties and other large U.S. mall owners faced with rising vacancy rates are being forced to accept lower rents from remaining tenants.

According to a loan-servicer report recently released by Real Point LLC, mall managers are getting bitten by co-tenancy clauses that allow merchants to pay less when a large anchor store shuts down.

Co-tenancy clauses are built into leases to ensure tenants get the foot traffic they pay for. If an anchor leaves, smaller tenants may have the right to pay less rent until the space is filled. If the space is not filled, other tenants at these centers may be allowed to break leases and vacate the premises.

One very serious concern for mall managers is the potential for a “domino effect.” If an anchor goes down, it could unravel an entire center. For example, according to loan documents, General Growth’s First Colony Mall in Sugarland, Texas has several tenants with co-tenancy requirements tied to occupancy. If First Colony lost an anchor, tenants could end up exercising their lease options (if they have them) and leave the center.

Source: Bloomberg.com