ClownLoach wrote: ↑February 5th, 2021, 9:47 pmAnchors in spaces of this size like Walmart will not enter a lease without a minimum of 20 years term guaranteed, usually 20 plus two 5 year renewals. There however is an increase at the 10 year mark. I'm very familiar with the Irvine Company and how they handle these. Irvine Company for some reason has a false perception in the public as a draconian organization that will throw tenants out on the street. It doesn't work that way. I work with many landlords on large retail stores across OC and SD and I can tell you they're the most supportive and cooperative company we have worked with and not even close to most expensive. BUT most of their leases start low for the first term, many times below market, with an escape clause at start of second term where a large increase sets in. I have some connections on this one I reached out to and all I can say is this was a very last minute decision, and as surprising as it may sound for Irvine area shrink was the deciding factor. Locations like this at major freeway interchanges are prone to Organized Retail Crime rings - easy escape in multiple directions. Increasing shrink losses plus a rent increase due on next term = a closing store in the Walmart organization.
Renewal options are often at market rate for comparable square foot. Remember, Walmart took over Sears' Great Indoors lease; they were unsuccessful in re-negotiating a longer term despite almost unquestionably wholly absorbing the build out cost. The Great Indoors was the anchor of a new build shopping center that was dedicated to home design. It's certainly plausible that Sears had negotiated low monthly payments throughout its initial term -- plus a small percentage of gross receipts. The renewal options may have been up to prevailing rates, plus that small percentage of gross receipts. Walmart may have believed that they could negotiate a new lease term at prevailing rates, but if IC didn't want them as a tenant, they could've insisted upon that percentage of gross sales.
IC isn't a slumlord, but many former tenants would certainly describe it as "draconian." I've read about the organized retail theory, but let's be realistic -- the security office is adjacent to the exit, Irvine PD regularly patrols the parking lot, and the parking lot itself is practically a maze. If I'm in an IC shopping center and glance down at my phone for 15 minutes -- especially in the evening -- a cop will probably summoned to watch me. I recall two years ago, when my wife and I were in the Kohl's parking lot. We sat in the car for about a half hour while she fumbled through her belongings, looking for her paper Kohls Cash that she claimed wasn't showing up in her digital wallet on the app. Suddenly, two Irvine PD SUVs park on each side of us. We go into the store without incident and come out two hours later. The cops are still there. We drive over to Albertsons (across the parking lot). The cops follow us. We shop in there for over an hour; the cops are still watching us when we return to our car. We drive up Alton/Jeffrey to Walgreens. When we leave the store... there's the cops (I didn't notice them follow us, either)!!! Two cops, watching us for nearly 4 hours.
storewanderer wrote: ↑February 7th, 2021, 9:39 amIf another tenant opens quickly it could simply be someone else was willing to pay more for the space or there was some other negotiation issue. Shrink, sales mix, "plumbing problems" - who knows.
Could Target want the space?
They have operated stores close together in dense areas before (see: Daly City, CA).
There's a Target anchoring the Spectrum Center, which is across the (highway). That location just completed a complete remodel given only to Target's top (best performing, most strategic, etc.) stores.
Walmart made an 11th hour decision -- heck, they still received regular shipments this past week, despite closing at 7PM for their liquidation sale. My best guess is that they couldn't come to terms on the prevailing lease and Walmart walked. The rest of the shopping center is still high-end home furnishings; I would've be surprised if IC wanted a stronger anchor. Walmart brought in traffic -- frequently causing back-ups on Alton, spilling beyond Walmart's space in the parking lot, etc. -- but probably not the variety IC would like.
ClownLoach wrote: ↑February 7th, 2021, 11:41 amI think this is a simple case where Walmart signed a bad lease with a low first term but a massive increase starting with the second term which is typical for Irvine Company as their sales pitch is all about future growth. The area is going to grow so fast that you won't have to worry about agreeing to your rent doubling 10 years in. But the store clearly had a shrink problem, with aggressive Loss Prevention associates scanning receipts and looking in and under baskets when you exit, alarmed entry gates (like a modern turnstile), things you would never expect in such a nice part of Irvine.
Walmart probably presented their case to Irvine Company and said that they would not be able to handle the rent increase and turn a profit, Irvine Company stood by their ironclad lease (because once you accommodate Walmart you've got to accommodate everyone else), and Walmart probably shocked them by saying that they will turn the keys in at the end of term 1.
Walmart is spending $500M installing the "access gates" throughout their store fleet. All of the locations I frequent have them -- and they replaced the door greeters who previously acted as theft deterrents. With Walmart headed to $15/minimum wage -- and CA already there (and soon-to-be in some parts of the state) -- I suspect it's mostly about cost. Receipt checks are pretty standard at Walmart, and hardly aggressive at Irvine. That high school aged male with the curly blond hair... you could probably ring up a 70" TV as a few pounds of bananas, and I doubt he'd notice. Most people they just wave through. I've been in plenty of Walmarts around the country where they'll select a few items from your receipt and look for them, regardless of how long it holds up the line.
Walmart never signed a lease with IC -- they took over Sears' remaining term, absorbing all build out costs. I suspect IC didn't want Walmart as a tenant and insisted upon an unrealistic prevailing rate.