California and the upcoming War on Retail

[veteran+]

"Short term profit"....................... INDEED!

BTW, rent plus a percentage of sales is not a new thing. It goes way back. Are you saying that, that practice is not very popular any longer?

Side note: I have dealt with The Irvine Companies many times. Besides this benevolent Covid (rents) reaction, they are horrible. Obdurate, inflexible, uncooperative and bully like to mention a few. I avoid them at all expense.

[ClownLoach]

"Short term profit"....................... INDEED!

BTW, rent plus a percentage of sales is not a new thing. It goes way back. Are you saying that, that practice is not very popular any longer?

Side note: I have dealt with The Irvine Companies many times. Besides this benevolent Covid (rents) reaction, they are horrible. Obdurate, inflexible, uncooperative and bully like to mention a few. I avoid them at all expense.

Percentage rent is not popular at all with big boxes anymore especially publicly traded companies as they expect rents to be fully predictable. In addition the fact that they can now book the building as its own asset and lease as it's own liability (which almost amounts to transferral of the landlord's owned facility to the leaser's balance sheet!) means that percentage rent would destabilize that accounting arrangement and likely force the company to record the absolute maximum possible rent on the liability line.

In my last few districts the only store with percentage rent on the lease was with IC, and I was aggressive in pushing for 4 new facilities in the last 5 years. I do believe that percentage is common on smaller stores still, small in line shops and restaurants etc. And it is usually in leases in a manner that only applies in extreme high sales conditions where the tenant has to pay X% of sales over $Y million - where if the store actually hit that very high threshold it would likely cause additional expenses for the landlord on a regular basis (a "Triple A volume store" that needs traffic management, parking management, etc.). Usually these leases that bleed percent above max are negotiated in a manner where max is two to three times chain average sales, so it is unlikely that sales will ever pierce that threshold. With IC even on a big box percentage is going to apply. Some retailers are discouraged by this, others like the lower fixed rent and sign up.

I think Irvine Company prefers to deal with big box corporation tenants over smaller businesses. They also demand clean operations. I managed a store with my prior company at The Market Place in Irvine and they were indeed very strict about enforcing their rules. In that facility we would run into problems with customers unboxing large items like TVs and leaving the packaging behind the store (or worse, their old TV). I had to have the dock area checked every three hours or so and bring in boxes to throw in the baler. If this wasn't handled they would pick up the phone and complain. If we didn't do our part in a timely manner then yes, they have a massive team ready to follow up and enforce the rules. Most landlords allow you to bend the rules mainly because they don't have personnel on site managing daily.

The flip side is that in all of my dealings with them if we needed something done, it was taken care of immediately. Many property managers try to spend the least amount possible to fix problems, hiring the worst contractors and taking forever. Not IC. If it was broken and their responsibility - it was taken care of within hours of a call. Because with both companies I worked for we did maintain a clean store and good cooperation with them they were willing to provide us with equipment and services at no further charge under the lease. One of the stores was a electronics store and this was back when people would camp for days for Black Friday. All the other locations in our chain had to rent barricades, tents, etc. but IC happily provided their own for free and set it all up themselves. The most recent store we turned down the first time we saw it due to logistics problems that seemed impossible to overcome - basically a open dock area that needed a full receiving area built. It was a new building that had never been occupied and this was likely the reason. Once they realized that we were serious about the site but couldn't move forward - they got their architects to contact our offices and they reworked our plans at their expense to reconfigure the back of house. They agreed to add on an enclosed receiving area and stockroom expansion, plus build a satellite compactor enclosure, and did all the work battling the city to get approvals (technically adding this would have required additional parking as square footage was expanding - they got us an exemption). So my experience with them has been very good. You get what you put into the relationship with any landlord.

[veteran+]

Interesting.........................