Real estate deals good, but no lease theft | Franchise operations




Eric Greenberg

When the COVID-19 pandemic hit, it felt like a real estate reboot would take place as business closings or competition slowed down, which is a bittersweet silver lining for franchised entrepreneurs in a tumultuous marketplace.

However, instead of a long-term recessionary downturn, it turned into a spike. Several lawyers working in the franchise industry said they saw good conditions and found it easier to negotiate, but the commercial real estate market has largely returned to normal.

Eric Greenberg, Partner at Seyfarth Shaw Law Firm, believes that the firm’s real estate practice has many leases and negotiations. He said that 2020 was his busiest year for him, and it was developing rapidly. In March and April, he answered client questions about lease disputes, deferrals, and whether force majeure had helped. When it became clear that the sky was not actually falling completely, talk of growth resumed.

“In the summer, when people kind of understood what was going on, a number of retailers said, ‘This is an amazing opportunity to take advantage of the uncertainty and hopefully the COVID will end.’ There was some kind of magical thinking, ”Greenberg said. “Fast forward to the first quarter of 2021, we just saw an explosive growth in the number of deals. My conversations with brokers and colleagues, we all see the same thing. “


Joe Vash

As demand outstripped supply again, the rosy deals did not last long. Greenberg said that while he has seen some aggressive tenant improvement proposals and a large number of short-term lease terms and early termination rights, those terms have largely returned to the 2019 average, with a few exceptions.

“As the leasing market came back, landlords pulled back a bit from TI dollars and other preferential lease terms,” Greenberg said. “Of course, in some softer asset classes, such as traditional shopping malls or geographic regions, a tenant is more likely to see a continuation of attractive offers. But in general, the market is starting to retreat a little towards lessors. “

As a senior partner at Wasch Raines, much of Joe Wasch’s practice is responsible for leasing growing concepts such as the Tropical Smoothie Café. He said most of the concepts he works with returned to growth mode in May 2020. He was able to get some new protections in view of the pandemic, but not many big changes.

“Starting with COVID, we have introduced government-sanctioned pandemic-related shutdowns as a force majeure event. In some cases, we were able to persuade the landlord to agree to a deferred rent during this time, ”said Wosh. “It was one of the things that happened during the new normal.”

This adds a certain amount of confidence to the relationship between the landlord and the operator during difficult times. Many of these deferrals or decisions to reduce emissions during COVID-19 were handshakes, if so.


Michelle Prager

Daniel Loewenstern, a lawyer for Paris Ackerman, said that while particularly good conditions dried up, he and his leasing lawyers were able to make some adjustments that could help in the next crisis. It managed to extend the free lease periods and ink regulations on certain supply chain and construction issues, which is again reflected in the force majeure clause that received so much attention last year.

Another Paris Ackerman lawyer, Michelle Prager, said she was able to get the best deal when she opened the case. “What if they can’t open the equipment? I probably hear it every day. Or instead of 90 days I need 180 days, ”Prager said. “I got a call from a customer who said the brand couldn’t deliver equipment for 90 days.”

She began adding such clauses to leases and said homeowners understand that if someone cannot buy a new dishwasher for their home, the restaurant operator will not be able to equip a fully equipped kitchen.

David Paris, a founding partner of the firm, said his team is fighting “tampering disclaimers” that are triggered if the operator doesn’t open. Landlords do not like dark windows, but during the pandemic it was logical. Even now, there are times when, due to personnel problems, operators think that they are getting dark. Some of these articles state that landlords can speed up their rental schedule.

“Where there is an acceleration clause and you want to hide, you will continue to pay rent. Then they can speed up your rent. If they’re your default, you’re in bad shape, right? Paris said. “If you have an acceleration clause, it may not be viable and you won’t be able to close your doors and cut down on food and labor costs.”

As the franchise segment comes to life, it immediately brings pre-pandemic real estate competition with it. Longer free rental periods certainly help, but if you’re looking for low-cost rentals or big TI bucks, these deals are mostly not there.


Source link