Cash Wise Food & Liquor in Dickinson, ND with Adam Hirschfeld
Guest: Adam Hirschfeld
Topics: Cash Wise Food & Liquor, real estate law
Transcript:
Chris Ressa 0:02
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Hey, everyone, welcome to retail retold. I’m your host Chris ReSSA. And I am excited about today’s episode, we have Adam Hirschfeld. Adam is an attorney in the retail real estate industry, I think you’re gonna really enjoy this episode, we talk about some complicated lease clauses, theories and philosophies about certain positions at least. And we talked about an interesting story where he had to do something really risky and lease and terminate a tenant without having the other tenant and you’ll hear why and all the things about that. So I hope you enjoy it. Before I talk about that I wanted to talk about what’s going on in the world right now. I hope everyone is being as safe as they can and doing what they need for themselves in their family. This is been a wake up call for me on just personal and professional readiness in emergency scenarios, times like this, your brain starts racing to make sure like you have your ducks in a row for the unknown and the unknowable. It’s hard to be ready for those scenarios. And hopefully, we can get through this as healthy as possible and those who have gotten sick and get the treatment they need to get better. And once we get all through this and the we’re in a more normalized place. I hope we don’t forget some of the lessons and I won’t and I’m going to make sure that I continue to go on a path to be personally and professionally just prepared for unfortunate scenarios. It’s a tough topic. I’m not saying you have to be like all the preppers in the world. But as we have been talking internally here at DLC about professional things and making sure we’re ready for certain situations and On the homefront. Are you ready for this? Or that hit you that? Oh, yeah, we should do that. And oh, yeah, we should do that. And so make sure you’re doing what you can for yourself and be ready to be safe and be healthy. And so that’s all I got today. Nothing outrageous, but I think it’s it just hit me like man, you never know when something’s coming and whatever you can do to be ready for the unknown and unknowable will help you down the line. So anyway, that’s all I got. I hope you enjoy the shot. Thanks.
Welcome, everyone to retail recode. Today we have Adam Hirschfeld. Adam is an attorney with Rudolph fields. He has an interesting background because he was in house at a tenant used to work at in the real estate law department at big loss. He was a attorney and Attorney at DDR, and now he’s in private practice. real interesting background. Welcome to the show, Adam.
Adam Hirschfeld 4:04
Thanks for having me, Chris. It’s really a pleasure to be here.
Ressa 4:07
So, Adam, you wanted to be on a retail podcast? What was the inspiration to get on a podcast?
Hirschfeld 4:16
Good question, the inspiration. It’s just something I’ve always wanted to do. Oddly enough. I was working from a Starbucks, which I do rather often and had my stack of documents out a person sat down next to me and said, Oh, are you grading papers? And I said, No, I’m, I’m not a teacher. And he said, What are you I said, I’m an attorney. So actually, I’m filling time. And he laughed. And then I said to him, I’ve actually always wanted to teach a class. And he said, Why don’t you? And I said, Well, look at that stack of papers. When would I have time to teach a class? And he laughed, and it sort of got me thinking, maybe I’m not doing a good enough job of doing things that I would like to do. And I’ve talked in the past with you know, friends about stuff writing our own podcast or something of that nature, and it just seemed like something that would be fun to do. I’ve spoken and given presentations before and enjoyed doing that. And just thought that this was sort of a natural evolution of speaking at CLE than at conferences and those types of things. So I really appreciate you having me on.
Ressa 5:18
Awesome. We’re glad to have you. So why don’t you tell everybody a little bit about you and what Rudolph fields does?
Hirschfeld 5:26
Sure, so about me and about the firm. Interestingly, the firm sort of functions as a conglomerate of sole practitioners working under one name and sharing office space and overhead. For the most part, I truly do function like a sole practitioner. At this point, the majority of my practice is on the landlord side, I represent a number of publicly traded REITs including site centers Corp, which is the successor company and BDR. Federal Realty Investment Trust, urban edge properties are some of my largest clients. I also work with a number of smaller developers, I do do some tenant work as well, Boston’s department stores is one of my larger tenant clients. So I do still work on both sides of the landlord tenant tables, 90 to 95% of my practice is commercial leasing, retail leasing. So I live in the so called retail Apocalypse that’s going on now. That’s my that’s my day to day. That’s pretty much. That’s pretty much it.
Ressa 6:30
So you mentioned retail apocalypse. I don’t think we’re in an apocalypse. But and I’ve had some guests too. You know, we go back and forth on that. Why don’t you give a little bit of, you know, what’s the state of the industry for
Hirschfeld 6:44
Adam. So I don’t think we’re in the retail Apocalypse either. Interestingly enough, I have a journalism background. And I think a lot of the stories that you read or see art because it’s easy copy. It’s a topic that’s out there, people are aware of it, you can find a local story that fits into a narrative. I think that certain assets and certain classes of property in certain locations may or may not be in more trouble than others. I don’t really sense an apocalypse. And I also think that you will never truly be without retail. Because no matter how convenient, certain things may be to order online, people still need to get out of the house. If I spend more than three days in my house, I need to get out. I also think that certain segments of the retail industry are doing just fine. I think certain retailers that are evolving and that are focusing on their stores and on their customers are doing significantly better than those who don’t. From the perspective of a practicing lawyer, the challenge becomes, everything takes longer. Whereas I used to budget say, three to four months for certain types of deals to get completed, those now take six to eight months. So not everything takes twice as long. But things take significantly longer. There’s significantly more things to think about, in particular, on the landlord side, because, as you probably see, in your own day to day, the types of things that you have to think about with an asset that you are going to hold potentially for a very long time, are far greater in an evolving and changing industry, then it may be for the other side, that even though their business is evolving, they still just have to think about their business. It’s thinking about 30 to 50, as opposed to thinking about
Ressa 8:35
one. Yeah, things are definitely taking longer. It’s which is fascinating. Given technology, we used to send leases in the mail comments in the hardcopy in the mail, sometimes not even overnight, and redline them that way. And today, it still potentially takes longer than it did when we did it that way. So even with the technological advances of email, and DocuSign, and all these things, it’s it’s taking longer. It’s It’s fascinating, what are some of the you know, I think people would want to know, and you have a broad base perspective, what are some of the hot what you would consider legal trends? And there? We I would, I would tell you, we always go back and forth on what’s business terms and what is legal. You know, we, I think, you know, at DLC we have, you know, our legal team, you know, we rely on them heavily. But in this might be true developers I think a lot of things that some people might think are legal decisions, you know, here we might look at them as business decisions and legals advising on the risk of that. The decision made on the business side, but everyone doesn’t do Firstly, and I digress, what are you seeing as some hot legal issues today, even though they’re the what’s business and what is legal is always debated. Sure,
Hirschfeld 10:14
first of all, that’s a great point that the what is business and what is legal is sort of a giant question mark, and it goes on a deal that deal basis, I’d like to think that I’m fortunate enough to have been practicing and working with my clients long enough that a lot of what I do is giving legal and risk analysis advice on issues that may or may not be business or may or may not be legal, the same issues are coming up often. In leases these days, a lot of things I would say anytime that there’s an exclusive and a deal, exclusive use covenant, which in case some people who are listening or novices is right, that is given to a tenant to be the only operator of a certain kind of business, in a property. The exceptions to those the how it works, the whether a tenant has to be open and operating for its exclusive to have its exclusive. Things like that are controversial prohibited uses are controversial. These days, Site Plan controls, whether certain tenants have, you know, so called protected areas where the landlord can’t do certain things like build additional floor area, or have events, or modify the parking areas or put in certain types of parking spaces, those kinds of things are hot day to day issues. Really, a lot of what I see that I’m doing more and more, as the thought on the tenant side of things is that they have a lot of leverage is looking for gaps. Looking for the situations where somehow somebody on the landlord side could end up in a really poor position. Because they thought that maybe reset x, but really, whereas it said x in one place and the Y in a whole other section, eliminate some of the benefit of that x. So I was referring to exclusive use covenants before, one of the heavy things that I mentioned, that gets discussed a lot are the exceptions to the exclusive, you have to be very careful because there are certain exclusives, the way that they are written, they will appear to give you an exception in let’s say sub paragraph A, but by sub paragraph, G two, there’s language that then takes away some of the benefit of that exclusivity. I don’t know that you’re looking for examples, but things of that nature are where I find myself, you know, talking a lot with people on a day to day basis. So it’s sort of a legal analysis of a business issue. Totally, I
Ressa 12:56
think one of the ways is specifically on the exclusive that you can get around discrepancies in the future not so much gaps between provisions but
an is staying in tune with the times and accurately defining things by example, no secret today off price is hot. And so you might have a retailer that’s off price and wants an off price exclusive. And my first question that I ask is, well, how are we going to define the difference between off price and discount? Right. And, you know, you could look online and there’s not a lot and it’s it’s getting defined as we go because, you know, discount to me is Walmart target their discount discounters. But they’re not off price. And so at least in my definition, how I’ve seen leases defined and but I think it’s an open topic today. When you’re looking at things, the old one was when you know, what was a grocery item? Right? That was the old one. Right? And you know, what, what, if anything sold in a grocery store was a lot of the supermarket’s definition. Well, there’s grocery stores that sell everything. So you have an exclusive on everything, and then they list the exceptions.
Hirschfeld 14:26
And that’s, that’s coming back in vogue, by the way. Yeah,
Ressa 14:31
I know. So, for sure. So I think there’s that we’re starting to see more and more on some what I would consider more legal provisions, you know, continue to be more discussed and I would be interested to see if you see the same, we’re seeing a lot of, you know, pushback and negotiation around on things like condemnation and casualty, are you seeing that more, we’re seeing some things like that, which is like, you know, mind blowing to me that we’re spending so much time on it. And one of the reasons I would say that the that we’re we are spending a lot of time is on those. And the other thing I would say is the thing that is really, we’re spending a lot of time on. And if you’re owning the Senator for a long time, you should, but it’s it’s really challenging is, well, the administrative burdens, you know, notice versus double notice. And, you know, you have to do this if this happens, and those provisions, all those administrative burdens, and one party not wanting to take on the burden of that provision from an administrative perspective. There’s a lot of time spent on that. So I will take both of those. What are you seeing some, like, real legal things like, you know, even in the eyes of people who think, you know, at least might be more business than legal, I think casualty and condemnation kind of fall more into the legal and, you know, exclusive, I think, you know, depending on the deal maker on the business side, how much they negotiate upfront. Hopefully, you can get a lot knocked out in the loi, but typically condemnation and casualty, you’re not. And so are you seeing any, like, those types of legal provisions really being more contentious than they once were? It feels like it to me, and maybe it’s just me,
Hirschfeld 16:37
know, your perception is pretty accurate. I think that among the challenges with a casualty and a condemnation, together, is what the landlord’s obligation is, yes, one of those events occurs, and not just what, but when you have a
Ressa 16:57
meeting, that’s exactly right. If 50% of the center and it’s this part of the center goes, well, then you have to rebuild it. But if it’s over here, and if I have 80 months of lease term, do I have to rebuild, and then you terminate 18 months, and you get into, it just can go on forever, this negotiation.
Hirschfeld 17:14
Exactly. And one of the other things that gets bought about a lot too, in particular, with the sophisticated tenants that don’t have opening covenants and or operating covenants, is whether that tenant has to reopen after you as the landlord restore, because you as a landlord don’t necessarily want to have to build back to tenant X’s prototype, just to have tenant exercise. That’s great. Thanks for doing that. I’m going to keep cutting your rent check when I’m supposed to cut the rent. But I’m never coming back to your property. Those become controversial points on the condemnation side, you also I don’t know how much you’re fighting about it. There’s some fights about awards. That’s your, you know, in particular, in particular, if there’s if it’s not a to award jurisdiction, and then it’s like any sort of other, it then becomes a bit of a business negotiation as well, depending on who has leveraged there. Certainly, it’s funny, if you sat down with me, or with any one of 100 other lawyers, every one of us would probably come up with something close to the same if you said, just put your fairness hat on, and take this foreign lease and make me the fairest lease possible for both sides. I bet that 100 People would come within, you know, some reasonable percentage of of each other as to what they thought was a fair and equitable lease. And what you end up with in real life obviously may look different than that in any one of a number of ways. But there certainly are very equitable ways to split, a one award or an award in a one award jurisdiction. I mean, one of the ones that I have clients who like to do it like this with things parents pursue, which is sort of just equitable, based on percentage of contribution and things like that. So it put it, it does sometimes take a little bit longer. Sometimes you have a good partnership with that party on the other side, and can get to things pretty quickly. And other times, yes, those those like everything else can can take a little while longer.
Ressa 19:14
Are you seeing here the reason why, you know, it feels like 1015 years ago, we weren’t negotiating casualty and condemnation and clauses. I’m using those two as examples, but clauses like that so heavily, but today we are, is it just that things have happened and now people are smarter?
Hirschfeld 19:32
I don’t know if it’s the things have happened and people are smarter. I think it’s the things have happened and people have been told don’t ever let this happen again. I think that that is how we’ve ended up with a lot of concepts and provisions in leases and I’m not complaining about it because I mentioned that I worked from Starbucks if it wasn’t for these leases actually working at Starbucks, it’s a little bit of a different life. So i Good luck. I really think I really think And I just I this is my my perception is a lot of what you deal with. And a lot of I’m sure you, you see this in your negotiations to where your perception is that somebody is taking a hard stance on something that you typically don’t find your opposition taking a hard stance on. And when you talk to them about it, what gets revealed is the thing that happened that has led to them taking that hard stance. So I don’t know that it’s smart, maybe that’s maybe that’s a kind of wisdom, and smarter. So smarter is certainly a positive way of saying that same thing. But I truly think that people are told when something bad happens, don’t let this happen again, and then in the next lessor that they are negotiating you as the negotiator on your side are dealing with that last bad incident and the party that put that on somebody.
Ressa 20:55
Understood. Makes sense. Any, you know, I mentioned casualty and condemnation, because I get a lot of across my desk, here’s where we’re at, you know, from legal and Policing Team. And you know, what, what, what do we want to do? And and those two keep coming up, which TierPoint one has to do with the award on combination two, on the casualty really comes down to how much do I have to build? And when do I and do they have to open if I do rebuild? And you know, the one you know, definitely zeroed in on those on those last two, right, especially tenant as 18 months of lease term, you have to rebuild them, they terminate, you built their prototype, that’s painful. So nonetheless, are there any other legal provisions that you’re seeing that you’re talking about more today that maybe you didn’t 1015 years ago,
Hirschfeld 21:45
the only one that I see that’s evolved a lot over time, that I would say is coming up often is the confidentiality provision. It used to seem to me to be more than if there was one included in a lease that dealt with economics. And that makes sense, in a lot of ways for both sides to not be disclosing economic terms out there. In the world, now, it becomes a lot more of a of a of a of a challenging provision. There are retailers who don’t want you talking about them, period, there are retailers who don’t want you talking about them until they make their own announcement until they apply for a construction permit, until they open for business. And even then they want to sort of limit your activities, which is, on the one hand understandable. And on the other hand, as a landlord, you would like to be able to tell the world that such tenant is coming to your shopping center, it’s drives other things besides just that particular deal. So I’m seeing a lot more on that. It’s not a three sentence section anymore, the tenants often will seek significant recourse to the landlord violate that section. So that is one that I would say over time, that’s a section that’s gotten
Ressa 22:58
longer. Yeah, I actually agree with the marketing departments constantly going to the legal team and saying, Am I able to announce this yet? And they’re like, No, you’re not. So I hear you that that has definitely
been one. I’ll give you a little tidbit I, when we were negotiating, and I call the tenant wants you guys been so challenging on this. And he goes, and well, you know, what’s going to happen is, we’re not opening for two years, and for the next 24 months, my HR departments gonna get inquiries about how hiring, and they don’t even know that we
have a store coming to that area. They’re not and so you know, HR doesn’t get involved so much later on in there, it’s going to cause mass confusion,
and we need to do it on our schedule. I haven’t heard that. But that’s what I’ve not heard. We all know the branding and competition wants but that’s one that I hadn’t heard, either. So moving on to a story. You have an interesting story about a deal in North Dakota and I’m excited because you’re our first guest who’s coming at this from a with a legal Vantage and the legal perspective, given you’re a practicing attorney, and this is a if I get it, right. The Dickinson North Dakota, correct.
Hirschfeld 24:26
Correct. The prairie Hills Mall in Dickinson, North Dakota,
Ressa 24:29
the prairie Hills Mall and the tenant is Cash Wise. And I think there’s an interesting tidbit of how you came to represent the owner of this property before this deal even happened. So why don’t you take us there?
Hirschfeld 24:42
Sure. So when I moved over to Rudolph field, this was in 2013. And as I mentioned, I do function like a sole practitioner but as sort of with any starting venture from time to time, things weren’t exactly busy at the beginning. So I was working from home during the summer. And I got a voicemail from a gentleman and it was sort of hard to gauge what he wanted from the voicemail. But he had a very thick North Dakota accent. I mean, he, he did and does still sound like the folks in the movie Fargo. And he left a voicemail that he was into something about the prairie Hills Mall. Well, Prairie Hills Mall was a DDR property when I was there. And they sold it sometime before I left in 2011. And so I’m thinking to myself, when I get this voicemail great, this is somebody I sent a notice of default to three or four years ago, and they can’t get somebody to respond to them. And they’re calling me. So I usually call people back. I’m not perfect, but I called the gentleman back and I picked up the phone. And I said, Listen, I said I got your voicemail, it was a little hard to understand what you were looking for. But I need to tell you right off the bat that I still represent DDR. So the matter is a verse to them. I can’t help you out, but maybe I can get through to the right person. And he said, No, no, no, I’m the guy who bought the property from I said, Oh, okay, we can talk. So he had an issue. He was looking to do an out parcel building in the front of the mall. And JC Penney was a tenant there at the time and had a very old lease with basically absolute control over the site points. You could not do anything in that mall or or add property or taken away without getting JC Penney’s approval. And at the time, JC Penney wanted something in exchange for its consent, and he was calling me to find out if it was reasonable. And we talked a little about that. And I had thought that what they were asking me for, given my knowledge of the market was reasonable. And we had a little bit of a conversation about the outparcel building he wanted to build, and that it wasn’t something he had paid value for. So it was a creative, you know, a good return for him and all those things, so that it was worth maybe doing what they wanted to do. So we had a nice little chat. And then he said to me, you know, we recently did another lease here. And my attorney, he’s a good guy. He’s a good lawyer, but he doesn’t he doesn’t do this. He’s not a retail leasing lawyer. And he says, so if I needed help in the future, with retail leases, you know, would you be able to help me out? And I said, Sure. And I gave him the two minute spiel, which is now a five minute spiel, so I’ll spare you it. But we, we talked, and then I said to him, I said, like, I asked you a question. I said, How did you find me? And he said, Do you remember Penny? And I said, Yes, this requires us to go back a little bit. So Peggy was the mall manager at the prairie Hills Mall when I was in DDR. And when I was at Big Lots, so they said, We’re going back, one of the things that my boss taught me that always stuck with me, was give a little extra TLC, to the folks that are working in the field, they can sometimes feel a little disconnected from what’s going on in corporate. And I took that to heart because I always sort of feel you know what, you’re right when we’re all here, in that case, Ohio, having cake day, it’s just Tuesday, wherever they are. So I when I was at DDR, among the portfolios, I had included the six to 10 Indoor malls in various northern Northwestern states like that. And so the mall managers would often reach out to me, I always tried to get back to them quickly, or at least respond that I got their, their message and what they were looking for. They were always very polite. I even got to meet a couple of them. But I always tried to give at least an appropriate amount of TLC to them because they were on the field. So back to 2013. The gentleman says, Do you remember Peggy? I said, of course. And he said, Well, I told Peggy, we need to find a lawyer who does this. And Peggy called her old boss from DDR who was still there, and I was still working on a property that she was at. And Peggy’s boss said, Do you remember Adam? And she said, Of course I remember it. And she said, Well, Adams in private practice now here’s his number. So over the years, I’ve been very, very blessed to to have clients and I’m always grateful that people are willing to, you know, pay me and work with me on their on their matters. I’ve been fortunate to get matters because I was skilled. I’ve been fortunate to get matters through a little bit of luck. I think this is the client that I got because I was a decent human being. So it’s one that I take a lot of pride in working on this particular
Ressa 29:39
product. Awesome. Well, very helpful, really cool story. Glad you had that serendipitous event. And if we could all land new business that way the world would be a better place, no matter what business you’re at. So kudos to you. Thank you pivoting a bit. So now you’re working for this owner and you are working on a Cash Wise deal. So why don’t you tell us about what happened here?
Hirschfeld 30:16
Sure. So one of the things that the owner’s name is Mark had talked about with me on our first phone call was that he wanted to replace all of his anchor tenants, which in 2013, seemed a little odd for anybody owning an indoor mall. And one of them was a Kmart, that operated at one end of the property. And in addition to any of the struggles that Kmart was having, at that time that, you know, still sort of continue the economics of that Kmart, you know, we’re not very good. They’d been on a lease from I think, 1977, or there abouts. And over time, it just wasn’t terrific economics, he didn’t feel that they were doing anything for his property. So he was looking to get rid of Kmart. And so they got an opportunity to bring in cash wise as a grocery store to take that space. It was going to require them to buy out Kmart. One of the interesting little pieces of the deal was that at the time, Sears hadn’t quite spun off heritage the way that they have. But I was doing a little bit of work for Sarah Taj. So I had to enlist a friend to represent the ownership group in their negotiations with Kmart. Because they had to be terminated in order to bring in the Cash Wise deal. So basically, I mean, just a backfill of a box that had an operating tenant that had term left to sort of try to reposition and redevelop the assets.
Ressa 31:58
Cash Wise is a grocery store where they’re going to take the entire building.
Hirschfeld 32:03
Correct. So Kmart was essentially on the, on the page. It’s the east side of the mall. They had an entrance into the mall, they were going to backfill the entire space, I don’t believe that they expanded any square footage, I think that they ultimately did some renovations to the dock area, because they needed different types of loading mechanics and what what Kmart had, but otherwise they were backfilling the entire space.
Ressa 32:31
So did you have to work on the termination as well as the Cash Wise new lease,
Hirschfeld 32:37
I had to sort of track what was going on with the Kmart termination. But given that, from a conflict of interest standpoint, I couldn’t represent on a matter adversity came on at the time. I like I said I had to enlist the help of a friend to do that. So basically, I knew what was going on. One of the challenges of the deal, however, was that the grocery store had a building permit contingency, which basically meant that if they could not get their permits to construct and operate the grocery store, they would have a right to terminate the lease. So in a perfect world, when you have a new lease with a contingency, backfilling an existing lease, where you have to terminate the operating party, you would set up the operating party’s termination agreement such that their lease didn’t terminate until you gave them notice that some other party, the other party had satisfied his contingency and give them some time to wind down. Kmart was not willing to do that. So we were going to have to go at risk of terminating that camera, at least with the understanding that it was very possible that the grocery store might not get their permits, and then might not be able to open and now you just removed an 80,000 square foot plus income paying 10.
Ressa 34:00
Well, I assumed there wasn’t a debt on the asset because if there was debt, I don’t think they would get lender approval to do that either.
Hirschfeld 34:07
No, no debt on the asset at the time that had any sort of a true mortgage, I think that they had some, some sort of a line with some operating capital as an owner, but no, no true mortgage, none of those lender type of issues because it would have been very challenging to figure out a solution. In that instance, I don’t even know that you could have offered additional security in whatever form to get a lender to hubless that
Ressa 34:34
type of transaction. So that’s definitely a tough, tough scenario. So going into the cashless size, any side. What was interesting about that deal that you know, and that made you think about all the leases, you worked on anything interesting in that negotiation or that deal that happened now, Cash Wise ended up in Dickinson, North Dakota.
Hirschfeld 34:57
So one of the things that was interesting is is it’s a mall building that they were backfilling into. And as a mall owner, and you have to be concerned sometimes about, I’ll say, the whole wing, and not just necessarily the anchor tenant. And so one of the very controversial things that we had to figure out how to deal with forcing them to keep an entrance
Ressa 35:23
into your entrances. Ah,
Hirschfeld 35:25
interesting, right? Because they wanted to, they wanted to just put up a, I’ll call it or what would have been a rear demising wall, on that whole backside of the mall. Their primary concerns, were operational logistics and security. Sure, because they were very worried that it would be easy for somebody to, you know, just take something and then run off into the mall. And there you go. So there was a lot of controversy and negotiation about requiring them to maintain an entrance onto the mall. And when they had to do so. And were there any instances where they could see operating that particular entrance and close it off. So that took a surprising or not so surprising, I guess, amount of time to work through with them. But that was one of the more challenging provisions I had to deal with in that deal. That despite all the other challenging provisions, I tend not to have to do in other grocery store deals. And Cash
Ressa 36:21
Wise, what happened if they didn’t get their permit? Right, because now you’ve terminated Kmart. They didn’t get their permit, what happens? What And were there any other governmental approvals that they would have had to get? Did you have to where you at entitlement risk and things like that?
Hirschfeld 36:37
Very good question. So we were not in any sort of entitlement risk. I think that from an operational perspective, perhaps the only permit that they needed, above and beyond whatever the zoning would be, would be permits to sell alcoholic beverages. And it never got very controversial. And I don’t recall whether that’s because it either there was a license available that they were able to purchase, or given their operating history in the jurisdiction. There are jurisdictions where that sort of a rubber stamp, There are jurisdictions like Montgomery County, Maryland, where it’s very difficult to get a different license. The first protection that we had, in case they were not able to get a permit was the so called takeover, right, was that they couldn’t get their permits, and we would have had a period of I think, 90 days in which to try to get the permits on their behalf. I think that the other thing that we were able to set into the lease to give ourselves a little protection was we excluded from the definition of capital P permits, for their purposes of terminating the lease, anything that they wanted or needed a variance for. So the dock modifications, we managed to get that to not be a permanent, so they couldn’t get the dock modified, they would have had to live with the existing dock. I think that the exterior signage that they wanted, was a little bit larger than when codeplug code allowed. So if they couldn’t get the bigger sign, they wouldn’t have had a right to terminate the lease. So we were able to do a few little things to mitigate our risk. And I think the other thing that was very helpful, unfortunately, on our side is, as you said, danger from an entitlement process. This was existing building, they weren’t going outside of the footprint. So even with all the things they were doing, as a retrofit, it was much more of a rubber stamp, quote unquote, kind of a permit than one with which there was going to be a lot of controversy. I think the last thing that actually really helped. This was a jurisdiction that wanted a grocery store. In the years since the JC Penney left that has been backfilled with a Dunham’s the jurisdiction also wanted a sporting goods store. They have a very ownership as a very good partnership with the local municipality to bring in desirable tenants to this property when they are able to get them to come.
Ressa 38:50
That’s always helpful that public private, you know, relationship is is vital to operating the property. The you know, even today, sometimes we’re nosy, even if you’re in the same footprint. And I guess your definition of what’s footprint, when you’re changing facades, it requires entitlements. So if it’s a noose, if you’re changing from sometimes you’re changing from like BestBuy to TJ Maxx and the facade is changing, it will require entitlements, but this didn’t trigger anything over in Dickinson, North Dakota.
Hirschfeld 39:27
Not that I recall. No, I don’t think that they were making drastic changes to the overall facade. I remember that their signage was somewhat controversial, not from an appearance or what it was standpoint, just from a making sure that what they wanted to do was code compliant on its face.
Ressa 39:45
Well, that’s good because if you eliminate all the things that needed to change the nor get a variance at the end of the day building permit is as of right, almost correct. At the end of the day, If you follow the code, there should be no reason you don’t get a building permit. So that’s a great, that’s, that’s good. Then you got some
you got you got that taken out of it. Were there any other lease provisions that were like, really like challenging, right? Whenever you’re doing like, what I call these multi party transactions, right, you got to do a Kmart termination, and then you got to do the deal with between the landlord and the tenant. Things get complicated. Anything else that got complicated here that might be helpful to the listeners, that one’s a key point where you mentioned that they were terminating Kmart without having a hard deal with the tenant, which is challenging.
Hirschfeld 40:49
Sure, so the other thing that we had to make sure of was that we got an opening covenant. Which is not necessarily despite the fact that most retailers, when they sign a lease, they do intend to and want to open a store, whether they will agree to do so on paper, and in a contract is a separate issue altogether. So we had to fight very, very hard, not only to get an opening covenant, but to get them to open as a grocery store. Because obviously, we were terminating the Kmart for the benefit of a grocery store, and needed to make sure that they ultimately had to open for business was the operating piece of it. I don’t know that we were as successful as per se, we certainly did get a landlord recapture, right, that in the event that the tenant was to cease operating. But we did ultimately in that deal under those circumstances at that time, get them to agree to an opening covenant, it was very important to have that. Because once we can get past the buying out a Kmart, and then, you know, dealing with the contingencies that the tenant had, assuming that they had satisfied those, it was very helpful and comforting for us to have that opening
Ressa 42:01
covenant. Totally. Yeah, you know, there’s, someone once told me the most important part or the lease for the landlord is that the tenant pays around. The second part is that they open and operate. But you mentioned opening covenant. Did they have an operating covenant?
Hirschfeld 42:15
No, they did not. We got a few recapture provisions into that lease. Given their general unwillingness to operate, obviously, the first of which was if they were to cease operating for a certain period of time, the landlord has the right to recapture the space. The other thing that we were able to get in was a right to recapture whether an intra corporate type of transaction or a third party assignment type transaction, if the use of this space was going to be changing from a grocery store. So if they were to bring us a third party asking me that was going to operate a pick your pick, you know, a business like a Best Buy. If the landlord so chose, it would have the right to take back that space.
Ressa 42:58
The opening covenant, you know, especially in turnkeys, definitely important no landlord wants to spend the amount of money it takes to take a Kmart turn in a grocery store, the tenant not opening. So that was great that you got that. That’s a key one. Are you seeing opening and operating covenants in our lives these days?
Hirschfeld 43:19
Very good question. I have clients that essentially insist on addressing at the LOI stage, the the sort of initial position is always that the tenant is going to open either honor before rent commencement, or with some number of days after rent commencement. And then whether there’s an operating covenant, whether it be a full, you know, continuous operations covenant or a limited one with reCAPTCHA rights. I have clients that absolutely insist on addressing it. I think it’s good practice to do so. I think that if you leave it silence, particular on a provision that’s that important, you’re you’re not taking on unnecessary risk, per se, but you’re certainly punting a fight down the road. And it’s something that if you address it, the LOI stages, as you said earlier, a lot of things that get taken care of at the LOI stage become easier to then have to not negotiate in the lease, because everybody can go back and go on say, here is what you agreed to do. So I think it’s very good practice to have your opening and operating covenant in any recapture rights addressed at the LOI stage.
Ressa 44:28
Anything else about this? This is a cool story, anything else about this deal that you think would be good for the listeners?
Hirschfeld 44:37
I think that one of the things that’s interesting and you touched on it with grocery stores in the old days and even now, so today, the ways in which they try to retain the site plan control, even if they are not operating a grocery store, when I was in big launch, they would go into some fair number of second generation spaces and sometimes they would find it challenging because a grocery store that had vacated and moves down the street still retained an exclusive to operate a grocery store in that shopping center, they didn’t have to operate, they didn’t have to stay, maybe the landlord didn’t have a recapture, right? Maybe they had some sort of, you know, so called radius restriction that kept their exclusive effect that that shopping center, tenants today sort of will try to do a little bit of the same thing. The exclusives for grocery stores, as you mentioned before, tend to still be very broad. They try to cover a wide swath of categories, above and beyond what you and I think of as groceries, and an operation that is above what you and I would think of when we think of we’re going to the grocery store. And so as a landlord attorney, one of the things you have to be looking out for is okay, when are they really a grocery store? And when are they not? And how does that impact all of the rights I may have in my lease that are tied to a grocery store? So if a tenant has to open as a grocery store, what does that mean? If they have an exclusive for a grocery store? What does that mean is to have the benefit of the excuse? They have to be a groceries? What does that mean? And those were some of the controversies that we dealt with, you know, in this lease where basically, you know, the first position is we want an exclusive for a grocery store in any business that sells any food or beverages for off premises consumption. Okay, well, so you’re a grocery store. But by that verbiage, I can’t do a lease to a restaurant. And by that verbiage, I probably can’t do a lease to any other operating retailer that has any sort of impulse buy section with their cash registers, because those are lined with candy and beverages and those types of things. So it’s that kind of stuff that you’re constantly having to think about. When you’re doing a deal, even if an LOI may say, you know, China has an exclusive for a grocery store. But what that says on that loi, it deals within a paragraph. And what it ends up looking like in that lease, it deals with it over a number of pages are often two different things.
Ressa 47:13
Totally heavily negotiated item these days, has been for a while. So no doubt they’re good, good context there. I think it’s good for the listeners to hear your perspective on that. Well, listen, I that was a cool story. And, you know, I think there’s a bunch of things that hit on there. One, I think it was good, how you landed the business. And if there’s a good story there, I think to just in dealing with the complexities of a grocery store in a mall setting. And then, you know, this was early on before any grocery stores went to a mall setting. So that was cool that the whole public partnership, and that that piece that I think was really helpful for people is, you know, them terminating Kmart without having a hard deal. Interesting. And we’ll stay there. So I really appreciate it. Adam, one last thing on your wish list. What is you know, you mentioned opening operating covenant, anything on your wish list that you wish you saw more than loi and wasn’t waiting to release to negotiate?
Hirschfeld 48:17
Um, I think that the other provision that I would say, sometimes gets left out that I’d like to see addressed in another life, they certainly on a larger deal would be assignment and subletting.
Ressa 48:29
My gut was gonna tell me for sure. The whole transfer provision provision is definitely unique, especially with the franchise driven concepts these days. Yeah. And then transfers and affiliates and all that stuff. So totally.
Hirschfeld 48:48
Yeah, there’s, there’s lots of things you have to be careful of. And the only other thing that I would say is, you know, because you mentioned the franchises. One of the things that sort of generally, almost seeing as a give, from time to time, from a limited perspective is certain transfers, like you said, certain assignments, maybe to affiliates, there are certain transactions that you as a landlord don’t really feel the need to get involved in or have a right to consent to because your operation is fundamentally staying the same both from an operating and a business and a financial perspective. But you do have to be careful with ello eyes with franchises in particular, using some of that boilerplate, because some of that boilerplate will allow a tenant to enter into a merger without landlord consent. Now if your tenant is a publicly traded company, or you know the operating arm of a large retailer with some substantial number of stores and some network that’s no problem, that’s not a transaction that you as a landlord want to get involved in. But for the franchisee that’s operating as a single purpose LLC, you know, pick your franchise, you know, Quiznos. If it’s operating as a Quiznos, you don’t really have a Quiznos behind it, per se. You have that franchisees Limited Liability Company So if you allow that tenant to merge, without your consent, the odds are fairly strong that they can do a one off transaction depending on how they structure it without you having any say in what happened to real estate.
Ressa 50:11
Great point. Well, listen, we’re onto the last section of this show. I know you listen called retail wisdom. And I’m just gonna get right with it. So you’re ready. Yep. Best piece of commercial real estate advice go.
Hirschfeld 50:29
Despite the irony of the fact that I’ve spent the better part of this time talking. The best real estate advice I got was shut up and listen.
Ressa 50:37
Good advice. Good advice. Extinct retailer, you wish would come back from the dead? That’s our second question. It’s a fan favorite.
Hirschfeld 50:48
So I have to ask a question back to you. When are we? I mean, I consider restaurants retail. are we considering restaurants for
Ressa 50:53
this for this question? Absolutely. Gonna go forward all these restaurants or retail.
Hirschfeld 50:59
Got it? Okay. No doubt, no doubt, no doubt hands down the cooker. I miss those biscuits. I miss. If you don’t if you don’t have a biscuit, you don’t have an opinion. Every one of my friends that listens to this will be glad I said that. Awesome.
Ressa 51:17
Very cool. Last question. I’m going to give you a product you tell me the retail price.
This product is currently out of stock. But I am on Walmart’s website. Purell advanced Instant Hand Sanitizer 12 ounce six pack. What does that retail for?
Hirschfeld 51:42
799 2499 Thank you
Ressa 51:46
for playing
Hirschfeld 51:47
Wow. Wow. You know, I was gonna say I’ve listened to this, as you mentioned, and usually people aren’t close. And usually you you are on, you know, looking at some pretty high end products and I was armed with the answer of a number that is probably higher than what I would be happy with if my wife purchased this. However, at this point, and on this day, I would not be angry at off my wife spend twice that for think a hand sanitizer. Fair enough. Good
Ressa 52:21
boy. All right. Well, listen, Adam, thanks for coming on. It was great perspective we got into some of the nitty gritty of leases and really appreciate it.
Hirschfeld 52:33
Thank you very much for having me. It was a pleasure. Awesome.
Ressa 52:41
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