Texas Real Estate Blog

Now Boarding-Airport Retail

July 7, 2011
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Obviously, with the real estate market in such great shape, real estate professionals have had to break out of their comfort zone and seek non-traditional sources of revenue. Since it’s summer time and many of you will be travelling on vacation, I thought I would share with you the nuances of leasing in the airport space. Most of the basics of down and dirty leasing are essentially the same as other areas but, of course, there are some aspects of the process that you need to be aware of when attempting to lease, or represent a tenant in leasing, an airport space. Personally, once I have parked, I enjoy the airport atmosphere. The buzz and constant activity actually can make you believe that we are in the middle of a vibrant economy. Plus, the retail areas of the major airports around the country have stepped up in class and quality considerably over the years. As such, I have to believe that there is ample opportunity to make a buck in this area. Attached is an article that takes you through the process and nuances of leasing retail in airports.SP-#3473498-v1-Retail_Leasing_at_Airports Even if you have absolutely no interest in this area you sure as heck can impress your family during one of your layovers of your vast knowledge of the process of how that airport Whataburger came to be!

All of you know by now, if you read my posts here or on LinkedIn, that I am a big fan of Dave Barry, a really funny columnist for the Miami Herald. I think he is bright and to the point on most subjects. However, in 2006, he wrote a piece on the upcoming NBA Championship matchup between Dallas and Miamihttp://www.miamiherald.com/2006/06/08/2275478/miami-wins-now-we-can-go-shopping.html. Frankly, I was really disappointed in his description/depiction of my beloved hometown of Dallas. As such, as one final jab at our friends in Miami and, in particular, Mr. Barry, I offer the following rebuttal to his column (you have to read it first or you will think I am just being a smart a—!) First, while Dave doesn’t  even know or care that Dallas is located in beautiful North Texas, that’s ok, because we generally think of Miami as somewhere close to  Cuba. Second, while our owner, Mark Cuban, can be a little eccentric, he is generally very generous and gracious (cue to trophy acceptance ceremony where he took a back seat to our original owner, Don Carter)  as opposed to the “King” who debases all of the “little people” (such as Miami fans and others who but tickets and merchandise to pay his bloated salary). Third, I agree that our airport is huge. In fact, when we refer to the Miami airport we call it Terminal “B”. Finally, it is gratifying to know that , arguably, the biggest choke in NBA history in 2006 has been far surpassed by the monumental, and all time biggest NBA, choke in 2011.  Ok, I vented (and I still love Dave Barry!)

I am headed off for vacation so my next post won’t be until the week after next. I can’t wait to awe my family with my intricate knowledge of airport retail—-yeah right.


Exhibit “C” Says What?

May 17, 2011
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Yes, I have heard this lament many times by unsuspecting contractors who agree to perform tenant improvements but fail to coordinate the terms of their construction agreement with the work letter. Oh, and yes, I have heard the same lament from landlords and tenants who failed to consult with the contractor before they signed the lease. As you can imagine, it raises some real interesting issues and conflicts; hence, my children are fed for yet another day. This is just one example of why I continually preach  about the complexity of all real estate transactions let alone those involving construction. In this scenario, either the landlord or the tenant has simply agreed,under the terms of the “work letter” (attached as a long forgotten addendum to the lease)  to take on the construction of the tenant’s leasehold improvements. Simple, right? Well, the problem is that neither the landlord or the tenant is going to perform the actual work. The party agreeing to perform the task is going to hire someone (the contractor) who actually knows how to construct something. Ergo, it makes perfect sense to let the contractor in on just what work , and under what terms and conditions, it is going to perform. Simple things like time of performance, price, scope, change orders and the like, are things the contractor may want to know about. You would be surprised how often we have to try and revise the work letter post execution of the lease. Depending on who has the leverage in the transaction makes for a lively discussion! So, this articleSP-#3396770-v1-COORDINATING_WORK_LETTERS_WITH_CONTRACTOR–… deals with the key provisions that landlords, tenants and contractors must address in the context of  tenant improvements. It gives a retail scenario as an example but it applies to every lease that has a work letter. Oh, did I mention that these mistakes are expensive?

Speaking of expensive–on this date in 1918, the US Postal Service issued it’s first “airmail stamps”. They came in 6,16 and 24 cent denominations. On the second day of the sale, a man by the name of Bill Robey bought a 100 sheet of the 24 cent variety and noticed, as he headed for the door, that the Biplane-Curtiss Jenny that was on each stamp was printed upside down. Robey knew he had a hot item and assumed hundreds of similar sheets would be shortly running off the presses. (In fact, the USPS caught the mistake and destroyed the faulty ones leaving Robey with the only sheet). He quickly sold his sheet to a stamp collector for $15,000 who had already pre-sold it to another stamp collector for $20,000. About 60 years later, one single stamp sold for $198,000 which would make Robey’s sheet worth $19.8 million. Even more interesting, when airmail service actually started, the inaugural flight featured a Curtiss Jenny Biplane with the same markings as the stamp. Shortly after take-off it crashed—-upside down.  Coincidence–I think not!

Leasing To A Franchise?

May 2, 2011

Clearly, franchises (especially nationally recognized ones) can be a huge asset to any development due to their ability to generate traffic, visibility and, hopefully, juicy percentage rents. However, if you have ever had the opportunity to work on a lease or development agreement with a franchisee or franchisor of a national powerhouse, you quickly realize that there are numerous issues (other than leverage) which are unique to this type of business and, if addressed correctly, will prove to be a benefit to both the landlord and tenant over the long haul. I think the most complex issue I ever addressed  was the unfortunate demise of the franchisee. This gets really ugly especially when the franchise is a good one with a stellar reputation but failed primarily due to the incompetency of the franchisee. The last thing the franchisor wants is a very visible and public closing which could be a publicity nightmare. I represented the developer in that case and fortunately I was lucky enough to have astute parties involved so, while it took some time to get a new franchisee on board, both the developer and the franchisor absorbed some of the costs to resolve the matter. They both took a long-term approach to the viability of the project and it worked out well. This is not always the case, so both parties need to address, at the outset, as many contingencies as possible to assure a favorable outcome. This articleSP-#3389981-v1-Leasing_to_Franchisees discusses several issues of importance to franchisees, franchisors and landlords. Surprisingly, it’s a short list, but an important one.

Speaking of franchisees—Normally a franchisee is an entrepreneur recently AWOL from the corporate rat race to seek his/her fortune in the “easy money” of the franchise world.  However, those of us who swim with this energetic and creative crowd, know all too well of the many pitfalls which often trap the unwary small business owner. As such, I share this great piece which I found this morning while scanning the news wires for all of the fantastic dirt on slime ball Bin Laden’s demise http://www.businessinsider.com/five-legal-traps-every-entrepreneur-should-avoid-2011-5?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29&utm_content=Google+Reader This is just a few of the many, many issues that must be resolved by a founder of a business, but I love the practical, common sense approach.

Don’t Fence Me In (Or Out)

March 21, 2011
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Whenever I represent a landlord or a tenant in a retail lease matter, I always come away with a better understanding of the “bottom line”, “end of the day”, “crux of the matter” perspective of each party in the transaction. In fact, while lease negotiations can be tedious and complex, the real fun comes into play when the parties get down to the “lick log” on what they really want and need for their respective operations. This always comes into play when we get past the mundane insurance and work letter provisions and launch right into exclusivity and radius clauses. These issues get very sticky because the parameters of these restrictions and covenants can, literally, make or break either party. For example, if a tenant is not protected by some form of exclusivity, it may very well find itself with a direct competitor in the center which would potentially dilute it’s customer base. On the other hand, if the landlord does not restrict the tenant from opening another operation within a certain radius of the center, it could risk the loss of valuable percentage rents or, worse yet, base rent it the tenant fails and opts to focus it’s efforts on the sister store.  This article Exclusive_Covenants_and_Radius_Clauses is a basic, but great summary, of the issues  landlords  and tenants must consider and address in this area. My point, at the beginning of this post, is  when we get to this part of the lease we really find out where the “rubber meets the road” because it is at this point we delve into the pure economics of the relationship and determine pretty quickly who has the leverage and who is just “blowing smoke”.  One of the best examples of the importance of these provisions has to be Subway. Subway just became the largest (in numbers of units) fast food chain in the world. http://online.wsj.com/article/SB10001424052748703386704576186432177464052.html Think about it. The next time you take your kids to a Subway, notice the make-up of the tenant mix in a center where a Subway is located. See many, or any, other sandwich shops? On the other hand, how far do you have to go to find another Subway if you don’t happen to like the decor of the one you are patronizing? See where I am going?  Therein lies the importance of these provisions. Eat fresh!!

Securing Lease Obligations-Double Edged Sword?

March 8, 2011
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I am acutely aware of the fact that any lease that can be inked in this economic climate is generally a huge deal and any attempt to shore up the lease with guaranties and other security measures is generally met with disdain assuming the tenant is in the catbird’s seat in the deal. However, this dilemma is a double-edged sword as I also know that requiring a tenant to provide additional security for a lease accomplishes two things. First, it certainly forces the tenant to become fully engaged in its business where it has risk and skin in the game and, second, it flushes out a lot of bad apples who simply want to take a flyer on the landlord’s property without the added incentive to perform. For example, one of the ways we, as attorneys, flush out serious clients is to simply ask for a retainer. The speed and willingness of the delivery (or lack thereof) of the retainer is a good indication of the credit worthiness of the new client. Clients who have balked at delivering retainers of any amount have generally treated payment of their legal bills the same way. As such, the concept also applies in a lease situation, especially where the landlord is forced to cough up funds for tenant improvements. So for your reading enjoyment, edification and as a sure cure for insomnia, following  is link to a well drafted article summarizing the various ways to secure the performance of a lease. Lease_Guaranties_and_Other_Techniques_ I think this is an excellent desk reference for any real estate professional who deals with leasing issues.

Now, speaking of swords in a historic sense, there once was a man named “Dionysius’ (let’s just call him “Dion”) who on, or about, this date in 385 BC  in Syracuse (Greece not NY) granted a famous wish. Apparently Dion was the all-knowing, all-seeing and all ruling tyrant of Syracuse. Dion had a servant named “Damocles” who continuously wore  him out about how lucky and privileged he was to live so regally. Well, after a few years of this incessant brown-nosing, Dion granted his servant a day of pampering. He was bathed, massaged, primped and preened for a full day with a massive banquet held in his honor at the end of the day. While he sat at the head of the table enjoying a bountiful feast, he noticed that none of his subjects would look him in the eye. All of a sudden, he looked over his head and there Dion had hung a massive razor-sharp sword which was dangling and swaying back and forth by a single horsehair. When Damocles tried to get up, Dion had him forcibly restrained and said,” My friend, Damocles how do you enjoy the role of tyrant?” Ergo, the phrase “Sword of Damocles” took a meaning that has lasted for over 2000 years. It actually has several lessons-don’t envy the other guy-death or anger may strike at any minute-and playing the tyrant is not really as rewarding as it may seem and may cost you friends.

While lease guaranties and the like may not rise to the level of a “Sword of Damocles”, I thought it was a pretty entertaining  story.

10 Key “Yawn” Insurance Questions For Leases (and other Contracts)

February 22, 2011
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I absolutely dread reading, and dealing with, the insurance provisions of leases and other contracts. My disdain for these provisions probably stems from the fact that I don’t understand them and have no standard by which to compare them to what is typically required or needed for the premises in question. However, I recently ran across an article that hits the high spots and gives good, practical and measurable ways to address the issues inherent in these provisions Insurance Basics for Landlords and Tenants As a practical matter, one of the first things I always do when reviewing a lease or other contract for a client (other than making them read the darn thing) is to copy the insurance section and have them forward that section to their own insurer for review and comment. Generally, their insurer will be able to shed some light on whether the provisions are reasonable, necessary and/or standard and, hopefully, offer a sensible and  economical solution for the client. In more complex real estate transactions such as those involving construction, I always lean on our construction/surety lawyers (and clients) for direction as these areas always seem to be in flux.

I can’t let this week go by without paying homage to “President’s Day”. I don’t care if you are politically liberal, conservative or somewhere in between  or otherwise, this is pretty funny3915_20110222_102410970


February 14, 2011
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A “Subordination, Non-Disturbance and Attornment Agreement” is an agreement that is executed between a lender, landlord and tenant as part of a lease transaction whereby, essentially, the tenant is protected from the termination of it’s lease upon a foreclosure of the lender’s lien (landlord’s loan). I address the SNDA in detail in my article found at SP-#3328973-v1-Visiting_and_Re-Visiting_Subordination__Non-Disturbance_and_Attornment_Agreements It’s an extremely important document because if the lease is subordinate (later in time) to the lender’s lien, a foreclosure will, in most states, extinguish the lease. While it’s always been an important document, it has received much more attention in our struggling real estate market due to the tenuous financial condition of many landlord’s. In fact, most leases simply require that the landlord deliver this agreement to the tenant at some point after execution of the lease. The problem with scenario is that this obligation is often an easily forgotten post closing item which does not raise its ugly head until there is a foreclosure of the tenant’s premises. In fact, I just finalized a lease transaction where we heavily  negotiated the SNDA because we were dealing with a Special Servicer.  Ergo– the landlord’s loan was in the process of re-structure and the potential for foreclosure in the near future was a real possibility. Best case is to get the SNDA executed and delivered by all three parties concurrently with the execution of the lease. That way everybody can go forward with warm and fuzzy feelings!

Speaking of warm and fuzzy feelings, today is a very special day in the hearts and wallets of every couple in love and CEO’s of greeting card companies and confectionery vendors (sorry for the image above–I could not resist!) The importance of this day, aka, “Saint Valentines Day” was hammered into my head over 20 years ago when, on the eve of a closing for one of my largest clients, I was forced to contact my bride and attempt to move our romantic dinner date to another night. She immediately informed me that I was to tell this “bell weather” client to go to “H-E double toothpicks”, because today was Valentine’s Day! Needless to say, I got the message.  Actually, V-Day was originally a religious holiday established by the Pope in 496 AD in honor of one or more Christian martyrs (Saint Valentine being the most notable). It was eventually deleted from the Roman calendar in 1969 by Pope Paul VI (unmarried of course) but remains a popular (to some) day on which lovers express their love for each other by presenting flowers, offering confectionery and sending greeting cards. Frankly, I celebrate V-day every day—just ask my wife!

Leases,Workletters and Tuesday Morning Quarterbacking

February 8, 2011
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Well, it’s Tuesday morning after Super Bowl Sunday and the news is filled with wonderful highlights from the big game.  However, who would have guessed that real estate issues would dominate the discussions. Yes, as fans and Cowboy haters all over the country blame and threaten Jerry for the ticket disaster, little does everyone know that the devil (no-not Jerry) is in the details (contracts and legal status) as opposed to the obvious fact that the stadium is owned by Jerry’s partnership. When you boil this down, I believe we will be focused on two sections of a lease which are commonly overlooked– the “alterations” paragraph and the “workletter” addendum.  It is my understanding from talking to lawyers close to the Cowboys that the parties in the Superbowl set up this way: Landlord: Cowboys (Jerry’s ownership partnership), Tenant: NFL,  and Licensees of Tenant: Fans. Based on what I can surmise from the serious crawfishing by the NFL, I am assuming that the NFL had control over the construction of those stands and simply realized way too late that, due to the enormity of the job and some unexpected weather problems, the record attendance was not going to happen. This high-profile screw up is going to put a magnifying glass on the interplay (or lack thereof) of the basic construction and alteration paragraphs of a lease. Normally, the Landlord will have complete discretion and consent over all alterations or construction done to its premises. However, even though it may have such consent, it may, nevertheless give to the Tenant control over the actual construction subject to the protection  and indemnification of the Landlord. The infamous “workletter” which is buried as an addendum to the Lease is of major importance here because it addresses the scope, authority and liability of the various parties (including the contractor) in connection with  the construction. I have always maintained that the most complex area of real estate law is in the construction area as, in this area, we have to delve into, and understand, other disciplines (engineers and architects) that are integral to the process. I am guessing from the way this is shaking out is that the NFL got Jerry’s consent (leave them there for next year!)to build the stands with the proper consent and indemnification back to Jerry. That’s just one simplistic reason the, the NFL, is taking the lead on resolving the issue.

Now, what about the poor fans?As you can tell they are not happy http://newsfeed.time.com/2011/02/08/super-bowl-ticket-scandal-are-fans-planning-a-suit/?hpt=T1 and the NFL seems to be cratering like a cheap Super Bowl tent http://www.cnn.com/2011/SPORT/football/02/08/super.bowl.seating/index.html?hpt=T1# My opinion here is that the NFL  (a) is trying to do the right thing for the fans and (b)is bracing itself for a huge image problem with the lockout on the horizon. Because, I believe the NFL has little exposure and, potentially, several defenses (force majeur??!)to the claims of these fans.  The next time you attend a sporting event, read the back of your ticket and see what legal status you hold under that agreement. Generally by purchase of the ticket, you are purchasing a revocable license to enter upon the premises of the owner of the property. Sounds kind of screwy doesn’t it? All along we thought we were buying the ticket to support our team when, in reality and legally, we are buying a ticket for the privilege of watching their team. Ugh–the truth hurts. As a “licensee” (quote-Black’s Law Dictionary)-we have the privilege to enter upon land arising from the permission or consent, express or implied, of the possessor of the land but we go on the land for our own purpose rather than any purpose or interest of the possessor”. Make sense? Yeah, I didn’t think so. The only duty the possessor (Jerry and the NFL) owe us is the duty of reasonable or due care. Ergo, the reason the NFL pulled the plug (with the help of the City of Arlington) on the stands is that their liability for an injury to someone (because they knew of the dangerous condition of the stands from the fire marshal and the contractor) was much higher than denying access. Of course, everything I have just expressed is purely my opinion based on a ton of assumed facts and without seeing any of the documentation on this event; however,  if I am a fan who got hosed on this deal I take my triple refund and tickets to next year’s bowl and run!!

Nevertheless, a big thanks to all Steelers and Packer Fans for making this a great event. I have been to several Cowboy/Steelers/Packer games (Remember SB XXX!) and can attest to the class and quality of the Green Bay and Steelers faithful. (sorry about the weather-we were just trying to make you feel at home). Also, much thanks to the Bowl Committee for their tireless work and the citizens of the Metroplex for their Texas hospitality. It was a great time and super experience.

Final thought—-see this situation where Jerry might have some exposure  http://superbowlblog.dallasnews.com/archives/2011/02/jerry-jones-facing-lawsuit-fro.html Yeah right-get in line!

    Steve Watten

    Real Estate News& Views

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