Real Estate Advisor Law Blog

Real Estate Advisor Law Blog

Street Food Gone Upscale

Posted in Leasing Issues, Retail Industry Issues

“Street Food” has generally referred to prepared food items ready for immediate consumption sold on the street or in a public space from a food cart, food truck or similar moveable station. The connotation was cheaper fast food.

Today, “street food” is a unique, trendy selling point. There is Piada Italian Street Food that brands its entire restaurant chain this way. It’s the same with Tortilla Mexican Street Food in Columbus, Ohio. At Blue Agave in Springdale, Ohio, a local Mexican Restaurant that I frequent, they have Street Tacos on the menu. Quan Hapa in Over-the-Rhine in Cincinnati advertises itself as Asian Street Food. The whole notion of street food has changed to a more favorable connotation. It is nostalgic, bringing together the idea of unique, freshly-cooked food served in a social setting.

Fast food too has evolved with the idea of “fast casual”. This is a whole new category between fast food and casual dining. It seems “fast food” still has a poor connotation for quality, making it appear that the move toward “street food” or “fast casual” may just be a way to avoid being labelled “fast food”. Whatever the ‘label’, I have to say I love Piada, Tortillas, Blue Agave, Quan Hapa, and eating at food trucks. But I also love The Waffle House, so maybe you have to consider the source.

‘Lease’ Vegas

Posted in Leasing Issues, Retail Industry Issues

World Famous Las Vegas Nevada. Vegas Strip Entrance Sign in 80s Vintage Color Grading. United States of America.

I just returned from the National Restaurant Association Financial Officers and Tax Executives Conference in Las Vegas. I participated on a Real Estate Leasing Trends panel with Adam Schwegman, head of the eat/drink department of General Growth Properties and George Galloway of Next Realty Mid-Atlantic, with Ryan Cupersmith of Ernst & Young as our moderator. While there, I was able to soak in some knowledge myself. Here are some of the highlights of what I learned:

  1. Restaurants may be the new anchor in retail developments. A center has to provide an “experience” to motivate consumers to shop at the center as opposed to sitting home and buying over the internet. Restaurants have become a great way to create an experience and draw customers in.
  1. Restaurants are immune to internet competition. Last time I checked, you can’t buy a prepared meal over the internet that comes with a server and clean-up crew, so restaurants appear to be safe from internet competition, at least for now.
  1. GGP has a separate eat/drink department dedicated to restaurants. As head of that department, you would have to spend a lot of time trying new restaurants, right? Now that sounds like an ideal job.
  1. The mobile food app is the new critical feature for the fast casual sector.
  1. While most people agree that there is simply too much retail space, it may be more accurate to say there is too much antiquated retail space.
  1. The new accounting guidelines regarding capitalized vs. operating leases will not have any impact on most retail tenants.
  1. There’s a lot of great restaurants in Las Vegas. To confirm this, I ate at the Hot & Juicy Crawfish The hot & juicy sauce on my shrimp dish was unbelievably good and addictive. Additionally I had tremendous sushi at the Aria.
  1. Many tenants are paying too much for their legal representation on leases. Several people in the audience seemed to like the fixed-fee arrangements we provide, and the other tips I shared on how tenants can reduce their legal spend on leases were well-received.

If you would like to know more, give me a call and we can grab lunch. I know this great shopping center that has a wonderful restaurant right in the center of the action.

Ulmer Client, Taco Bell, Opens Cantina in Downtown Cleveland

Posted in Development

It has an urban, industrial feel. It has a live DJ. It has a festive atmosphere. It has a patio. And, in addition, to the tacos, gorditas, crunch wraps and chulapas that you’ve come to love and expect, it has beer!Taco Bell Cantina

It’s the new Taco Bell Cantina which opened today at 200 Euclid Avenue on Public Square in downtown Cleveland. Lines stretched out the door at opening time today but service was provided smoothly and quickly by the friendly and outgoing employees.

Situated in the long vacant Cadillac Ranch space in the old May Company building, Cleveland’s Taco Bell Cantina joins other Cantina restaurants operated by Taco Bell in San Francisco, Austin, Chicago and on the Las Vegas strip.

The first Taco Bell Cantina opened in Chicago’s Wicker Park Neighborhood in September 2015. Less than a dozen currently exist and only five other Taco Bell Cantinas serve alcohol.

Draft beers offered at the Cleveland location include Dos Equis, Miller Lite and a local microbrew of Strongsville, Ohio based Beer Kettle. In addition to the beer choices, Taco Bell Cantina offers “Twisted Freezes” – an alcoholic “slushy” beverage in a variety of flavors and mixes.

The new Taco Bell Cantina is a welcome addition to the quick service restaurant scene downtown. Congrats to our clients, Taco Bell and Yum! Brands, Inc., on a successful Cleveland opening.

A Restaurant Lease is a Unique Dish

Posted in Leasing Issues

I have previously commented about the similarity in service between a restaurant and law firm (see prior blog). One area where restaurants differ from other businesses is the issues presented in a retail lease.

For Lease Sign in window

A restaurant lease involves unique issues which must/should be dealt with, some more monetarily significant than others. But don’t underestimate the annoyance factor. If any of these issues are not dealt with appropriately, you can bet someone will be more than a little annoyed.

  1. Impact Fees – Because restaurants are typically big water consumers, new build locations may charge a significant tap-in fee. In some cases, there may be various impact fees. Depending on leverage, a restaurant may be able to get the landlord to pay this as part of its development costs. But even if the landlord will not pay the fee, the restaurant needs to know the exact amount of the fee so that it can correctly prepare its budget.
  1. Trash Removal – There are many different ways a landlord can charge for trash removal. Does the restaurant have its own dedicated dumpster? Does the landlord mark up the bill? Is there a choice on who to use as the hauler? I have heard of landlords going to a weight-based system where a tenant gets billed for actual disposal, but have not actually seen one in place. In any event, these details need to be determined before the lease is signed.
  1. Grease Removal – Similar to trash removal, the tenant needs to understand whether it will have a shared system or its own dedicated system, and who is responsible to install it.
  1. Liquor License – The availability of liquor licenses can vary greatly by municipality. A restaurant serving alcohol may need a contingency, but needs to fully understand the availability, time to obtain, cost and other terms prior to lease execution.
  1. Operating Covenant – Many shopping center leases require the tenant to be open during “normal shopping center hours”. However, a restaurant may have its own unique opening hours. For instance, a shopping center may open at 10:00 AM but the restaurant does not open until 11:30 AM. Also, a restaurant tenant should not be penalized if the GM decides to close early one night, or if he or she oversleeps and opens late one day. Additionally, a restaurant may not want to be open during special extended holiday hours. These things happen – the lease should address them.
  1. Opening – Most leases provide that the tenant will begin paying rent when the restaurant opens. Many restaurants have a “pre-opening” where they do test runs and invite family and friends. The lease should be clear that such a pre-opening does not trigger rent commencement.
  1. Patios – The lease should specifically address maintenance of any patio, allow for background music, and specify that the tenant does not pay extra rent for the patio. I have seen instances where a landlord tries to terminate a tenant’s use of a patio without terminating the lease if the tenant fails to maintain the patio. The tenant should never agree to this. A landlord should not be able to take away certain rights while requiring the tenant to continue to be liable for all obligations.
  1. Use Clause – A successful restaurant changes its menu over time to keep it fresh. The lease must allow the tenant to evolve over time so long as it’s not breaching another tenant’s exclusive.
  1. Odor – A restaurant is going to give off some odor (hopefully a pleasant one!). The lease can not prohibit any odor whatsoever. The tenant should be clear from the beginning on whether a scrubber will be required. This can be a large expense which, if unbudgeted, could be a very unpleasant surprise.
  1. Pest Control – A landlord will typically be responsible in a shopping center environment. But the particularities of the site and other tenants may require a tenant to participate or even be responsible. This needs to be clearly spelled out in the lease.
  1. Exclusives – A restaurant is one area where an exclusive is particularly necessary and appropriate. The tenant should get liquidated damages and, if it agrees to a rogue tenant exception, should eliminate any fish or cut bait clause.
  1. Standard Clauses – Many leases contain standard clauses that simply do not apply and should be deleted. For instance, the clause that says a tenant should do nothing “immoral” in the space – is the sale of alcohol immoral? Or what about the clause that says the tenant is responsible for any increased insurance cost due its use? Insurance for a restaurant will undoubtedly cost more than for a greeting card store, but does that mean a restaurant tenant pays more even though it is only conducting its permitted use?

I used to say that before anyone should be allowed to eat at a restaurant, they should be required to work at one. The same thing may be true for leases: before anyone should be allowed to negotiate a restaurant lease, they should be required to work in a restaurant. If you buy me lunch, I will be happy to elaborate on any of these issues, as long as I get to pick the restaurant.

All I Really Need to Know About Client Service I Learned in a Restaurant

Posted in Leasing Issues

Scott KadishI am a commercial leasing attorney at a large firm. I have developed a decent stable of loyal clients, but not because I am the smartest attorney in the world. I like to think I’m smart, but I would be less than honest if I said that my success is due to being the smartest guy in the room. No, I believe my success is attributable to my client service. I know I have done my job when a client asks if they are my only client. So what is good service? It is not merely returning phone calls or emails. It is going above and beyond expectations. And who is the client? It should not just be the ultimate consumer, but everyone you work with and for. So it is not just the CEO of the company for whom you are providing services, it is the secretary or administrative assistant at the company, it is every other employee at that company with whom you may interact, and it is your superiors at your own company.

I waited tables to help pay for college. As a waiter, my income was 100% dependent on providing good service. And that meant not just bringing the meal, but like an attorney going above and beyond expectations. In many ways, everything I really need to know about client service I learned from being a waiter.

  1. Be present and alert. If a customer needs something, do it before they have to ask.
  2. Be timely. Never make a customer wait. Get them what they want quicker than they expect. Every customer should feel as though they are the only table you have.
  3. Be pleasant. Your attitude creates the customer’s experience. Nobody wants to deal with a grouch. And the biggest tips come from the customer who is demanding and unpleasant. If you can maintain a pleasant disposition and positive attitude, that customer may end up being your most satisfied loyal customer.
  4. Be deferential. Never talk down to a customer; make the customer feel good about themselves. Do not assume the customer can’t afford or appreciate your service. You never really know the opportunity presented. Being snobby though is one sure way to ensure you will never find out.
  5. Be neat. Nobody wants to be served by or interact with someone with bad hygiene.
  6. Be accountable. If a customer complains, say you’re sorry and fix it. Even when the complaint is unjustified. The customer is always right.

CALL TO ACTION!

Posted in Legislative Update, Tax Credit Issues

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I just thought everyone should know that the federal historic tax credits are in clear jeopardy of being repealed as part of the Trump administration’s approach to tax reform policy. Speaker of the House Paul Ryan’s “Better Way Blueprint,” which specifically repeals the historic tax credits is currently in the House Ways and Means committee for consideration.

If you are reading this blog, you are probably a supporter of the historic tax credit. As a refresher, here are just a few reminders of the positive aspects of historic tax credits many developers and neighborhoods stand to lose out on if the credits are eliminated under new tax policy:

  1. Historic preservation is key to urban revitalization and Cleveland is a prime example of that.
  2. It is a huge job creator; nationally it has created 2.3 million jobs.
  3. It improves the housing stock in much needed neighborhoods.
  4. It pays for itself. Of the 23.1 billion dollars in credits there have been 28.1 billion dollars in tax revenue created.

If you want to take up this call to action to protect the historic tax credit, the House Ways and Means committee is currently the author of the tax reform bill. There are 2 Ohioans on this committee, Pat Tiberi and Jim Renacci. Now is the time to reach out to them and tell them about specific projects that have been completed or are in the pipeline of which you are aware. Let them know the importance of saving historic buildings. Specifically ask them to support the Historic Tax Credit Improvement Bill (HTCIA). Their contact information is as follows:

Pat Tiberi – OH-2 – Whitney Daffner – whitney.daffner@mail.house.gov – (202) 225-5355
Jim Renacci – OH-16 – Randy Herndon – randy.herndon@mail.house.gov – (202) 225-3876

If the historic tax credit is repealed in the Houses’ version of the tax reform bill, then the bill goes to the Senate finance committee for review and approval and there are two Ohioans on that committee as well, Rob Portman and Sherrod Brown. If you have a relationship, reach out to them.

Rob Portman
(202) 224-3353

Jim Renacci
(202) 224-2315

A Lesson in Ground Leasing

Posted in Leasing Issues

Lovett_43_background_RGBSo I don’t know about you, but every time I turn on NPR lately there is some discussion about President Trump’s conflict of interest because of his Washington D.C. Hotel built in the former U.S. Post Office with a ground lease from the GSA. For those of you who do not spend your days analyzing ground leases, I thought it might be helpful to know what they are and why anyone would want one.

In short, ground leases are a method of transferring most of a property owner’s interest in a piece of real estate to a tenant while allowing the property owner to retain a residual interest, and therefore some control, in the real estate. Ground leases typically have lengthy terms (75-99 years) and often include renewal options.

With a ground lease, the real estate owner gets a steady stream of income from the lease payments, which are usually based upon the value of the real estate plus interest amortized over the term of the lease. If the tenant defaults, the landlord gets the property back (usually after very generous cure periods). At the end of the term of the lease, the real estate and the improvements go back to the property owner. There are often covenants in the lease that require the developer/tenant to complete the intended project.

The advantage of a ground lease to the developer/tenant is that they “pay for” the land over the term of the lease rather than up front. The tenant ends up with all other ownership rights and obligations for the term of the lease. Sometimes, as I imagine is the case in President Trump’s deal with the GSA, it may be the only way that the developer can have access to the real estate. The GSA may have to go through a process to determine that it will never need this real estate in the future.  Once the GSA determines that it does not need the real estate, the GSA would then need to take competitive bids on the sale. This process would make it difficult to strike a deal with any one particular developer.

I hope you have enjoyed your ground lease lesson for the day….

Change

Posted in Leasing Issues

I’ve been thinking a lot about that word lately. Change. I get it that change is constant and to be successful you need to embrace change. That doesn’t mean we should just accept changes that are bad. No, I think it means that we need to accept that change is inevitable and be ready to respond to change with a positive attitude, which may include working in opposition to changes that are perceived as bad or negative and putting yourself in position to capitalize when that negative change has run its course and dissipated.

Introspectively, Winston Churchill said, “To improve is to change; to be perfect is to change often.” I have recently made a big change in my professional life. I was elected to be Managing Partner of Ulmer & Berne and so a good portion of each day now involves attending to the duties of a Managing Partner instead of drafting and negotiating retail leases. I still plan to devote a significant amount of time to my leasing activities, but clearly my job description has changed. Unfortunately, being Managing Partner reminds me every day just how imperfect I am.

The business of law firms is clearly changing. There is increased competition for good work. There is pressure to keep rates down. Technology has increased the pressure to work 24/7 and respond immediately. At the same time, professionals want more time away from work. No self- respecting attorney can easily embrace these developments, but we all need to adopt strategies to address these issues with a positive attitude.  At Ulmer, these strategies include: (1) differentiating ourselves through fanatical, user friendly client service; (2) focusing on project management as a way to economically staff assignments; (3) maintaining a collegial, supportive work environment free from internal competition to maximize the benefits of a team approach; (4) pushing management down to the practice group level where those on the front line can quickly and effectively manage our practice; (5) promoting diversity in the firm to create a better work environment and appeal to a wider array of clients; and (6) implementing a growth strategy to add similarly minded folks.

To be sure, more change is coming. Multi-disciplinary firms, technology changes and legal regulation changes will all change how we will need to do business. By retaining our culture and front-line management, we should be positioned to respond accordingly with a positive attitude.

On a personal level, I need to improve (i.e., change). I need to listen better – to pay more attention to what others are saying (and not day dreaming about the Red Sox’ need for better starting pitching) and not interrupt others because I think I know better (you know you have issues with that – and all attorneys do to one degree or another – when a partner says you are doing a good job but you really need to stop cutting everyone off). Someone once said “envision the period,” meaning wait until they have finished what they are saying before you respond. I need to be clearer in my communications and not just assume everyone understands my short-handed jargon. I need to exude a positive attitude even if my dog ran away, my car broke down, or a tree fell on my house. I need to be able to admit a mistake and be able to change my mind.  I used to think if you don’t agree with me it’s just because you haven’t been listening close enough.  I have repeatedly learned that I am not the smartest one in the room – we have some really good attorneys here, but I am pretty good at drinking beer – no that’s a song that’s stuck in my head, sorry – I am pretty good at bringing people together. And I think I can capitalize on that ability if I listen better and understand my partners’ needs, attitudes, and abilities.

Anyway, all I can control is my attitude and effort. And I’m going to give it my best shot.

 

That’s Funny – I Don’t Care Who You Are

Posted in Leasing Issues

Allen Klein said that humor cannot change a situation, but it can change your attitude about it.

I am working on a lease where I represent a restaurant tenant against a well-known, national REIT landlord. Needless to say, the landlord’s form lease is crazy-long and overly one sided, and the landlord is not very flexible. Faced with that situation, it is easy to develop a bad attitude.  So when I got the landlord’s response to my comments (all of my comments were of course absolutely necessary just to get the lease in a reasonably fair condition), or should I say rejection of my comments, I started getting irritable.

But then halfway through the lease, I saw the landlord’s attorney had inserted a provision requiring our client to provide free wine to the landlord’s attorney as a way to resolve a certain issue. I laughed out loud and some of my irritation with the attorney went away. Then, in response to my question as to how trash is handled at this center, the attorney said, “with gloves – it’s kind of gross.” That too made me laugh out loud. I started thinking I might even like this attorney.

In all seriousness, his humor did change my attitude. I saw where I might have been disagreeable merely because of the situation, as opposed to focusing on the actual substantive issue and its relative importance to our client. The fact is that the attorney’s humor made me more receptive to his position. And it made a difficult negotiation more enjoyable.

I like to joke, but my family tells me I have a propensity for telling bad jokes and a bad joke is worse than no joke. In fact, I’m not even kidding when I tell you that when he was 11 years old my oldest son (he’s now 28) wrote a school project describing me and said I will joke around or be serious, and if I tell a joke it might even be a funny joke. Now that’s funny!

A New Cycle?

Posted in Leasing Issues

It seems like lease issues come in cycles: seemingly out of nowhere, a particular issue that may have never been a concern on previous leases arises suddenly only to disappear once again. Is the rise to prominence of a certain issue indicative of something larger at play? Here are the issues I seem to be facing every day now.

Even small (in terms of leasable area) tenants receiving large allowances feel the need for an SNDA. These same tenants insist on every right in the lease carrying over to the lender. Lenders refuse to come out of pocket, even to allow the tenant to offset rent if it fails to receive the allowance (although the tenant must of course still pay full rent). Landlords want the tenant to pay the fee charged by the lender to execute the SNDA.

Landlords want the right to recapture space from a tenant who closes without reimbursing the tenant for any unamortized costs, even when the tenant has no operating covenant.

Tenants who pay percentage rent still want the right to go dark.

Landlords who breach a tenant’s exclusive on purpose want a fish or cut bait clause.

Landlords want the tenant to pay for the landlord’s loss of rent insurance, but do not want to allow the tenant to abate rent after a casualty.

Tenants want shell entities to be the tenant, want limited guarantees, and want to be released on assignment.

Landlords agree to a build-out period, but insist on having it start on the day of delivery even if the tenant has been unable to get a building permit.

Landlords want the right to charge an administrative fee on all CAM, even “non-controllable” items, in addition to a management fee.

Landlords say the covenant of quiet enjoyment is subject to mortgages and other encumbrances.

I will be glad when this cycle ends and we can go back to arguing over normal co-tenancy provisions. (Did I really just say that?)

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