Making Sense of It All

November 15, 2016 — Having just witnessed one of the most important transitions in U.S. and world history with the 2016 Presidential election, and having just returned from Dallas and Fort Lauderdale where thousands of real estate professionals and I participated in the Urban Land Institute (ULI) Fall Meeting and the International Council of Shopping Centers (ICSC) Law Conference, I’m focused on making sense of it all.

My takeaway from the election results is that no matter what side of the aisle you’re on, this election is a call to action. Change is in the air, and each of us has a role to play.  

Shaping Change

This also applies to the real estate industry and the legal leasing process. Technology, the sharing economy and even the expanding legalization of marijuana are contributing to a dizzying evolution of residential, retail, industrial, and office spaces. Distinguishing factors between these property types are shifting and blurring.   
 
As a result, landlords, tenants (and their attorneys) need to consider and communicate about new ways to define and evaluate their long-term relationships and the properties that bring them together.
 
At the recent ICSC Law Conference, I spoke with the general counsel of a public REIT that owns regional malls throughout the country. He pointed out that retail landlords and tenants are missing the point when they value retail stores based on in-store sales, even if they expand what is considered an in-store sale to include online sales that touch the store (e.g., where merchandise ordered online is picked up at the store). 

Don't Miss the Point

The more important point is that to accurately measure the value of retail properties that may also serve as showrooms, warehouses, and fulfillment centers, the aggregate value of all of the store’s uses is a far better metric to use. The technical ramifications of using this broader metric to assess valuation must then be addressed during the legal leasing process.  
 
There’s no one right answer to these questions of first impression for those of us toiling away in the Black Box of the legal leasing process and the landlords and tenants we serve. But if we don’t start thinking like the change agents that we need to be, we'll be stuck in a status quo that doesn’t serve us or our clients, akin to the one that so many American voters strikingly rejected.