The Sinreich Group

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The Sinreich Group is a New York City based real estate law firm that represents public and private sector clients in connection with the acquisition, development, leasing, financing, repositioning and disposition of real estate throughout the country.

Filtering by Category: Retail Insights

Rags to Riches?

Earlier this year, I visited Asbury Park, New Jersey, which, like Detroit, suffered a prolonged decline after enjoying a storied past. In Asbury's case, its good fortune was fueled by a seaside location and thriving music scene. Race riots, suburbanization, and competition from other shore towns ultimately drove 30+% of its population below the poverty line, and by 2000 most downtown properties were vacant and boarded up.

 Historic music venue a block from the boardwalk

Historic music venue a block from the boardwalk

The Revitalization Challenge

Fast forward to today and Asbury Park is in the midst of a dramatic redevelopment, including its mile-long boardwalk area and adjacent 30+ acres. While the revitalization of Asbury Park and Detroit differ in scale, there are many similarities. These include massive infusions of money, talent, and the determination needed for sustained success, as well as a dizzying, stubborn risk of failure.

Asbury's ascent began in 2002, when the city approved a redevelopment plan, and Asbury Partners (later acquired by iStar) was named Master Developer. In 2007, Madison Marquette entered the market to develop the boardwalk and adjacent venues into a retail/entertainment nexus.

Preserving a Rich Heritage

The redevelopment plan seeks to preserve Asbury Park’s cultural richness, evident in the re-purposing of Asbury’s iconic boardwalk venues such as the Paramount Theater, the Convention Center and the rotunda shaped Howard Johnson’s beachfront restaurant. Interestingly, Madison Marquette has opted not to lease or license these venues to third party operators. Instead, it has maintained tight control over programming designed to attract a diverse audience by partnering with top tier sources of high-quality entertainment, including the New Jersey Performing Arts Center (NJPAC) and Live Nation.

Looking Ahead

iStar has been developing new residential and hospitality projects in recent years, with its sights now firmly set on completing the Asbury Ocean Club, a 17 story mixed use building that will include residential condominiums, a luxury boutique hotel and 23,000 sq. ft. of retail space. With prices for one bedroom units starting at $900,000, brisk sales of Ocean Club apartments would be a strong indicator that Asbury Park’s fortunes are changing.

Time will tell whether Madison Marquette and iStar’s vision for Asbury Park will become a reality, and we applaud both companies for taking it on.

Reading Tea Leaves

As a strong 2017 accelerates to a close, we've picked our heads up for a moment to look ahead. Here's what we see in two of the real estate sectors that we're active in, based on our own book of business, industry forecasts, and the collective expertise of our clients and colleagues.  



In spite of what seems to be the prevailing wisdom, brick and mortar retail is not dead. Our retail leasing practice continues from coast-to-coast, with fast-casual restaurants, fitness concepts and off-price stores consuming most of our leasing time.  

Cushman & Wakefield's third quarter Retail MarketBeat reports that sales were up $121.6B thru July 2017, with projections of 2017 sales growth of 3.9%. Notwithstanding these positive data points, retail is undergoing a fundamental transformation in response to evolving shopping habits and preferences, and the increasing importance of e-commerce.  

For 2018, we project continued disruption and opportunity in the retail sector. Strong locations and retailers that figure out how to remain relevant will remain buoyant. Secondary and tertiary locations will eventually have to consider adaptive re-use options. Retailers who can't keep up will have to reinvent themselves. Flexibility on everyone's part is going to be the name of the game. 


The recent $850M purchase by WeWork of the iconic Fifth Avenue Lord & Taylor building is a great example of value creation through adaptive re-use, as well as a testament to the ongoing strength of the sharing economy in the office sector. As a result of the co-working trend, we're seeing new office concepts that combine varying elements of traditional and collective work spaces.  

One of our clients recently chose to lease an office in a particular midtown Manhattan building because the short term (three vs five to ten years), build-to-suit lease included the right to shared amenities on a separately dedicated floor, including a kitchen fully stocked with snacks and beverages, a fitness center, conference rooms, and mail room. 

We agree with the 2018 Emerging Trends Report by ULI and Price Waterhouse, that owners of office space will be rewarded for providing offices that are tailored to satisfy the latest iterations of workplace trends, combining, as fashion dictates, different elements of co-working spaces, traditional offices, hospitality concepts, and green design features.  

Our Outlook

Overall for 2018, we anticipate continued positive leasing velocity in the office sector, and pockets of leasing velocity in the retail sector. Mark Zandi, Chief Economist of Moody's, in a recent presentation to the NY real estate industry shared our optimism. Based on strong fundamentals, he predicts continued economic growth for the next two to three years.

In the Weed(s) Part 2

In September 2015, when we published our first In the Weed(s) post about cannabis-related real estate, medical marijuana had been legalized in 10 states (plus D.C.), five of which had also legalized it for recreational use. Fast forward to today, and 29 states (plus D.C.) have enacted laws legalizing marijuana.

 States that have legalized some form of marijuana use. Source:

States that have legalized some form of marijuana use. Source:

In each of these jurisdictions, real estate is a necessary common denominator for cannabis cultivation, transformation and retail distribution, currently a $7B industry. Bloomberg Markets estimates that number will be a $50B by 2026.

Beware of the Feds

If you're thinking this would be a great value creation opportunity for your property, keep in mind what hasn't changed since 2015: the use, possession, cultivation and transportation of marijuana is illegal under federal law, along with a wide range of related activities, including knowingly leasing, renting, maintaining, managing or controlling a place where marijuana is grown, transformed or sold.

What Has Changed

Notwithstanding the lingering risk of federal criminal prosecution, the shield of favorable state laws has enabled cannabis-related facilities to emerge from the shadows. Industrial premises used for indoor cultivation and transformation are seemingly as 'state-of-the art' as those found in the more traditional, similarly highly regulated pharma industry. Retail dispensaries are no longer relegated to dilapidated buildings in fringe locations.

Minimize Risk

To strike the right balance between the enormous opportunities this industry represents for landlords and tenants and the risks of owning, leasing and occupying cannabis-related real estate, a collaborative landlord/tenant approach to strict regulatory compliance and conflicting real estate needs is key. That way, neither party gets stuck with the whole bill but none of the benefits. 

Over Our Heads

As we move into the fall season of a year studded by hard-to-conceive-of events, capped (so far) by the horrific devastation of Hurricanes Harvey and Irma, we are struck by two recent hard-to-believe innovations that could further revolutionize retail and industrial real estate.


Over Our Heads

Both Amazon and Walmart are working on creating alternatives to traditional warehouses. Amazon was recently awarded a patent for "airborne fulfillment centers" or AFCs that would float at an altitude of 45,000 feet, stocked with products waiting to be delivered. Within moments after an order is placed, drones housed in these AFCs would deliver the goods, requiring little power as they glide down to reach their destinations.

Another use envisioned for Amazon's AFCs is quasi-retail in nature. Deployed at major sporting events, Amazon AFCs would launch drones to deliver food and merchandise to thousands of fans at a moment's notice.

Walmart is not far behind, having filed a patent application in August for a flying warehouse that would hover at much lower altitudes of between 500 and 1,000 feet to similarly make deliveries via drones.
Both Amazon and Walmart's flying, movable warehouses would eliminate the challenges of traffic and driving distances, reduce delivery costs and serve wider distribution areas as they move from one location to another based on real time orders.

Under Water

Amazon has not stopped there. They recently filed a patent application for an under water storage facility.  Their aquatic product-filled warehouses would be laden with water tight containers outfitted with cartridges that mimic the swim bladders of fish to control depth. To retrieve a container, acoustic waves would be sent to activate the cartridge necessary to send a particular package to the surface. According to Amazon, these underwater warehouses could stack products in endless piles of boxes with no need for humans or robots to move them around, thus eliminating the inherent inefficiencies of the pathways and shelving needed in traditional land based warehouses. 

A Brave New World

Healthcare is on everyone’s mind these days, as the Trump administration promises (or threatens, depending on your perspective) to repeal and replace the Affordable Care Act. With or without the Act, the healthcare landscape will continue to evolve, and it's altogether likely that today’s urgent care center, which did not exist yesterday, will be unrecognizable tomorrow. 

Healthcare Leases: A Moving Target

For those of us tasked with leasing commercial properties for healthcare uses, planning for these changes is comparable to the future-proofing challenges we face as a result of the rapid changes the retail, office, industrial, residential and hospitality property sectors are undergoing.
In addition to striking the right balance between flexibility and certainty so landlords and tenants can respond to the ever-changing healthcare landscape, here are some basic safeguards that are particular to healthcare leases every real estate professional should keep in mind.

Safeguard Your Leases

First, beware of the stark reality that healthcare properties are subject to federal and state laws (some of which are often referred to as Stark Laws). These may impose strict liability and criminal penalties for, among other things, financial arrangements that would otherwise be benign, including below market rents and percentage rent.

Second, healthcare properties give rise to operational risks and responsibilities that must be allocated ahead of time between landlord and tenant so the wrong party doesn't end up on the right side of liability. Heavy water use, as can be expected in ambulatory surgical centers, can give lead to mold, which goes hand in hand with challenging remediation and disclosure requirements.  Unsuspecting landlords entering a healthcare property to perform repairs could find themselves inadvertently guilty of violating patient privacy rights if those rights haven't been appropriately safeguarded by the tenant.

Beware of Certain Uses

Third, specific healthcare uses pose specific risks. Leasing space to a medical marijuana dispensary is a violation of Federal drug laws irrespective of state laws that sanction them.  Women’s health centers may become targets of protests and violence, putting other tenants and occupants at risk.
Finally, because healthcare uses don’t fit neatly into typical retail, office, or residential land use categories, a landlord may not have the right to enter into a healthcare lease. Zoning rules and private contractual restrictions can get in the way.


Making Sense of It All

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 take away 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 be considering and communicating 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 a status quo that doesn’t serve us or our clients, akin to the one that so many American voters strikingly rejected. 

Up in the Air

As the leaves swirl around us and our pace quickens, year-end goals come into sharper focus and I marvel at how we keep so many balls in the air. Speaking of what’s up in the air, there is a rapidly-emerging, technologically-enabled species of airborne vehicles that some have referred to as the epicenter of a revolution, and that everyone in the real estate industry would be well served to get up to speed on.  

I am referring to unmanned aircraft systems, or drones, which range from toys to tools of industry and war, and are poised to reshape how things in the real estate industry get done. Tasks such as property and construction inspections, evaluation of emergencies and other dangerous situations, and deliveries of merchandise, supplies and construction materials are all about to become safer and more efficient as a result.  

To illustrate the potential for widespread commercial drone usage, consider that Walmart, the largest brick and mortar retailer in the world, recently applied to federal regulators for permission to test drones so that it can warehouse, transport and deliver goods more efficiently. Amazon, which recently opened its first brick and mortar bookstore in Seattle, has been testing commercial drone usage since 2013 and has one of the 2000+ federal permits issued since 2012.

The real estate-related accommodations that Walmart and others will require as commercial drone usage becomes widespread will create significant competitive advantages for those who are positioned to benefit from them. Issues to be addressed include insurance coverage, safety and security concerns, rights to privacy, and physical requirements such as roofs that can support vertipads (landing areas for drones) and building dimensions that can accommodate interior drone flights.    

For those of us creating the 2020 lease, widespread usage of drones by landlords and tenants alike is just one of the emerging realities we are addressing so that our clients can own, lease, and operate properties that evolve along with the markets they serve.    

In the Weed(s)

As we continue to focus on the 2020 lease (see Envisioning the 2020 Lease), we have realized that there is a whole new category of uses that some commercial landlords and tenants are engaging in, but that no commercial lease we have ever seen contemplates or permits.  

Those uses are the growth, distribution and retail sale of marijuana.  

An Emerging Opportunity

Thus, apropos of our focus on crafting leases that withstand the test of time and meet the evolving needs of commercial landlords and tenants, we began to consider what a commercial lease for a marijuana-related use should look like.      
Our research quickly brought us to the threshold question of whether it is “legal” to lease commercial property for one or more marijuana-related purposes. Here's what we learned.

Federal vs State Law

Although a number of states have legalized marijuana for medical and in some cases recreational purposes, federal law still classifies such activities as a criminal offense. In addition to prohibitions on the cultivation, sale and possession of marijuana, federal law forbids a wide range of related activities including knowingly leasing, renting, maintaining, managing or controlling a place where marijuana is manufactured or sold, and facilitating financial transactions involving funds derived from manufacturing or selling marijuana.

The Department of Justice has acknowledged that enforcement of these federal laws is not a high priority when marijuana-related activities comply with state laws if those state laws guard against threats to public safety, such as the sale of marijuana to minors. However, the Department of Justice has made it clear that there is no assurance against enforcement.  

In addition, civil suits for damages, injunctions and other remedies based on federal law are beginning to make their way through the courts, including a Colorado case charging a multitude of defendants with violation of federal racketeering laws for leasing, renovating and financing a commercial marijuana dispensary. 

Caution Advised

Once we got into the weeds (pun intended) on the legality of marijuana-related property uses, it became clear to us that if you are leasing, renovating or financing property for the cultivation, distribution or use of marijuana you are violating federal law and could be subject to criminal enforcement and civil damages, notwithstanding compliance with state law. And this doesn't just apply to the landlord and tenant; it applies to the attorneys, accountants, contractors, brokers and lenders as well.

Thus, until there is a clear-cut resolution to the dichotomy between increasingly common state laws permitting marijuana cultivation, distribution and use and well-established federal law prohibiting these activities, we will be advising our clients to proceed with extreme caution before they pursue the potential value creation opportunities of this market trend.

So much for being flexible, at least in this case. 

A View From The Top

I recently attended a Breakfast in the C Suite with William S. Taubman, the Chief Operating Officer of Taubman Centers, which develops, owns and operates regional malls throughout the United States and Asia. It was a rare opportunity to gain insight into one of the most powerful retail real estate owners in the world.
What impressed me the most was the transparency with which Bill described what it was like growing up in a real estate family and the challenges and opportunities that Taubman faces today.  

Taubman Takeaways

1. Quality is a core value for Taubman Centers, emanating back to Bill’s father Alfred who founded the company and was trained as an architect. Bill noted that Taubman often builds higher quality projects than the market dictates because they are “talking up to the customer,” a philosophy that dictates how they design, merchandise and operate their properties.

 Taubman Centers Dolphin Mall, Sweetwater, FL

Taubman Centers Dolphin Mall, Sweetwater, FL

2. Taubman, which has four new mall developments in the works, is the only company to build a first class regional mall in the United States in the past eight years. In each case: Miami, Sarasota, San Juan and Hawaii, they believe that they are bringing a retail product that doesn't exist to an understored market. Time will tell if they are right. Bill acknowledged that its impossible to predict which developments will outperform (or underperform) expectations. He could never have predicted that Dolphin Mall, a discount/outlet mall that Taubman developed in Sweetwater, FL, would be a home run.

3. Technology will be the biggest game changer for retail real estate in terms of how properties are operated, with the power to both undermine and enhance the underlying real estate. Bill predicts that one day mall owners will know with specificity when a customer is in the mall and how much time and money they spend at each store. Access to this information would theoretically enable the property owner to enhance each shopper’s overall experience, to everyone’s benefit. The challenge is the onslaught of untested and competing technologies with no clear pathway for the future.  

4. Bill was surprisingly forthright when he acknowledged that climate change does not factor into Taubman’s decision making process, as evidenced by the three regional malls they are developing in the coastal communities of Miami, San Juan and Hawaii. Bill’s rationale for this is that “someone else will figure things out” and ultimately their investments will not be jeopardized.  

5. Taubman has invested $100 million in its Asian operations with no immediate expectation of profitability. They have three projects under construction, two in China and one in Korea, with anchors that Bill likened to Macy’s and Bloomingdale’s. In addition to their 80 person Asian company, Taubman has a local partner for each project. Taubman handles the leasing while their partners handle the development. Bill believes that in 15 years they could have 15 projects in Asia but that they will not see significant profits for at least another 10 years.

In It for the Long Haul

It will be interesting to see which of Taubman’s U.S. and Asian developments are profitable over the next decade or so, but one thing seems fairly certain: in ten year’s time, Taubman Centers will still be developing and operating regional malls and talking to us about their outlook for the future. 

From Halal to Fulfillment

As you enjoy the languid, sun-filled days of summer, we want to point out two interesting real estate developments on the continuum of the age-old truth that the only constant is change. The first one confirms that you never know where the next big thing in retail is going to come from.

The Halal Guys could be the next big  thing. They operate street carts in Manhattan that harken back to the days before food trucks became chic. The Halal Guys just opened their first brick and mortar location and more importantly, are are planning to open at least 100 franchised outlets globally over the next five years.  

 The Halal Guys cart at 53rd Street and 6th Avenue, NYC

The Halal Guys cart at 53rd Street and 6th Avenue, NYC

Fransmart, the restaurant franchise consulting firm that transformed Five Guys Burgers and Fries into a 1,500 store chain, will be helping The Halal Guys in this endeavor. A decade ago the owners of The Halal Guys switched from selling hot dogs to selling halal food to cab drivers. In addition to cab drivers, their clientele now includes Manhattanites from all walks of life and throngs of tourists who wait on long lines to get what one fan characterized as the most perfectly crafted street meat. The question is: can you take street meat off the streets?  
The second development is all about how e-commerce is affecting real estate, from retail to industrial. As e-commerce continues to grow, the demand for a new kind of warehouse/distribution center, often referred to as a fulfillment center, is exploding. Fulfillment centers are locations where goods purchased on line can either be picked up by the customer or from which those goods are shipped to the customer. Fulfillment centers are springing up in variety of locations including traditional retail stores, where the distinction between retail and industrial uses is being blurred and as stand-alone facilities.
The stand-alone fulfillment centers differ from traditional warehouses, where goods leave on pallets en route for stores, in a number of important ways. The ideal location for fulfillment centers is not the typical far flung location of traditional industrial properties, but rather closer to population centers where the individual customer resides, cutting  down on transportation costs  and the  time it takes to fulfill orders. Greater numbers of employees are required in order to sort and ship merchandise to individual customers. This translates into expanded parking requirements and other amenities not traditionally associated with industrial uses.  Finally, the demand for fulfillment centers, both on the part of on-line retailers such as Amazon, as well as traditional retailers such as Macys or Bloomingdales has caused industrial vacancy rates to plummet.
We think both of these developments bode well for brick and mortar real estate.

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