CHICAGO TAKES AIM AT RETAIL LEASES

CHICAGO -- City officials here are discussing controversial new legislation that would prohibit supermarkets and drug stores from using restrictive deed covenants to prevent competing operators from locating stores on their former properties.But retailers and business leaders say the measure risks chilling all investments by supermarkets by subjecting them to government interference and exposing them

CHICAGO -- City officials here are discussing controversial new legislation that would prohibit supermarkets and drug stores from using restrictive deed covenants to prevent competing operators from locating stores on their former properties.

But retailers and business leaders say the measure risks chilling all investments by supermarkets by subjecting them to government interference and exposing them to competitive threats they wouldn't experience elsewhere.

The issue came to a head here after city officials complained of empty storefronts in their neighborhoods and residents near closed stores needing to ride city buses to purchase groceries and medicines. The proposed ordinance -- which supporters call the first of its kind in the United States -- would limit to one year the amount of time supermarkets and drug stores could prohibit a competing use to occupy the property of a closed store. If the store was closed but replaced with a new location within a half-mile, the use restriction would be for three years, explained Peter Skosey, vice president of external relations for the Metropolitan Planning Council, a civic planning and policy organization that helped draft the proposed ordinance.

Supporters hope to vote on the measure in a Zoning Committee meeting early next month. If the vote passes committee -- which looks likely, according to Skosey -- the City Council is expected to approve it shortly thereafter. Opponents of the measure intend to meet with officials in an attempt to change the ordinance before it goes to a vote, David Vite, president and chief executive officer of the Illinois Retail Merchants Association, Chicago, told SN.

The outcome of the dispute will be watched in other cities across the U.S. and Canada, Skosey told SN, saying communities in New York, Massachusetts, Wisconsin and British Columbia have reported similar complaints about blight and reduced neighborhood services resulting from closed supermarket locations that prohibit other stores from locating there.

"We've been researching other communities with similar issues, and all of them have said, 'Tell me what the outcome is, because if it works for you we'll try it,"' Skosey said.

Skosey said several former Dominick's and Jewel stores currently sit vacant in Chicago awaiting a re-use that's not prohibited by deed restrictions. Former Dominick's stores at 4014 West Lawrence; 7000 S. Pulaski and 3649 N. Central have restrictive covenants that "run with the land," meaning that they may never be occupied by a grocery store, he said. Such empty buildings contribute to blight and can often lead to financial trouble by co-tenants of the shopping center, he said.

"We started to do a little research into the detrimental effect of these restrictions -- what we see in Chicago is there are really a limited number of locations where you can site a large grocery store because of available land, and as you start to take those properties out of the market due to restrictions, it's not unreasonable to believe that at some point you're going to run out of opportunities," Skosey said.

"What also concerned us was seeing what was left," he added. "Almost always, these stores sat vacant for a longer period of time than the market might have dictated if another grocery store were allowed to move in."

A local grocery chain, Pete's Market, wished to move into the vacant Dominick's on West Lawrence but was prohibited from doing so by the restriction, reports said. Alderman Margaret Laurino, who represents the 39th Ward, where the empty store is located, introduced the ordinance along with Alderman Manuel Flores.

Restrictions on uses for closed stores are routinely used by retailers across the country and are perfectly legal, countered Vite. More importantly, they are a mechanism by which retailers can protect their businesses and assure continued investment in the trade area, he said.

"The real reason for a restrictive covenant is, if I'm going to build a replacement store in the trade area, I surely don't want to have someone building a new store on the site I'm vacating," Vite said. "That siphons off sales from the new location, makes the new location less desirable and will cause me to have a more difficult time making a solid return on that investment.

"By restricting my ability to have a restrictive covenant, you are creating a disincentive to invest in the community," he added. "It's as simple as that."

Vite said his organization would meet with city officials to discuss altering the ordinance, but he declined to say what specific changes he would request. But he said neither the time nor distance requirements of the ordinance, as written, fairly address retailer's needs.

"A half a mile means different things on the north side and the south side of Chicago," Vite said. "The radius is designed for people to be able to walk if they were shopping at the previous store. But that has nothing to do with whether it is good business practice, or in fact is far enough away to generate new investment in the community."

The suggested limits of one or three years are not nearly long enough, he added. "If I'm going to put $6 million or $7 million into a new store to replace an old store, and I own the property, where is the magic in one year or two years? I ought to be able to do it for as long as I choose, given that it's my property and I'm putting investment back in the community."

Skosey said opponents would likely challenge the measure in court if passed. Vite declined comment on a possible lawsuit, but noted that "there's nothing in the U.S. Constitution guaranteeing a place to shop near your home."

The Chicagoland Chamber of Commerce has joined the IRMA in opposition to the bill. Gerald Roper, president of the chamber, said that passing the measure would send "a very negative message" to the business community, reports said.

Matt Casey, a retail site selection specialist for Matthew P. Casey & Associates, Clark, N.J., told SN that, if passed, such a measure "could make retailers rethink their entire investment strategy." Given existing low margins and ongoing encroachment by alternative formats, supermarkets "don't need another way to make it tougher for them to make money," he added.