Featuring Tom Mullaney, Managing Director of JLL’s Retail Restructuring

Tom, a Chicago native, started his career with no understanding of real estate whatsoever. After graduating from Princeton and Harvard Business School, he went to work at the consulting firm McKinsey & Company. Tom left McKinsey & Company after four years to help create the first urgent care chain in the U.S. in 1984; that’s when Tom got into real estate. He and his venture capital-backed team began developing 5,000 – 40,000 square foot urgent care centers around the U.S. After selling that company in 1989 (and keeping all the real estate, now in his role as a landlord), Tom dove into real estate development full time. “All of sudden the Savings and Loan crisis era hit and all of the real estate developers got crushed, including me, I got crushed too.” However, Tom made it out alive without having to file bankruptcy by hiring his future partners Steve Huntley and Dave Spargo. Out of work and with nothing to do, Tom proposed to Steve and Dave that they begin helping all the other developers restructure their debts. From that came Tom’s next company: Huntley, Mullaney, Spargo & Sullivan, Inc., which pioneered the field of lease and debt restructuring back when debt restructuring was unheard of.

Fast forward to 1994, NYSE-listed Sizzler Restaurants contacted Tom inquiring if he could restructure leases. Tom wasn’t sure, but was willing to find out. He and his partners began restructuring Sizzler’s leases in 1994. Now 23 years and almost 400 retailers later, Tom is still serving and helping others restructure their lease and debt liabilities.

You’ve all seen the headlines – and we in retail know stores open and stores close – it’s a natural cycle. But the recent announcements of retail chains closing underperforming retail store locations at one time can seem daunting to us in the real estate industry. So we asked Tom to share with us some historical perspective and advice for the future. So why are we seeing all these announcements?

“The intersection of the growth in e-commerce combined with a growth in same-day shipping has led to a tipping point in American retailing in many segments. It’s been known for years that America has more retail square footage per capita than any other place on the planet. I mean, where else can you buy 95 different sizes and types of toothpaste?! What is happening now is we have too many square feet of retail per person and small declines in sales combined with shrinking gross margins is having a big impact on store level profits. Across the country, in both public and increasingly private equity-controlled board rooms, board members are saying, ‘What is going on here – fix these underperforming stores before the whole company gets hurt or we attract some activist shareholders who will take us to task.” Their response increasingly has become slow down new store openings, close underperforming stores and get occupancy costs back in line through rent reductions. That trend is washing over America like a tidal wave.”

Although Tom can offer a wealth of history on store closings, he doesn’t have a crystal ball (but we wish he did!). It’s difficult to see what the future holds, but he does expect to see many more store closures in 2017.

His advice: “Smart retailers don’t stick their head in the sand.” Retailers need to identify the percentage of stores that aren’t working and fix them rather than hope they will turn around: “Hope is not a strategy”. A perfect example of a proactive retailer is a prominent NYSE fashion apparel retailer. They’re a successful chain that wisely determined they had some “weeds in an otherwise very nice garden”. They made a public announcement last fall stating they were going to address the problem head on to make sure that their system remains strong. They did it and did it well, and today they have a much cleaner portfolio of stores than they did a year ago.

“You know, change is good for us at JLL, because change leads to opportunity. When a store closes, there is a listing opportunity for the JLL retail brokerage group or it may lead to an opportunity to relocate and build new stores, which is great for our property development group,” he adds. He urges, “When you have clients who are feeling ‘This isn’t working’, ‘I may need to get my rent down’ or ‘I may need to close stores’, please pick up the phone and call me or email me. Let’s help your client, you and JLL all make needed change into a great economic opportunity.”

Tom is happy to meet with you and your clients to talk about whether they need to do anything with their lease portfolios and if so, what’s the best way to do it to ensure the retailer gets the best possible outcome utilizing the JLL team. Tom learned firsthand from his own mistakes (“I tell me clients I know what they are going through, having had to deal with my own problems years ago”). Tom smilingly quotes Winston Churchill who once made a comment that everyone in JLL should take to heart: “A pessimist sees the difficulty in every opportunity; but an optimist sees the opportunity in every difficulty – I am an optimist.”