Give us a break in rents, Starbucks asks landlords

Starbucks is pushing some U.S. landlords for as much as a 25 percent reduction in lease rates, taking advantage of a declining real-estate market to save on rent.

Faith Hope Consolo, chairman of New York-based Prudential Douglas Elliman's retail leasing, marketing and sales division, is generally advising about a dozen landlords to work with the Seattle-based coffee-shop operator after they received letters seeking rent reductions of 20 to 25 percent. She hasn't seen the correspondence.

Separately, two other letters were confirmed by two property managers, who declined to be named because the negotiations are still under way.

"In this environment, what we've seen, in general, is the landlords and the retailers really have to work together more closely to prevail," Consolo said. "We're talking a lot about tenant retention."

Starbucks began rent-reduction efforts in January as part of a plan to trim overall expenses, according to Starbucks spokeswoman Tara Darrow.

The same month, the company said it would close about 300 cafes in 2009 and cut as many as 6,700 jobs after first-quarter profit plunged 69 percent, hurt by an economy in which cost-conscious consumers cut back on premium coffee.

Darrow wouldn't confirm the size of the reduction the company is asking. She also wouldn't specify how many leases the company is trying to renegotiate or how many landlords have agreed to reductions. Starbucks isn't asking for a blanket rate reduction from the landlords it has approached, she said.

"We're taking advantage of the opportunity in as many cases as we can," Darrow said. "We feel like it's a positive program for us. Most of the landlords we've worked with have felt it is a mutually beneficial situation."

The rent-reduction program covers the U.S. stores operated by Starbucks, a number that totaled 7,035 as of March 29.

The effort doesn't include the more than 4,400 U.S. stores in airports, supermarkets and other licensed locations, Darrow said.

Consolo said she's advising landlords to give Starbucks a break in the rent, in the hope the retailer remains a tenant. Doing so may make sense even in cases where the retailer would be required to continue paying rent if it closed a store.

"The owner or developer doesn't want a dark store," Consolo said. "It reduces the traffic."

Rising vacancy rates and falling property values are spurring landlords to offer lower rents in exchange for longer lease terms, said Hudson Riehle, senior vice president of research at the Washington, D.C.-based National Restaurant Association.

"In this recession, compared with the last one, we do see developers and owners being much more willing to work with the operators to make sure the restaurant remains where it is," Riehle said. "It's much more of a partnership than it used to be."

Quiznos, the closely held toasted-sandwich chain, has been able to reduce rents by 15 to 20 percent, often in exchange for signing longer leases, Chief Executive Officer Rick Schaden said.

The Denver-based company has renegotiated as many as 90 leases.

Quiznos also has grabbed more attractive sites at better prices, Schaden said.