Mall Landlords Increasingly Seek ‘Open Container’ Licenses

Alcohol sales were a buoy for many restaurants during the pandemic. To offset restrictions on indoor dining, lawmakers largely relaxed restraints on carryout cocktails and al fresco imbibing.

Property owners want to keep the party going.

Restaurateurs and bar owners are required to have liquor licenses to sell alcohol. But commercial landlords and REITs are increasingly pushing to get entire shopping centers or districts covered under one license that allows visitors to carry those purchased drinks out the door and throughout the rest of the premises.

There are two examples in the Richmond, Virginia, metro area: Brookfield Capital’s Short Pump Town Center and Second Horizon Properties’ Stony Point Fashion Park. The owners of these mixed-use, open-air shopping destinations have each applied for permits that would allow alcohol consumption throughout the common areas of the malls.

Their reasoning, likely, is because alcohol makes “people stay longer,” explained Spencer Bomar, principal of retail advisory services for Avison Young. “It creates more of an experience. Instead of making a reservation for a restaurant, finding a parking spot, dining and then leaving, patrons are hanging around, shopping and going to more locations,” Bomar told LoopNet.

The legal framework is not new, explained Ian Bacheikov, partner for Akerman LLP’s real estate practice and chair of its national alcohol beverage sector team. “I haven’t had developers engaging me about lobbying local or state governments to create the regulations so that they can do it,” he told LoopNet. “I think they’re just discovering that it’s an option that’s been there for years.”

Developers have always done whatever they can to compete against other properties in the area and attract quality tenants, Bacheikov continued. More and more landlords have simply started realizing — perhaps thanks to those pandemic-era provisions — that having an open-container license for an entire entertainment district or shopping center is a value-add proposition to tenants and their customers.

Enabling open container consumption within a retail center makes it feel “like a much larger area,” Bomar added. “You can handle more people. If the bar gets full, [customers] just walk outside with their drinks.”

The pandemic dredged up alcohol-related legislation to the surface when city or state lawmakers permitted food and beverage establishments to extend outdoor seating outside of private property and into the right of way, Bacheikov explained. Then, they started expanding licensed premises to include areas not covered by their leases or not under the control of the licensee.

Many of these laws stuck “because it was just good policy,” Bacheikov said. “There was no reason why it shouldn't have been allowed in the first place, but the [pandemic] kind of a pushed it along.”

Now, property owners are thinking about how to maximize this effect, Bacheikov said. But while their tenants usually have liquor licensing figured out, commercial landlords are typically less familiar with how to apply. Regulations vary state by state, city by city, and sometimes even from one block to the next.

The Richmond malls serve as a great example of this, Bacheikov said. Virginia is one of about half of all states in the country that does not explicitly restrict public consumption of alcohol. But that doesn’t mean the Commonwealth is one big block party. For states without specific restrictions on open containers, cities and counties usually serve as the legislative bouncers.

With pending applications to the Virginia Alcoholic Beverage Control Authority (ABC), Brookfield Properties and Second Horizon, known competitors when it comes to these regional malls, are racing each other to become the first Richmond-area district to hold a “commercial lifestyle center license.” If approved, the licenses will supersede existing municipal regulations.

Georgia, where Bomar is based, is another state that lacks statewide prohibition on public consumption. But depending on whether your business is in Savannah or Atlanta, or even a specific neighborhood, patrons are subject to different laws.

Savannah’s Historic District, for example, has specific limitations on public alcohol consumption to curb the brouhaha stirred up by rowdy spring breakers. But in Atlanta, several specific areas are designated as open-container districts amid citywide restrictions. These include Roswell in downtown and the North Atlanta entertainment destination Avalon, Bomar said, adding that these areas are seen in the city as pioneers of the open-container, mixed-use entertainment district concept.

In cases like these, the allowances are in the zoning codes, Bacheikov explained. For example, a stretch of Beale Street in Memphis, Tennessee, is zoned as a “special entertainment district” that was created by a city ordinance. Patrons can carry open alcohol containers throughout the area, even though each property might have a different owner.

This is an example of local ordinances taking the initiative to create this type of district. A group of property owners can also sometimes come together to try to create an overlay district zoned to allow open containers. Both are more rare, Bacheikov noted.

“That’s usually not the type of thing that wins you political brownie points,” Bacheikov said. “Anything related to alcohol restrictions is typically pushed by somebody who is going to see a profit from it.” Regardless, most of the time, licenses only accommodate a contiguous area under common ownership. Even then, the requirements can be strict.

For example, according to a Virginia ABC spokesperson, the state defines a commercial lifestyle center as a “mixed-use commercial development covering a minimum of 10 acres of land and having at least 100,000 square feet of retail space featuring national specialty chain stores and a combination of dining, entertainment, office, residential, or hotel establishments located in a physically integrated outdoor setting that is pedestrian friendly and that is governed by a commercial owners’ association that is responsible for management, maintenance, and operation of [its] common areas.”

You won’t get away with a license that spans premises separated by a main thoroughfare, for example, but as long as the area is contiguous, getting approvals is typically not a problem, Bacheikov explained. “If you do meet the requirements, most licensing authorities don’t have a problem with it. It’s not much more complicated than the typical background checks and basic licensee processing.”

So, if you’re an owner who wants to apply for a license, where do you begin?

“Always start at the local level,” Bacheikov said. “Reach out to the community development or local zoning department. You’ll also want to look at the beverage law, which is at the state level.”

It can be as simple as seeing that the area is covered under an open carry policy, in which case you don’t need to do anything, he said. Or it can be as complex as getting multiple licenses. “In some places like Louisiana, you have to get your local license before you can even apply for the state license, but you can't sell until you have both licenses. Again, every state is different.”

It can get even more granular, and it’s always on a case-by-case basis. “In Alabama, some municipalities allow alcohol, but in order to get any license approved, you have to go to a local board for a hearing,” Bacheikov mentioned as an example. “I had a client who operated movie theatres that applied for a license and got chewed up and spit out by an official of the local board, because it was a tight-knit, small-town religious community.”

While there are naysayers, it’s generally something everyone can agree on, Bacheikov said, adding that it’s usually a no-brainer for an owner of a collection of properties that includes some combination of food, beverage, entertainment and shopping.

“There’s always going to be at least some people who are against [open container alcohol allowances],” Bomar said. “But where I’ve experienced it, I’ve found that patrons and proprietors alike have seen its benefits.”

Bacheikov said a liquor license is a privilege, just like a driver’s license, and it can always be revoked. But that’s rare, he continued. Navigating the web of laws at various levels of government is the hard part, and it’s where property owners often get lost. “The key is to reach out to your local liquor attorney,” he laughed.