Find the right leasing agent

In the life of a shopping center, tenants will come, and they will go. When tenants leave, the work begins. Some landlords prefer to lease the vacant space themselves, some employ a commercial broker to help find a tenant. I believe that hiring the right leasing agent is the best decision a shopping center owner can make. Let me explain.

First, what is the "right" leasing agent? There are a number of factors to consider when searching for a good leasing agent. Below I have listed some of the most important ingredients to look for when choosing a leasing broker. If you are a broker, these are some things to consider when you are pitching a potential new client.

1. Is the broker a specialist or a generalist? A specialist is a leasing machine. Why? This is the way they make the majority of their income. A specialist spends the majority of time getting know the leasing market, they will know how to best position your property among the competing inventory. Because leasing agents consistently work in this market they will also know the tenants that are looking in the market as well as any new tenants coming into the market. The specialist concentrates primarily on just one sector of commercial real estate, i.e. office, retail, industrial, etc. How would a broker that does a lot of office leasing keep track of all of the retail leasing that is going on in the market? The answer is, they don't.

2. A generalist will take what ever listing that presents itself and incorporate the three P marketing strategy, Put up a sign, Put on the internet, and Pray.

So if you are an owner and vacancy means lost income opportunity, which broker do you feel more comfortable with?

I am back!

So, it has been quite a long time since my last post. There has been a lot going on, some good, some bad.

I have been working in commercial real estate now for 8 years. My first year was the peak of the commercial real estate market and I watched the market tumble, and tumble, and tumble. The veterans in the industry kept talking about the severity of the decline and how bad it actually was. A lot of my industry piers decided to leave the industry to get into something more stable. All of the while, I just figured that if I worked hard and created a name for myself that everything would work out.

But I did not realize that commercial real estate was going to be an addiction for me. I found myself falling in love with the chase, the wooing, the negotiations, the stress of having a deal falling apart with all of my bills being due, and the different type of people that I would meet.

If the downturn proved one thing, is that this industry is not for everyone. It is not for the faint of heart. You are going to get the shit kicked out of you and you can either take it or get up and give it right back. I have found that you can generalize or you can specialize, one actually makes money. You can hang your license with a national firm or a boutique firm, they both make money, but one of them lets you keep more.

After 8 years in this industry I have seen a lot, but there is still so much more that remains to be seen. I can honestly say that when I graduated college that I had no interest in economics, now I find myself absorbing anything and everything with regards to macro/micro economics. GDP, CPI, housing numbers, and  job growth just to name a few, have an affect on my industry. I am not saying I can predict a slump, but I hate being caught off guard.

Maybe I am being to analytical, maybe I should just let what ever happen, happen, and adjust accordingly. I think not, I believe that my clients look to me for encyclopedic knowledge of the industry, and I believe that encompasses everything that has an affect on it. My job is to put my clients in the very best position to succeed. And I don't believe in giving them anything less.

Shopping Center Owners, Get to Know Your Tenants!

There are different types of shopping center owners. Some just pay attention to the profit and loss statement and some are also concerned with the overall health of the shopping center. Regardless of a shopping center investors ownership style, and if there is an in house management or a third party management company, it is important to know the tenants.

Shopping center owners should have a finger on the pulse of how every tenant is performing. This can be done in a number of ways but the best way is for the shopping center owner to have a dialogue with each tenant. This can be accomplished directly or indirectly through the management company.

Why is this so important? Knowledge!

Shopping Center owners and tenants are in this together. Regardless if the tenant is a mom and pop or a national chain, a dialogue will help a shopping center owner to know if the tenant is doing well or struggling. A good dialogue with the tenant will help to ensure that a landlord is not caught off guard by a tenant default. Often times by having the open dialogue, a tenant feels more comfortable in asking for a month or two of rent abatement to get themselves through a difficult economic time. And as a shopping center owner it makes more sense to fore go a couple of months of rent as opposed to having to shell out 30-40k in tenant improvement dollars for a new tenant.

Tenants speak with other tenants. If tenants are happy or unhappy about their landlord they will let other tenants know. This works both ways. If a landlord is slow to respond to maintenance requests or if the tenants don't have the ability to reach the landlord they will let everyone know how dissatisfied they are. They will speak with other tenants in the shopping center as well as tenants they know in other shopping centers to see if the grass is greener at another shopping center. But if a tenant is able to pick up the phone and reach the landlord or the landlords management company and the requests are handled in a timely manner then those tenants can become the best advertisements to potential future tenants.

What about national tenants? National tenants can be a bit harder to deal with than a small independent retailer. But ultimately there is a person who is responsible for the store within each shopping center. Typically national tenants have real estate managers who are knowledgeable about the performance of the store within their territory. Get to know these real estate managers. The benefits can be much more than just keeping up with a single stores performance. If you own more than one shopping center, having a relationship with the real estate manager may also help to get them into a space in a different shopping center.

"I own a ton of shopping centers, I don't have time to contact every tenant." This may be the case, but there is someone in the organization who is responsible for the accounting, maintenance, and tenant relations that should be able to perform these duties. Whether it this person is in house or a third party manager, a shopping center owner should receive a quarterly update on how each tenant is doing, potential red flags, and possible solutions to these problems.

This is a very simple concept. Shopping center owners or managers should speak with the tenants once a quarter and ask questions, a lot of questions. How is business? How is the foot traffic in the center? Are the tenants happy with the visibility/signage or is there something the shopping center owner can do to improve it? How are the other tenants in the shopping center performing? Are there outside factors in the community that are adversely effecting the shopping center?

All of this sounds basic, but all to often I speak with the tenants of shopping centers that I am selling, and they are happy to be done with absentee ownership whom they have never met and are unreachable or unresponsive. Also understand that there are those tenants who look to take advantage of situations or tend to have unreasonable expectations. But communication is always key in every relationship and it is no different in the relationship between a shopping center owner and the tenants.

Net Leased Retail Investments and the Economy

Wow! Unless you have been under a rock the past week, you have heard the news of the S&P dropping the United States credit rating from AAA to AA+. Regardless of your view about the validity of that decision, it came at a bad time. Commercial real estate investment volume was picking up, deals were getting done, and money was slowly but surely coming off the sideline. I am not an economist, but I can't imagine that the events of the past week strengthen investor confidence. At best, I imagine investors taking a wait and see approach. At worst, money will remain on the sideline until some of the questions that went unanswered by the government with the latest debt ceiling increase are finally answered. I believe what investors really want to know is how will the government tackle the long term debt issue. Will there be an increase in taxes, if so, on who? Will there be an overhaul on entitlements, if so, to what extent. And these are just a few of many issues that will have a huge impact on our national economy for a number of years.

So what now? I don't really have a solid answer. My degree was not in Economics it was in Political Science, and I don't remember the lecture on the two party system that was more worried about election positioning, than making sure that the national economy is set on the right path for sustainable growth.

As a commercial real estate professional who focuses on Net Leased Retail Investments I have to analyze the events of the past week and judge how it will effect the Net Lease Retail Investment market in the coming months.

Investors: Basically Investment fundamentals will stay the same, investors will continue to target national credit tenants with a good balance sheet. Those retailers that are of the highest ratings will be sold at a premium. Value add investors will take a slight pause but will make moves in markets with solid and diverse economic drivers. Grocery anchored shopping centers will continue to be a major target.

Sellers: Sellers will need to have a good understanding of the market. Employ the services of a seasoned commercial real estate broker to properly position the asset within market. Sellers need to understand that the asset's value is at the mercy of the market, which is nothing new, but the market maybe a moving target. In uncertain times a good commercial real estate broker is worth their weight in gold. They will have their finger on the pulse of the current market, understand the direction of the current market, they will also know the most active buyers in the current market. Be wary of the brokers that aren't willing to fight for a purchase price, they probably either don't know how to price the asset, or just don't care, and just want the listing. Be aggressive with due diligence periods, it doesn't take a whole lot of time to get all of the necessary inspections done on a property. Limit or don't allow due diligence extensions. Be even more aggressive with the time period to close after the due diligence period. The old saying is that time kills deals, take this to heart. As we have seen, things change quickly, and the less time a deal is exposed to the economy around it, the better.

As always this is not going to be anything earth shattering for the seasoned investor or broker, but when you here the words "first time in history" you are in uncharted territory. So all comments welcome.

Shopping Center Investing in Secondary and Tertiary Markets

With investment activity picking up in the United States and primary markets becoming more competitive, I thought I would touch on the advantages of acquiring shopping center investments in secondary or even tertiary markets. For the seasoned investor/broker this may be elementary but I believe it is important to cover the topic.

Primary, secondary, tertiary, etc. markets with regards to real estate are based on population. Retailers are demographics driven, they want to be in a location that maximizes their ability to reach as many customers as possible. In primary markets retailers may have many different locations that fit this need based on the vast population. For instance, Starbucks has 129 different locations in New York City ( primary), in Knoxville,TN (tertiary) Starbucks has 7 locations. I use Starbucks because it is nationally known and they have locations in just about every market. I use this example to show a retailers growth based on population, this knowledge should be used to gain a proper perspective in secondary and tertiary markets. Because of the smaller population in secondary and tertiary markets, it is easier to identify the areas where retailers want to be.

Competition: Smaller markets have fewer competing centers. Fewer competing centers mean fewer options for current and future tenants. Whether you are looking for an "A""B" or "C" quality shopping center, you know that the demographics within the market will only support certain retailers as well as certain number of locations for those retailers.

Clear definition of trade area: I Touched on this towards the end of my opening paragraph but in smaller markets it is clear where the thriving retail areas are. As a shopping center investor it is important to know or have an idea of the growth pattern of the market. Will the potential shopping enter that is being considered be relevant in 5,10, or 15 years with the proper maintenance and updating? As stated earlier retailers need to be where people are, will you be able to keep your tenants when there lease is up based on the location of the shopping center?

Economic factors: here is where it can be both good and bad for the smaller markets. Secondary and tertiary markets have fewer options when it comes to economic drivers. Businesses that provide the jobs within a certain market need to be closely evaluated in order to determine if the investment will be able to weather hard economic times. If the market has just a few major employers, do your homework! How are the major employers effected by the national or world economy? Is the major employer a large University, Hospital, or government agency which are still in demand in a bad economy. On the other hand, is the major employer of a manufacturing nature, that ultimately depends on a good economy to maintain high production thus maintaining high employee retention.

Lower price psf: Secondary and tertiary markets typically have a lower price per square foot than comparable properties within primary markets. That is not to say that you won't see a ridiculous number come from a sale in a smaller market every now and then. But the cost of development, land value, and lease rates are typically lower in smaller markets which leads to lower price per square foot sales.

Risk: the risk for investing in smaller markets is higher. Since retailers are driven by demographics, then the demographics for smaller markets may not support some of the larger national tenants. Because of this you have a limited amount of retailers within the smaller markets to fill vacancy. Also quite often in smaller markets, you find that smaller retailers tend to follow larger national tenants that have a history of drawing in the amount of consumers needed to be successful. There are a lot of shopping center investors who will only invest in grocery anchored centers in smaller markets to ensure the major tenant cash flow, maintaining value of asset, and constant consumer traffic which attracts smaller retailers.

I believe that if a buyer is looking to make a shopping center investment in a smaller market, do your homework. Smaller markets can be challenging, but if a buyer takes the time to really get to know the market, through research or a knowledgeable broker, they can make an extremely educated decision which will ensure the highest return on investment. Also by understanding the make up of the market it can also save a buyer from making a bad investment.

Protect your Shopping Center Investment

I am not one of the most active tweeters out there but I have made a conscience effort to shoot out at least one post a day with a little nugget of wisdom for shopping center investors. My last two posts concerned the importance of good shopping center management and a good leasing agent. I thought I would just expand on why these are critical for your shopping center investment. I plan on covering the importance of good shopping center management this week, and the leasing agent next week.

Shopping center management is sometimes kept in house or sometimes contracted out to a third party. Regardless of whether it is your company or another company managing your shopping center investment, it is important that this aspect of shopping center ownership is not overlooked. Property management is a lot like a umpire or referee, you don't really notice them until they are really bad. Property managers should be an extension of your investment company. They should understand the goals that you have for your shopping center and be able to provide a detailed plan to help reach those goals.

Property managers should be able to provide detailed accounting information in a timely fashion, handle any maintenance concerns promptly, and make sure that the property is aesthetically pleasing. Whether your shopping center management is handled in house or by a third party it is truly a reflection on you and your company.

How does management protect your investment?

If a property manager is performing their job correctly, your property will be ready to put on the market at any time. You will have all maintenance records, leases, renewals, expenses, service contracts, and cam reconciliations available for due diligence. The property will look healthy and properly landscaped.

A good property manager will also have a good feel for how happy the tenants are. This is important when it is time for lease renewals or finding possible solutions for an unhappy tenant. Unfortunately property managers also have to chase after lease payments.

Property management is extremely important to shopping center investments, when done correctly they add a tremendous amount of value, when done incorrectly the property can lose a tremendous amount of value.

I am not a property manager. I specialize in the acquisitions and dispositions of shopping centers, but when performing my analysis on a center for disposition or acquisition I can tell how well a property has been managed. It can make my job really easy or extremely hard. I see the effects of good and bad property management.

Some things to keep on mind when looking for a property manager, or management firm.

Do they have experience with shopping center management?
Do they participate or are they members in local or national property management organizations?
Do they continue their education?
Do they own shopping centers themselves, this can be a conflict of interest.
What property management software do they use?
Do they have the capacity to handle the size of your shopping center?


Again, I am not a property manager, but as a professional that specializes in shopping center investments I see how valuable a good property management firm can be. They are definitely worth the percentage of annual income they are paid.

Going Beyond the Numbers, Shopping Center Acquistions

Shopping Center investments have a certain amount of risk. It is imperitive to be able to analyze the critical aspects of a shopping center such as, current income vs current debt, know lease start/end dates, know if current rents are above or below market, and vacancy rate in the market. These are just a few examples of the types of figures that need to be analyzed when evaluating a shopping center for acquisition. But with this post I want to get beyond the numbers. What are some other important variables to take into consideration during a shopping center acquisition?

Location - It is one of the oldest yet truest phrases used in real estate. Location, Location, Location.

Access- How easy will it be for customers to reach your tenants. Is the property at a signalized intersection? If it is not, what is the speed limit on the road in front of the property? Will customers be able to turn right and left from the road to reach the shopping center?

Competition - It is important to know the competing centers in the area, who are the major tenants, what are their lease rates, how well is the property managed or maintained, and even how long has the property been owned by current owner.

Credit - How many tenants in the shopping center are credit tenants? National and publically held tenants theoretically are less risky than regional or mom and pop tenants. How will the current tenants weather a bad economy? It is a necessary question in light of the last three years.

These are just a few factors beyond the numbers to take into consideration when analyzing a potential shopping center acquisition. A knowlegeable and seasoned broker with experience in shopping center acquisitions and dispositions is an outstanding asset for buyers looking to acquire shopping centers. They should be able to help buyers with these factors as well as encyclopedic market knowledge to help paint a clear picture of the asset.

Again, my intention with this post is to highlight just a few factors beyond the numbers that should be considered while analyzing a shopping center for acquisition. I have given just a few examples(and did not expand fully on those), this is not a how to guide, but merely an avenue to highlight other variables of a shopping center with regards to analysis. If you have any questions please feel free to let me know.