Best Practices on Leasing Commercial Real Estate Spaces!

00:00
atlanta georgia he manages seven
00:03
shopping centers and industrial
00:04
buildings and handles the leasing for
00:07
eight more
00:08
his website is davidrealtypartners.com
00:13
welcome alan it’s a pleasure to have you
00:15
with us today
00:17
uh why don’t you give us a brief
00:18
background about you and your firm
00:20
before we
00:21
jump into questions anton thanks so much
00:24
for having me
00:25
i’ve been a commercial real estate
00:26
broker and primary manager for a long
00:28
time here
00:29
working for reits working as an
00:31
industrial manager i’ve seen a lot of
00:33
different types of properties
00:35
over the years many different market
00:37
cycles
00:39
managed industrial retail office
00:43
and uh been around the block a few times
00:45
so
00:46
very good uh so it’s certainly a
00:49
pleasure to have you on so today we talk
00:51
about
00:51
uh commercial leases and
00:54
uh so alan uh why don’t you tell us
00:59
why leasing is is so important
01:02
well you know in my view leasing is
01:04
where a lot of the value of a property
01:06
is created
01:07
even if you’re an experienced landlord
01:08
or broker i think you’ll pick up
01:10
valuable nuances and tips from this
01:11
interview
01:13
things that will help you increase the
01:14
stability and the value of your
01:15
properties
01:16
it’s the cornerstone no pun intended on
01:19
which a commercial property is valued
01:21
by appraisers investors and landlords
01:24
it’s not just about the numbers it’s
01:25
about the quality of the story behind
01:27
the numbers
01:28
which are detailed in the leases if
01:30
you’ve ever had a lawsuit with a tenant
01:32
often it could be traced to a weak
01:34
lease it all starts with the right form
01:37
this is not to say that there’s only one
01:39
form you should use
01:40
rather we want the most appropriate form
01:42
for the property and the tenants
01:44
coverage and clarity are the most
01:46
important concepts here
01:48
ten dollar words can hide precision and
01:50
cloud understanding
01:51
you want to make certain that all of the
01:53
key areas are covered and are clearly
01:55
outlined so that even a non-real estate
01:57
professional can easily understand them
01:59
i like to include a summary page with
02:01
all of the key terms
02:02
contact information time frames due
02:05
dates
02:06
lease rate and responsibilities clearly
02:08
spelled out in eighth grade english
02:11
with minimal jargon really think things
02:13
through and include special clauses
02:15
for unique situations if you purchase a
02:17
building
02:18
and the leases are on say a four page
02:20
generic form
02:21
watch out remember while length of elise
02:24
is not always a determinant of a good
02:26
one
02:26
brevity almost never is i think that a
02:29
widely held belief is that the lease
02:32
is the least and is somehow sacred but
02:34
you should never be afraid to modify
02:36
existing leases
02:37
to conform with current laws clarify
02:39
points
02:40
limit uses adapt to new conditions or
02:43
simply to better your legal position
02:46
anytime a lease is up for renewal
02:48
convert it to a modern stronger format
02:51
even if it isn’t up to renewal you can
02:53
often convince a tenant to update the
02:55
lease form
02:56
if you have something if you offer
02:57
something in return say a partial month
02:59
of free rent
03:00
or some minor space improvements it’s
03:02
almost always worth it
03:04
modern state-specific attorney-written
03:07
forms
03:08
will have the most up-to-date rules and
03:09
regs so you’re legally covered
03:12
but don’t get lazy if that fancy lease
03:14
form is so old it was drafted on a
03:16
typewriter
03:17
then maybe you take the time to review
03:18
it finally there are many tenants now
03:21
that use english as their second
03:22
language
03:23
so you should strive to break down dense
03:25
legal speak into layman’s terms
03:29
very good points now
03:33
i think particularly for uh for
03:35
landlords that are
03:37
relatively new as well as for for newer
03:39
tenants so it can get
03:41
quite confusing there right there a lot
03:43
of multiple commercial lasers
03:46
uh so what are the most common types
03:49
well there’s three major types the first
03:51
we’ll talk about is a gross or full
03:53
service lease
03:54
this is the most common lease for mom
03:55
and pop tenants why
03:58
because it’s the easiest for tenants and
04:00
landlords to understand
04:01
if you have a single tenant warehouse
04:03
building this format may work just fine
04:06
this lease is where everything is
04:08
included the tenant pays a set amount
04:10
that includes the rents operating
04:13
expenses
04:14
property taxes and all utilities it’s
04:16
the simplest
04:17
but it’s often the worst for the
04:18
landlord the landlord has no control
04:21
over tenant expenses
04:22
utility usage or tax increases
04:26
if the tenant uses the ac and heats far
04:28
too much
04:29
the landlord must absorb the expense if
04:32
taxes escalate
04:33
the landlord pays all the tax increase
04:36
this can be particularly difficult
04:38
for a landlord in a hot economy like the
04:40
one we’re in now
04:41
where property values keep rising and
04:43
property taxes keep increasing
04:45
the landlord actually may end up letting
04:48
netting less
04:48
income each year because he’s on the
04:50
hook for all of the extra taxes
04:53
also if a tenant goes under and didn’t
04:55
pay the utility say for the past three
04:56
months
04:57
the landlord must pay it the second
05:00
option is called a modified gross lease
05:02
in my view these are better than a gross
05:05
regular gross lease
05:06
this is typically where the tenant pays
05:08
the rents and operating expenses
05:10
but has to pay his own utilities
05:12
separately however
05:14
if the operating expenses are taxes
05:15
increase the landlord is still on the
05:17
hook for all of it
05:19
in either of these leases the landlord
05:22
is vulnerable to increasing
05:23
taxes to counteract this seasoned
05:26
landlords use what’s called a base year
05:28
a base year is a clause found in better
05:31
written gross and modified gross leases
05:33
the base year is a year that is actually
05:35
tied to the actual amount of taxes
05:38
insurance and operating expenses to run
05:40
the property in a specified year
05:43
the actual amount of expenses that are
05:45
tied to the base year
05:46
is called the expense stop this is sort
05:48
of the floor
05:51
of your operating expenses the minimum
05:53
you’ll pay
05:54
as the lease goes on the tenant is
05:55
responsible for paying an increase
05:57
above this base year amount for example
06:00
if a new lease is done in say 2015
06:03
the operating expenses are three dollars
06:05
a square foot for this property
06:06
the base year would be 2015 and the
06:09
expense stop or floor
06:11
would be three dollars a square foot if
06:13
in 2016
06:14
the property taxes insurance and
06:16
operating expenses
06:18
increased to say three dollars and fifty
06:19
cents a square foot the tenant would be
06:21
responsible
06:23
for that increase of 50 cents per split
06:27
suffices to say that even if it’s a bit
06:29
more complicated
06:30
it’s often well worth it for a landlord
06:31
to have a base year clause in its leases
06:34
it’s a tool used by landlords to limit
06:35
their exposure to increased property
06:37
taxes
06:38
and as such it helps to maintain
06:39
predictable cash flow
06:41
the final form is called a triple net
06:44
lease
06:45
the triple net lease format is where the
06:46
tenant pays only its pro rata share
06:49
of the actual operating expenses for the
06:51
property
06:52
the key is that if any of the operating
06:54
expenses say property taxes
06:57
go up the landlord doesn’t pay for it
06:59
the tenant does
07:01
this gives the landlord less risk and
07:03
more control
07:04
the tenants will always absorb the
07:06
increase in expenses
07:08
you can pass along all building
07:09
maintenance and property management
07:11
costs directly to the tenants
07:13
with a gross or modified gross lease the
07:16
landlord would pay these
07:18
this is generally more attracted to
07:19
investors and landlords in fact
07:21
converting a property from gross to
07:23
triple net leases
07:24
is a free way to increase the value of a
07:26
property in the eyes of investors
07:30
okay very good uh thanks for that
07:34
detailed explanation
07:35
so of those which is the best format or
07:39
let’s say your favorite format of these
07:42
leases
07:43
i strongly prefer the triple net lease
07:45
as they’re the ones that give the
07:46
landlord maximum control
07:48
the most predictable expenses and the
07:50
highest potential net income
07:52
with the fewest surprises if you have a
07:54
multi-tenant building particularly with
07:55
a diverse tenant base
07:57
this is the way you want to go okay
08:00
very good so
08:03
when you have a building that that needs
08:06
to be leased up
08:07
uh how do you locate tenants well you
08:11
know i’m very proactive
08:12
i like to visit other nearby centers and
08:14
ask if those tenants are happy there
08:17
i like to approach successful
08:19
multi-store owners in the area
08:21
and ask if they would consider expanding
08:23
these are often great prospects because
08:24
they’ve proven themselves already
08:26
in multiple locations if i have a
08:28
perfect space for a franchise
08:30
i call every possibility on my franchise
08:32
list
08:34
loopnet and costar is an invaluable
08:36
online marketplace
08:38
and you do not need to be a broker to
08:39
have access to it same for
08:42
crexie.com and cityfeet.com also works
08:45
well
08:46
now there’s so many others it makes your
08:47
head spin but you can
08:49
often pay for a short term single
08:51
property subscription
08:53
i’ve used social media such as linkedin
08:56
and you can also offer your current
08:57
tenants a rent discount if they find you
08:59
a tenant
09:01
as far as advertising i think the
09:03
cardinals in with a lot of brokers is
09:05
that they simply don’t give enough
09:06
information but you can use this to your
09:08
advantage when prospects don’t have
09:10
enough
09:10
they can’t make a decision so give them
09:12
all they need to pick your property
09:14
give floor plans dimensions panoramic
09:17
pictures
09:18
aerial photos even a walk-through video
09:20
with you narrating the details
09:22
you can post that for free on youtube
09:24
and then add the link
09:25
to many of your ads this will help you
09:28
weed out the time wasters and those who
09:29
are unclear of their needs
09:32
you don’t want to space to show your
09:34
space to everyone who calls you your
09:36
time is valuable you should politely but
09:38
aggressively
09:39
pre-qualify prospects make sure that
09:41
they’ve already seen your demographics
09:43
the area
09:44
your walk-through video drive-by traffic
09:46
pictures etc
09:48
before you meet them for a showing
09:51
very good uh so the all great ways to to
09:55
find tenants
09:56
right so but now the question is what
09:58
are the key drivers
10:00
uh that you implement to properly vet
10:02
the tenants
10:04
well for me it all starts with a credit
10:06
report i’m always surprised by how few
10:08
landlords could pull a complete
10:09
credit report on prospective tenants i
10:12
wouldn’t bother with one of these
10:13
credit karma credit scores nothing
10:15
against credit karma but you need
10:17
something a little bit more
10:18
in depth than just a number on a iphone
10:21
you know that’s a partial picture of
10:23
besc you can get a free
10:25
complete credit report at
10:30
www.annualcreditreport.com
10:32
this is the government sponsored website
10:34
that has experian
10:35
trendy transunion and equifax for ten
10:38
dollars
10:39
you can even get credit scores next i
10:42
like to look at financial statements
10:44
i always ask for two years to get a
10:46
sense of their success
10:47
if it’s a startup of course as for a
10:49
business plan and bank statements to
10:51
show me how much cash or working capital
10:55
they have this business as we all know
10:58
startups are risky for everyone related
11:00
to it you want to minimize your risk by
11:01
doing your homework
11:03
if a company is weak on finances i ask
11:06
for an additional security deposit
11:07
perhaps two to three months instead of
11:09
just one
11:11
if they’re weak on credit i’ll often ask
11:13
for a cosigner
11:14
on the lease or add a personal guarantee
11:17
a guarantee makes the individual tenants
11:19
fully responsible
11:20
for the lease should the tenants llc or
11:23
corporation go under
11:26
obviously you need to apply stronger
11:28
qualifying criteria to someone leasing 5
11:30
000 square foot
11:31
than you do if they’re only leasing say
11:33
900 square foot
11:34
in the end some tenants will not make it
11:36
no matter what you do you simply want
11:38
them to have as much skin in the game as
11:39
possible
11:41
finally don’t be afraid to loosen your
11:42
screening criteria or your lease rate
11:44
for those tough to lease spaces
11:48
excellent uh so
11:52
once you have found a tenant that that
11:55
you like what are some of the important
11:57
deal points that
11:59
you want to to look at in the lease
12:02
well some people ask about early
12:04
termination clauses
12:05
the landlords generally want long leases
12:07
but tenants generally want
12:09
shorter flexible leases a great way to
12:11
bridge this
12:12
isn’t through an early termination
12:13
clause it gives a tenant the right to
12:15
walk away from the lease at a
12:16
predetermined time sort of an escape
12:18
valve
12:19
if you will i always require the tenant
12:22
give me advance notice
12:23
usually three to four months i do this
12:26
so i can have some time to search for a
12:27
new tenant to refill the space
12:30
i also charge the tenants a hefty rent
12:32
penalty typically equal to two to three
12:36
months
12:39
sorry about that typically equal to two
12:41
to three months of rent
12:43
the penalty money i collect can be used
12:45
to offset our expenses like a broker
12:47
commission
12:48
on the new tenants i rarely offer these
12:50
to new tenants during good economic
12:52
times
12:53
however i did offer quite a few during
12:54
the great recession
12:56
in the end you want to make the deal
12:58
work for the tenant rather than let a
12:59
good tenant get away
13:01
in a good economy odds are they’ll stay
13:02
long-term anyway
13:05
we can talk about free rent is that a
13:07
thing in your market
13:08
if you don’t know you should find out if
13:10
so what are the typically
13:12
you know amounts offered in your area
13:14
one month three months
13:16
set dollar amounts you may be surprised
13:18
that in this hot market
13:19
you may not have to offer attendance any
13:21
at all however in atlanta we typically
13:23
offer
13:24
up to one month free base rents per year
13:26
of lease
13:28
we can talk about lease terms should you
13:31
go long
13:32
should you go short longer is ideally
13:34
better for the stability of the property
13:36
the less you turn a space over the fewer
13:38
months you’ll have a vacant space
13:40
waiting to be leased
13:42
less often you’ll have to offer
13:43
concessions less often you’ll have to
13:45
make over the space completely
13:47
for a different use frankly the only
13:49
time i would offer short-term leases
13:51
would be when i’m expecting rates to
13:53
rise suddenly and i don’t want to commit
13:54
to the current rates for the long term
13:57
an example would be that right next door
13:59
they’re building 300 upscale apartments
14:02
and that will triple my shopper traffic
14:05
in the next year
14:06
increased traffic usually means much
14:08
higher rates
14:10
people often ask should i offer annual
14:12
rents or
14:13
flat rents i’m sorry annual increases or
14:16
flat rents
14:17
excuse me there’s nothing inherently
14:19
wrong with offering tenant a flat rents
14:21
meaning no annual increases in rent
14:24
national or
14:25
national or publicly held companies will
14:27
often ask for a flat rates
14:28
all others in my opinion should have
14:30
rent increases
14:32
you can structure it any way you like
14:34
but as a landlord you always want rent
14:36
growth
14:37
rent growth allows compound interest to
14:39
work for you and ratchets up your income
14:41
numbers
14:42
this is important when it comes time to
14:43
sell the property
14:45
then we can talk about tenants
14:46
improvements
14:48
i prefer to give free rent and let the
14:50
tenants handle that on their own
14:52
it’s simply more efficient for the
14:53
landlord or for the broker i insist
14:55
tenants obtain the proper permits
14:57
and use only insured and licensed
14:59
contractors otherwise they’re in
15:00
violation of their lease
15:03
all manner of problems can pop up during
15:04
space renovations
15:06
taking up more time and expense than
15:07
originally envisioned
15:09
don’t get involved if you don’t have to
15:11
also if it’s required
15:12
never let a tenant skip the permit
15:14
process this will come back to bite you
15:16
down the road
15:19
very good all excellent points uh you
15:22
you touched on
15:23
uh obviously as a landlord you want to
15:26
to improve your cash flow right you want
15:28
to protect your cash flow
15:30
uh so but from a tenant perspective
15:34
right what if the operating expenses of
15:36
a building
15:37
uh balloon out of control can attend
15:40
request
15:41
that there are caps or limits on
15:43
operating
15:44
expenses i think they’re also known as
15:46
camps right
15:48
is that something that can be looked at
15:50
they can
15:51
cam also known as common area
15:52
maintenance and the answer is to your
15:55
question
15:55
absolutely either landlord or tenant can
15:59
set a maximum allowable cap on any one
16:00
item whether it’s
16:02
plumbing hvac electrical use whatever
16:04
you like
16:06
it’s a great way to make a tenant feel
16:07
more secure if their expenses have some
16:09
predetermined limits very good
16:13
so uh once you you you found the tenant
16:17
you’ve added all the tenants and you
16:19
think that now you you have a good
16:22
a good candidate how do you figure out
16:26
from a big picture perspective whether a
16:28
tenant is a good fit for
16:30
a particular building
16:33
well there’s hard concerns and soft
16:35
concerns some hard concerns would be the
16:37
actual lease rates the tenant’s
16:38
improvements
16:39
free rents things that cost or create
16:42
money
16:43
does this tend to make financial sense
16:45
for me often when you’re presented with
16:47
one lease scenario versus another
16:49
sometimes people just pick the one that
16:50
sounds better but you or your broker
16:53
or your broker should really perform a
16:55
net present value calculation to see
16:56
which one actually makes better
16:58
financial sense
17:00
and then we could talk about some soft
17:02
concerns the intangibles
17:04
sometimes it’s not about the highest
17:05
lease rate or the longest lease
17:07
it’s about the synergy created when you
17:09
bring in a tenant that creates that
17:10
dynamic tenant mix
17:12
making your center the center that
17:14
people flock to above others in the area
17:16
an example would be an auto repair shop
17:18
next to an auto body shop
17:20
or a casual restaurant next to a bar etc
17:24
let those tenants trade business back
17:25
and forth to create stronger businesses
17:27
for themselves
17:29
i recently did a women’s gym where we
17:31
did the lease and then we did a smoothie
17:33
shop
17:34
a few months later right next to each
17:36
other they love having each other next
17:37
door because it’s such a natural
17:39
fit it increases shopper traffic for
17:41
both tenants
17:43
yeah that’s that’s only a great idea uh
17:47
so once you have agreed on the lease you
17:49
have a tenant in place
17:51
uh so what are some of the potential
17:53
problems
17:54
uh that you may have to contend with
17:57
once
17:57
once you have a tenant or tenants in
18:00
place
18:02
well if you have a number of tenants
18:04
you’re going to have some that pay late
18:05
and those means and you have to enforce
18:08
late fees
18:09
i prefer to not have any side agreements
18:12
or verbal agreements with tenants
18:13
if you get in and this will get you in
18:15
trouble every time
18:17
if you make changes to the deal even
18:19
temporary ones such as a covet related
18:21
rent discount
18:23
put it in writing as an addendum to the
18:25
lease and have both of you initial it
18:27
now if a person is chronically late that
18:30
may lead to a default
18:32
um but it’s okay because if you’ve
18:34
chronic if you’ve kept that chronic late
18:36
payer
18:37
papered properly with all those late
18:38
payments then you know even the tenant
18:41
calls and or emails and it says the
18:42
check’s in the mail you know we
18:44
have we’ve heard that a hundred times
18:45
before uh if as long as you sent your
18:47
your late letters and default letters if
18:49
you have to go to court down the road
18:51
you’ll at least build your case against
18:53
the tenants so you can show
18:54
you’ve followed away
18:58
very good so
19:01
now another question is right
19:05
unless you are you have a property that
19:07
is in a just a core
19:08
top location whether it’s times square
19:10
in new york city as a
19:12
as a prime example that would everyone
19:14
know uh
19:16
in a lot of instances one probably could
19:18
say that
19:19
commercial space is kind of a commodity
19:23
right so how as a property owner can you
19:26
make sure that your property is unique
19:29
and stands out from the competition
19:32
well through creativity and flexibility
19:34
in your leasing
19:35
you want to offer tenants options they
19:37
didn’t even know were available or
19:38
things that other landlords
19:40
won’t imagine a startup tenant who needs
19:42
to keep his leasing
19:43
expenses low to start but expects to
19:46
expand rapidly in the coming years
19:48
an example would be like a technology
19:49
firm they start you start in a garage
19:51
and
19:52
three years later you’re in forty
19:53
thousand square foot uh you can offer
19:55
the tenants a right a first refusal
19:57
to expand into any adjacent spaces
20:01
if and when it’s available that will
20:02
mean it’s current needs now of low cost
20:06
and to expand when he can afford it down
20:08
the line without having to have the
20:09
tenant
20:10
relocate this costs you nothing but
20:12
really helps attendance with his
20:13
long-term planning and he’ll sincerely
20:15
appreciate it
20:17
think of a tenant who wants to lock into
20:19
a long-term rate
20:20
for five years but is not sure he can
20:22
commit for that long
20:24
you can offer him the right to an early
20:25
termination for a small penalty
20:27
again no cost to you but it helped that
20:30
tenant commit to your property
20:34
excellent points another question i have
20:38
is and uh
20:39
it’s kind of related to also what we do
20:41
right we are commercial
20:43
mortgage brokers so we get a lot of
20:46
questions from from borrowers why why
20:49
don’t we just go
20:49
directly to a lender so we can save the
20:52
the brokerage fee
20:54
so when it comes to a landlord that has
20:57
space that they need to lease out
21:00
they’re a similar question probably can
21:02
be brought up
21:03
so why should i hire commercial real
21:05
estate broker
21:07
to market that that space why can’t
21:10
i as a landlord go alone and do it
21:13
myself
21:14
well of course i’m biased being a broker
21:16
but i always think you should hire a
21:18
broker and just hear me out
21:19
an experienced connected local broker
21:22
will have a better handle on the lease
21:23
rates than you will
21:24
they’ll be able to find the pressure
21:26
points solve problems sue the tenant’s
21:28
worries and make it work for both of you
21:31
do you do as a landlord or property
21:33
manager do you even know the correct
21:35
market rates
21:36
are you up to date with proper
21:37
concessions are you an active marketer
21:39
or you’re just doing it passively
21:41
you will benefit from a great broker’s
21:44
experience
21:44
connection and local market knowledge
21:47
now
21:48
it’s important to remember that in a
21:49
strong leasing market everyone looks
21:51
like a hero
21:52
you know but the problem with that is
21:53
that it hides a lot of leasing mistakes
21:55
but it doesn’t mean you you’re doing the
21:57
best job for yourself
21:59
if a good broker can even get a dollar
22:01
fifty more square foot say than you’re
22:03
asking
22:03
then they’ll pay for themselves they’ll
22:05
have direct contact with all the
22:07
franchises and brand name companies
22:09
i’ve seen you know uninformed landlords
22:12
try and go it alone and ask
22:13
for a far above market rents only to
22:15
have their spaces vacant for six months
22:17
that’s six months of lost income
22:19
far more than the cost of a broker
22:21
commission or worse the opposite
22:23
they end up giving the space away
22:24
because they were unaware that the
22:26
leasing rates
22:27
suddenly increased since the space was
22:31
last left for lease
22:32
my point is in trying to save a dollar
22:34
you may be costing yourself a lot more
22:36
in the long run
22:38
an example would be back in 2007 when i
22:40
sold the strip center to a local
22:42
investor
22:43
i advised him to take on a broker for
22:44
the vacant spaces
22:46
he decided to do it himself he was a
22:48
very successful business owner and
22:50
thought he could handle it
22:51
he ended up making so many mistakes
22:53
mainly through hubris
22:54
he just didn’t adjust his rates when the
22:57
market started to weaken in 2008
22:59
and by 2009 his center was half empty
23:02
he nearly lost it to foreclosure by the
23:04
time he hired someone to turn it around
23:07
i think it was best said in that old
23:08
movie top gun don’t let your ego write
23:11
checks that your body can’t cash
23:14
now i’m dating myself right you can
23:17
expect leasing to get more difficult in
23:19
this coming year
23:20
a recession is coming at some point
23:22
eventually who knows when
23:23
it’s certainly going to be exacerbated
23:25
by the lingering covert problems
23:27
major companies are walking away from
23:29
their office leases as more and more of
23:30
us work from home
23:32
many retail stores can no longer justify
23:34
their brick and mortar footprint
23:36
with more and more of us turning to
23:37
online retail you should make sure you
23:40
have a strong broker in your corner
23:41
to advise you well during the commentary
23:44
turbulent times
23:48
very good points uh so let’s assume that
23:51
the landlord decided
23:52
that it’s the right and smart way to
23:55
to hire a broker to lease out uh
23:58
the space uh so and
24:01
maybe it’s a property that is in a good
24:03
enough location that it also could
24:05
attract national
24:06
credit tenants so then the quite next
24:10
question that comes up
24:12
for a landlord is should i hire one of
24:14
these large national firms
24:17
or should i hire a local broker
24:20
that’s actually a great question it
24:21
depends on several things a local broker
24:24
will be more apt to respect and service
24:26
a listing if it’s a smaller space
24:29
national brokers tend to fader tend to
24:31
favor larger listings
24:32
it’s just the way it is i’m sure i’ll
24:34
get some hate mail for that but
24:35
local brokers share commissions on all
24:38
listings
24:39
some national brokers will not share
24:40
commissions on investment property sales
24:43
but we’ll usually do it on leases it’s
24:46
important since you want all brokers to
24:48
be aware
24:48
and hopefully promoting your listing
24:52
national brokers will tend to be more
24:54
plugged in with national tenants so
24:56
if that’s you know if you’ve got a prime
24:58
corner then obviously you’re looking for
24:59
a
25:00
you know a kroger or a chase bank
25:03
obviously go with the national broker if
25:05
you have a smaller space that would
25:07
never attract a national tenant a local
25:10
broker would be just fine
25:11
you know you know because it doesn’t
25:14
always matter
25:15
if you have to look at your own
25:16
circumstances and see what you’re
25:18
actually needing
25:19
you know the name and the size of a
25:20
company is no panacea
25:22
it often comes down to the individual
25:24
broker what’s their level of experience
25:26
and track record in my area
25:28
with my type of property in my size
25:30
range
25:31
what’s their marketing strategy how many
25:33
listings do they have in my immediate
25:35
area
25:35
you should ask the right questions to
25:37
get the right broker for the job
25:40
excellent points yeah so uh now
25:44
let’s say you’ve you’ve you have the
25:46
property lease that where you hired a
25:48
broker who
25:49
brought in all great tenants and it’s
25:52
all hopefully fully leased
25:54
uh now the the next question really is
25:58
now what do i do with with that property
26:00
on a day
26:01
by day basis and week and week and month
26:03
by month
26:04
should i manage it myself or should i
26:07
hire a property manager
26:10
again i’m biased here since i’m also a
26:11
property manager but i think it almost
26:13
always makes sense to hire a property
26:15
manager
26:16
usually when people are wealthy enough
26:17
to own a shopping center or a large
26:18
commercial building
26:20
they would be best served to pay a small
26:21
fee to have it professionally managed
26:24
if a landlord’s time is worth say one
26:26
hundred fifty dollars an hour
26:28
why would they do work that he could pay
26:30
someone thirty dollars an hour to handle
26:32
we only have so many work hours in a day
26:35
so there
26:36
would be losing 120 per hour when they
26:39
do 30
26:39
an hour work i can understand being
26:42
frugal but not foolish
26:44
besides most landlords are busy
26:45
professionals or business owners
26:47
that will not be able to handle timely
26:50
issues like a dedicated professional
26:52
manager would
26:53
a recent example i know of an owner that
26:56
had a huge pothole that needed repair
26:58
the landlord said i’ll get around to it
27:00
however weeks later it still wasn’t
27:02
fixed
27:03
and then a shopper drove over it and
27:05
badly damaged their car
27:06
costing the landlord about fifteen
27:08
hundred dollars to repair the car
27:10
not to mention the loss of goodwill and
27:11
embarrassment a good property manager
27:14
would have been all over that handled it
27:15
right away
27:17
another example would be the application
27:19
of sands and snow melts to icy sidewalks
27:21
when it gets cold
27:22
this is an infrequent yet very timely
27:24
thing when it’s needed
27:26
a simple slip and fall could land you in
27:27
court with a lawsuit for negligence
27:29
and cost tens of thousands of dollars
27:31
for you to settle
27:34
yeah very good point there
27:38
so i think we now also have kovi 19 that
27:43
is on
27:43
on everyone’s mind right we have some
27:47
some locations uh or worse than orders
27:51
when it comes to
27:52
to local restrictions as well as to
27:55
local regulations where
27:57
uh local authorities restrict
28:01
evictions of commercial tenants giving
28:03
them some
28:04
some additional rights so
28:08
talk to us a little bit about how
28:11
how leasing now should be done
28:14
doing the age of uh kovit 19.
28:17
you’re absolutely right the effects of
28:18
cove have been very uneven some states
28:20
have been
28:21
draconian in their responses and some
28:24
lazy fair
28:25
but generally it’s decimated restaurants
28:27
salons and spas while barely affecting
28:30
many other categories
28:32
many landlords are trying to pivot from
28:33
these categories if possible for example
28:35
if you have a
28:36
traditional salon that can be carved up
28:38
and cut up into
28:39
individual salon suites that offer
28:41
greater perceived safety
28:43
restaurants that are fine dining could
28:45
maybe pivot to takeout or more delivery
28:48
those are faring much better you need to
28:50
ask yourself
28:51
as an owner what prospects are
28:52
unaffected or at least less affected by
28:54
covid
28:55
and can i actively seek those out case
28:57
in point we lost the fine dining
28:59
restaurant tenant in september
29:01
we ended up replacing them with a
29:02
popular pizza takeout and delivery shop
29:05
since so few restaurants are open to
29:07
dine in customers this pizza shop’s
29:09
business is actually up over 25
29:11
during covet so they’re doing great you
29:13
know
29:14
with any space i always ask if things go
29:16
badly what’s my turnaround strategy
29:19
what are my changes and how much will
29:23
those options cost
29:24
you just want to do whatever it takes to
29:25
make your property more covered
29:26
resistant you know
29:28
another leasing assignment i had in
29:29
october was for a new construction
29:31
fast food restaurant i dreaded getting
29:33
this because i knew it would be a very
29:34
difficult space to lease of all things a
29:36
restaurant during covent
29:38
however since it was just being built i
29:40
was able to convince the landlord to
29:42
redesign the building at the last minute
29:43
we got rid of the drive-through
29:45
and we began marketing as a medical
29:47
space within about 30 days
29:49
we filled it with an urgent care center
29:51
with a 10-year lease so
29:53
it actually came out smelling like a
29:54
rose on that one
29:56
wow that’s great uh so
29:59
obviously you you touched on restaurants
30:02
right there are some other
30:03
uh tenants that and the industries that
30:07
have been suffering more than others
30:09
doing kobe 19
30:11
and i think landlords really need to be
30:14
very proactive now
30:16
uh so as a landlord and and brokers what
30:19
what can
30:20
they do to be more aggressive when it
30:23
comes to marketing their property in
30:25
that environment
30:27
you know for me being nimble and
30:29
creative is key
30:30
even if i don’t currently have a vacancy
30:32
i advertise spaces for lease that i
30:34
think
30:34
may come vacant in the next 90 days or
30:37
so that way if a tenant doesn’t renew
30:39
his plans
30:40
or goes under moves away i’m not caught
30:42
off guard i have a roster of interested
30:45
prospects to call
30:46
for example i manage a center where a 5
30:48
000 square foot tenor
30:50
recently went away in june um since i’m
30:54
in very close touch with my tenants
30:55
i saw that she’d really been struggling
30:57
since april so i began advertising the
30:59
space
30:59
in advance just in case she went under
31:02
and she did
31:03
i quickly repositioned the space to
31:05
attract new users i found an established
31:07
medical technology school that was
31:09
actually using a lot of distance
31:10
learning
31:11
they signed a six year lease and they’re
31:13
operating just fine
31:15
basically unimpeded during this covert
31:17
time
31:19
very good so i think you just
31:21
highlighted
31:22
the importance of of using a broker
31:25
right you can bring
31:27
ideas to the table how to market that
31:29
property
31:30
right would you as a landlord think of
31:33
uh
31:34
approaching a medical education or
31:36
another medical type of company
31:39
maybe you do but then you still need to
31:40
find them right so i think it’s
31:42
it’s only worthwhile so hopefully
31:46
someone hired you and you’re able to
31:48
fill fill
31:49
all the space so the question now is now
31:52
the building is full
31:54
and now what’s the way forward
31:57
well it’s great your building’s full but
32:00
you shouldn’t be afraid
32:01
not to renew tenants that don’t work
32:03
well that perhaps don’t contribute to
32:05
your current tenant mix or simply too
32:07
much trouble to keep around the
32:09
the late payers the chronic complainers
32:12
perhaps the people make a little too
32:13
much noise you know
32:16
second don’t fight the market you want
32:18
to adjust and adapt
32:19
your outlook and your expectations to
32:21
the market don’t get too hung up on your
32:23
own story of or version of the market
32:26
third and last uh tenants come and go
32:30
for a variety of reasons you can’t fight
32:31
it but always strive to protect those
32:33
core
32:34
tenants you know the ones that really
32:35
drive traffic to your property the one
32:37
that you’re known for
32:38
you know we have one two we have one
32:39
building where a stage three a big gym
32:42
is their tenants and people it’s called
32:43
the stage three building i mean
32:45
it it’s just that’s just it’s like like
32:47
a local landmark in our town now so
32:49
you know so your point is you want to
32:51
build on them protect them and they’ll
32:52
serve you well
32:54
yeah that’s a great idea right so
32:56
everyone recognizes the building
32:58
so it it helps everyone right it helps
33:00
you as a landlord as well as
33:02
absolutely yes so uh
33:05
i thank you you had a great value here
33:08
uh and obviously i think
33:12
everyone hopefully after listening to to
33:15
your outline is convinced that
33:17
one should use a leasing broker to to
33:21
to lease up a commercial building but
33:24
let’s discuss
33:24
uh leasing commissions obviously it’s
33:26
not free
33:28
so could you touch on that a little bit
33:31
and how it’s different
33:32
for from residential leasing of course
33:36
um well first and foremost it’s former
33:38
negotiable
33:39
there are lots of formulas depending
33:41
upon what state you live in for a mom
33:42
and pop tenant you might pay one month’s
33:44
rents
33:45
or five percent of the total base rents
33:48
if it’s a triple net lease
33:50
for a national accredited tenant you
33:52
might pay one month’s rent
33:53
plus four percent of the total base rent
33:55
because you can always expect to pay a
33:57
higher commission
33:58
for a high quality national name brand
34:00
that does say a five
34:02
seven or ten year lease you wanna
34:04
negotiate with your broker but don’t
34:06
skimp
34:07
remember brokers will tend to show the
34:08
listings that pay them well it’s simply
34:10
good business practice for them
34:12
give them a good reason to show yours in
34:15
conclusion
34:16
leasing is a fairly simple subject that
34:18
virtually anyone can master
34:20
it just takes a conscientious person and
34:22
a willingness to ask for
34:24
professional help when needed you should
34:26
be proactive
34:27
or hire brokers and property managers
34:29
that will strongly advocate for you
34:31
for economic and coveted related reasons
34:33
this will be a tougher year
34:35
for leasing but it doesn’t mean you
34:37
can’t thrive in 2021
34:39
use everything at your disposal to
34:40
protect your properties
34:43
all great points thank you very much
34:45
alan
34:47
so i think you added a great value to
34:50
our listeners
34:51
uh so if if someone would like to
34:54
to reach out to you how can you be
34:56
reached
34:57
i can reach that a-l-a-n at d-r-p
35:01
brokers drp as in david roger
35:04
paul allen at drp brokers
35:08
i’d be happy to share a free net present
35:10
value calculator
35:11
i can share some of my other articles
35:13
that i’ve written such as leasing from a
35:14
tenant’s perspective
35:16
so people understand both sides of the
35:17
coin happy to
35:19
offer any sort of commentary that can
35:21
help anyone so okay
35:23
very good and you you cover what
35:26
what areas of the market just at the
35:29
from a
35:30
geographic perspective
35:33
i’m licensed in both the state of
35:35
georgia and the state of new mexico
35:37
okay very good so thanks again alan that
35:41
was
35:42
very valuable and appreciate you coming
35:45
on
35:46
thank you so much for having me love to
35:47
be back again