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Wednesday, January 27, 2010

Tenant cries for help

If you own commercial real estate today, you are likely to have received a pleading phone call from one or more of your tenants asking for rent relief. Ignoring or denying these pleas might result in your having another vacant space in your building, but you just hate to buckle under to such demands; after all, you don’t have the right to call the tenant in a strong economy and ask them to pay “just a little more rent”.

These strategies are tried and true and might make sense for you:

  • Clearly define the term of the rent relief. Try to dole it out in increments of three to six months at a time.
  • If the tenant’s rent is already below market, negotiate a rent trade-off: get them to agree to a new rent schedule for the balance of the lease term in exchange for a rent concession now.
  • Amend the lease term in a manner favorable to you in exchange for a concession
  • If the request comes from a retailer in a shopping center and their lease has a % rent clause, you might consider allowing the tenant to pay just percentage rent for a while, but at a higher rate than what is stipulated in the lease. When the base rent break is over, the percentage should remain at the newly negotiated level, improving your chances of recovering some of the rent concession through percentage rent overages when their sales pick up.
  • Ask to see the tenant’s financials. Every tenant is jumping on the bandwagon in this economy and holding their hand out. Save your concessions for the tenants that matter the most and who really need it. A retail property manager friend of mine was just telling me about how Walgreen’s approached him for a rent reduction at one of their really strong locations. I mean, really!
  • Always ask the tenant to prepare a business plan for you showing what they are doing to improve their bottom line during the rough economy. Perhaps you can induce the tenant to do some cross merchandising with another tenant or invest in some strategic marketing initiatives. If you are willing to extend a concession, the tenant should be a captive audience for your ideas. If a retail tenant has lost heart and is just dying on the vine, keeping them around could be toxic for your center, so consider cutting bait and letting another successful tenant use the space temporarily or for storefront merchandising.

Any approach that helps the tenant survive and gives you some security in return is worth exploring. and see the silver lining: these challenging times present great opportunities to show some heart and fortify your landlord-tenant relationships.

Thursday, January 21, 2010

Is your property open for business?

It’s one thing to own a commercial income property, but another to run it successfully. The former takes capital, the later requires a strategy, planning, a head for contracts and budgets, a team of supportive vendors and contractors, market savvy, a bit of a competitive streak…and, yes, some capital (that will usually be available in the form of spendable rent).

This blog is a place to get insights into what makes commercial property tick and how to “tock” to your tenants. Running a commercial property is about facing daily challenges and capitalizing on opportunities. My posts will range from bite-sized tips to overarching principles that should be a the foundation of any property management business