Traffic Counts -- When More Is Not Necessarily Better

One of the most closely watched metrics in measuring the relative desirability of a business location is traffic count.  Having a real estate broker that can access this information in real time is highly valued by tenants who consider this critical information.

But consider this: One of the most heavily traveled roads in Southern California is Pacific Coast Highway.  For the affluent population residing near the Pacific Ocean, this road connects all of the communities up and down the coast.  Most of the highway is wide and carries a large volume of traffic efficiently.   But many of the retail shops that line the highway are struggling or empty.  This may have you scratching your head, but stay with me here…there is a very sensible explanation.  In some locations along the highway, convenient ingress and egress are sacrificed due to high volume, high speed traffic flow – people are zooming by and don’t slow down long enough to identify the businesses in the area.  The rent premium paid for high traffic at these locations is unfortunately wasted; worse, it becomes a burden that could put the business under.  What a shame.

There is more to traffic count than meets the eye.  It is more than just a number:  Is the subject traffic artery busy due to local commerce, or is it a favored route across town or to the freeway?  Is exposure of your brand (i.e. your sign) your goal, or is your objective fitting strategically into the fabric of shopping patterns for your target customer?  There is no universal right or wrong here.  But you need to define what is right or wrong for your business.

You and your real estate broker need to clearly understand your customer and their reasons and methods of patronizing your business.  Traffic count is indeed very valuable information, but only if interpreted correctly. 

Enterprise Zones -- The Best Kept $100,000 Secret In The Business

There exists a golden opportunity for tenants – large and small –  to save potentially tens of thousands of dollars every year at their leased properties – one they don’t even have to squeeze out of their landlord!  And their current broker (if they even have one working on their behalf) may be too myopic to know about it and bring it to their attention.

Enterprise Zones are created by state governments to incentivize business investment in geographical regions of under employment or economic blight.  In many states, such as California, these zones cover huge swaths of real estate and include areas you would never expect to qualify.  Few people realize, for instance, that virtually every corner of downtown Los Angeles is within an Enterprise Zone!

The economic incentives come in the form of income tax credits for new hiring.  Usually, these credits repeat year after year over the first five years of employment  and the incentives do not expire as long as the tenant is doing business continuously at the eligible location – the gift that keeps on giving!

So find an expert in your market who can show you where the Enterprise Zones are and can in turn coach your tenant clients to maximize their savings.  I have one.  Her firm has saved my clients hundreds of thousands of dollars and has helped me earn their undying loyalty.  And for me, that’s the “End” Zone!

 

Aaron Weiner CCIM, CPM, LEED AP

aaron@bailesre.com

The New Tenant Creditworthiness Game

Landlords will forever insist on seeing financial statements before finalizing a lease deal with a tenant, whether they are a small business or a publicly traded company.  And they should.  But what does a tenant do if their ship has been tossed – and perhaps badly damaged – in the hurricane of the recent, extended recession?  And, I mean, who amongst us hasn’t suffered?

I represent tenants who, in some instances are looking to downsize for the sake of their very survival.  It is unlikely their financial statements are going to inspire many landlords to spontaneously break into song.  So, does this tenant need to resign themselves to rejection?  Absolutely not.

Landlords have suffered a parallel fate as their struggling tenants.  They naturally prefer tenants that have capital reserves that will better insure that their rent will arrive in the mail every month.  But today they are forced to look beyond the numbers, and brokers need to coach their tenant clients how to tell their story in a persuasive way.   That comes with taking the time to learn about the clients business and ask some difficult questions to get at the truth.

I recently  had a client – we’ll call him Stuart – who is a prominent interior designer for large homes and hotels.  His industry was decimated by the recession and the very fact that he survived at all was a testimonial to his reputation and perseverance.  We presented the landlord with a couple of years of personal tax returns (since the landlord would require a personal guaranty on the lease.)  This gave the landlord the facts.  They are what they are.  Starting off with honesty is always the best policy.  But what we submitted with the numbers was Stuart’s story: his long history in the business, his impressive resume of clients worldwide, and his nimble resizing of the company to insure its continued viability.  We worked together on the story so it hit what I knew from experience would be a landlord’s hot buttons .  We proceeded to final lease documents without a single question from the landlord.

The facts + a success story that reaches back to more robust economic conditions = the new creditworthiness. 

 

Aaron Weiner CCIM, CPM, LEED AP

aaron@bailesre.com

When “Triple Net” Isn’t Really Triple Net – Kellogg’s Swale Tale in Detroit

Can the landlord force their tenant to cure all latent defects at a property under a NNN lease?  The answer is yes…if you let them!  Tenants take this on the chin day in and day out without a good, experienced broker in their corner who can come out swinging!

Properties can have latent defects even if they are brand new.  The benefit of brand new is that there are construction warranties in place.  Did the broker make sure those warranties were addressed in the lease to protect their tenant against construction defects?  If not, the tenant just got the shaft!  If the warranties have long since expired, did the broker get wording into the lease that latent defects would be the landlord’s responsibility?  Admittedly, those assurances are hard to get, but you gotta ask!   Putting protections into the lease regarding premature and extensive repairs to a property that is being tendered in “good operating condition” is the stuff of another blog post, but I wanted to share an interesting story that involved my client, The Kellogg Company.

Kellogg was 3 years into a five year lease at a free-standing, single tenant facility in the greater Detroit, Michigan market.  This was a classic triple-net situation: the tenant was the only one using the property.   I got a email from Battle Creek: the Detroit distribution center manager was complaining that a broken concrete drainage swale running down the middle of their truck court was breaking up and causing damage to their trucks.  After reviewing their lease and finding what I expected – pure triple-net without any carve outs – I took a few minutes to reset the client’s expectations; after all, it was their truck traffic that caused the damage.   But before I came to any final conclusion, I asked them to take several photos and send them to me.

What the photos revealed was that the concrete swale was poured with the rebar very close to the surface which arguably caused the concrete to spall.  The rain and freezing temperatures took care of the rest.  I presented the problem to the landlord thusly: the faulty construction of the swale was the root of the problem.  And the tenant was considering their options with respect to renewing this lease.  Can you guess what the outcome was?  Problem solved…and at no cost to the tenant!

The moral of the story here is that the tenant or their broker must give these situations a closer look before incurring the cost of repair.  And if you think you need the leverage afforded by a Fortune 100 tenant, that’s not necessarily the case.  So long as the tenant has held up their end of the lease and paid their rent on time, they are golden.

Nothing is absolute when it comes to business.

 

Aaron Weiner CCIM, CPM, LEED AP

aaron@bailesre.com

Corporate Image: Inside vs. Outside -- Does Your Broker Get It...Or Even Care?

Did you sign a lease for a beautiful new building only to watch employee morale disintegrate after you moved?  What the heck just happened?

Your corporate image is reflected in many ways, including your branding and marketing materials, but perhaps in no way more dramatically than in your place of business.  Tenants, be they retail, office, or industrial in nature, choose buildings based on their outside appearance  or “curb appeal”.  While there is no discounting the way a building looks from the street, experienced and knowledgeable real estate brokers know that what you see isn’t always what you get.  Poor brokers and naïve tenants overlook the fact that there are two distinct audiences for their corporate image:  the outside world (their clients and the public at large) and, no less important, their employees. 

On the outside is the architecture, the building skin of granite or glass, the expansive lobby and the corporate identity (not necessarily theirs) on the top of the building.  But what is important to your valuable employees?  Think ease of parking, the speed of the elevators, the smell of the bathrooms, and the comfort of the suite.  What do you think it does to productivity to have your employees chronically complaining that they are too hot or too cold in their work area, or worse, going home feeling sick because they are hypersensitive to these temperature extremes?  Or when they take longer lunch breaks because the food amenities located in or nearby the building are lousy?

How else does a building impact your business operations?  Is that impressive grand lobby in your three story suburban building inflating your rentable square footage and costing you more relative to other alternative buildings?  Are you setting yourself up for surprise billings from the landlord because they are doing a poor job managing building operating expenses?  It might surprise you to learn that these are all things a good real estate broker can identify before you sign your lease.

Think about it: those companies rated as “the best places to work” in your local business journal never cite the exterior appearance of the building.  It’s all about happy employees.  And happy employees make for happy clients.

Aaron Weiner, CCIM, CPM, LEED AP
aaron.weiner@weinerproperty.com

THE WALMART CONUNDRUM

I attended a
very informative presentation recently by a senior regional Walmart
representative seeking the endorsement of the Central City Association of Los
Angeles, a citywide business advocacy group. Walmart has been rolling out their small-format Neighborhood Market concept (+/-35,000 s.f.) and their recently announced plan to put one in on the fringes of Chinatown in downtown Los Angeles was met with howls of protest. The representative put up a PowerPoint presentation chock full of dazzling statistics about Walmart’s incredibly diverse employee population, their better-than-average pay scale, and the
fantastic value they bring to their customers. The presentation felt like a defensive move in the face of “NIMBY” resistance they seem to get from so many cities. They are eager to prove they are a responsible, good neighbor dedicated to serving the needs and desires of the shopping population.

The presentation left me with the distinct impression that the world’s largest retailer sees the entire population of the world as either as employees, customers, or suppliers. The conundrum
is that while they pursue their noble goal of bringing their customers good products at the lowest prices, there are many ordinary people in these communities who chose to be business owners instead. And they just can’t survive when Walmart comes to town.

I am sure this grocery-deficient neighborhood will gobble up what Walmart has to offer. And a few family-owned shops and markets will close.

THE FUTURE OF BUSINESS IN CALIFORNIA

It was a brilliant presentation of undeniable facts from Larry Kosmont, President of Kosmont Companies about the economic and political forces presently at work in California…and the ramifications to every business in the state.

Mr. Kosmont made his 2012 Economic Forecast presentation to the Central City Association in downtown Los Angeles on Thursday, February 16. Some of the facts Larry laid out were daunting:

• The state is frozen in a dread triangle of high unemployment, staggering pension obligations, and the legislative’s preferred response: tax increases.

• There are 15,000 retired public workers in California with pensions greater than $100,000 annually.

• The casualties resulting from the elimination of the State’s redevelopment agencies will include tens of thousands of jobs and hundreds of projects, including the construction of the vast majority of new affordable housing in the State.

• As California raises its taxes, it continues to lose business to Arizona, Nevada, and Colorado

• Mr. Kosmont describes a “hollowing out” of our business economy: successful businesses are incubated in California, but most of the blue collar/middle class jobs are then exported due to the high cost of doing business here, leaving only a skeleton crew of sales people to maintain the company’s presence.

• Downtown Los Angeles is the brightest spot in the state, as the residential population grows and businesses springing up constantly to be a part of the revival of a once great urban core.

The conclusion: California is not the promised land it once was, but it can be rescued.

Mr. Kosmont’s presentation is available online at www.kosmont.com. It is very interesting reading.