The door to real estate success says ‘leasing’ on it, tenant retention is priority in challenging times

Published 6:18 pm Monday, June 8, 2009

A mentor in my early years of real estate told me to “learn from the ground up.”

Those sentiments ring true in today’s recessionary times as leasing is the foundation of nearly all commercial real estate investment.

Tenants in every category are sizing down, looking for ways out of leases, or otherwise struggling to pay rent, making what you know at the ground level the key to success at any level.

Days of excessive tenant concessions to achieve higher face rates and artificial equity are long gone. The excesses that led to the credit crisis have changed the rules of the game.

Savvy landlords and real estate professionals are making adjustments to how they do business as a result.

Tenant retention is paramount. Depending on size, landlords should be contacting tenants and starting a dialogue up to a year in advance of expiration.

Shrewd landlords have an understanding of the cost(s) associated with re-tenanting and typically offer renewal programs that include blend and extend, rate reductions, rent abatement and/or refurbishment allowances for the luxury of fixed term extension.

After all efforts to renew and extend existing tenancies have been exhausted, real estate professionals and landlords need to tackle leasing vacant space in new ways to win the battle in an extremely anemic market.

Get in front of the curve on pricing

I’ve always subscribed to the philosophy of beating the market to the punch rather than chasing the market down. Price your property slightly below your competitors to assure seeing every deal circling in the market place.

Make it sparkle

It’s the tough times that force us to improve, to re-invent ourselves and our property. With less foot traffic and readily available labor, take the opportunity to upgrade the image of your investment.

Take a fresh look at common lobbies, exterior renovations and landscaping. Individual suites should be clean and ready for tenant’s fixtures as well. Each category type has different industry standards.

Think creatively

All too often I list properties that encounter mass exodus or full-floor vacancies, likely from unimaginative or rigid previous ownerships. Each case should be fully qualified for multi-tenanting.

Despite the upfront deminishing costs, landlords generally benefit from staggered lease expirations, premium rents and faster absorption after you have upgraded your assets and marketed your vacancies effectively.

Should you have the good fortune to engage a qualified tenant I encourage you to go with the grain. A new lease is a relatively short term commitment and a valuable commodity. Make asserted efforts to accommodate your new income stream.

Avoid the typical pitfalls,

don’t try to “time” the market

Prudent tenants look to lock in rates in softer markets and conversely, landlords try to limit term in hopes of capitalizing on the upswing.

In today’s climate “a bird in hand is better than two in the bush.” Taking into account downtime, tenant improvements and brokerage fees timing the market is a risky proposition and most who try it get burned.

Control the tenant improvement process

The cost of retro fitting is expensive and tenants more often than not are completely naive or disconcerted. While we focus on rental rates, it’s the improvement package that dictates economic feasibility of a lease.

Some minor architectural assistance can really cut costs. Setting a precedent with a not-to-exceed number typically mitigates the prospect of incurring vanity expenses. Try to deliver tenants’ needs within reason, but sometimes the square peg just doesn’t fit.

Commercial brokers work hard

to win clients’ trust

Remember that most commercial brokers have worked hard to win their clients’ trust, are highly knowledgeable in their market and, in most instances, are deserving of a market fee relative to the income stream procured.

Sometimes they come packaged with large egos and memories like elephants, but support of the real estate community will pay dividends in the long run.

The year ahead will prove challenging with regard to tenant retention and filling vacancies.

Deploying fundamentally sound leasing strategies with a strong dose of creativity may be the defining difference in how your year ends.

Josh Heyum is an Associatee Advisor specializing in leasing and sales of office, retail, industrial,biotech and flex-type properties in the Puget Sound Region for Coast|Sperry Van Ness of Everett, www.coastsvn.com.