Shawn Massey, CCIM, SCLS

Save Money By Not hiring a Tenant Representative????

I just arrived home last night from visiting a piece of retail history to Bentonville, Arkansas.  I had the opportunity to visit the first Walton’s five and dime store in downtown Bentonville.  It was a unique experience to see the humble beginnings of the great retail empire, Wal-mart. It is a wonderful place to visit if you have any interest in retail real estate or in American History. My family and I were in town to visit the new Crystal Bridge American Art Museum that was built by the Walton family. Visiting the comprehensive collection of American art and the unique architecture of the museum building makes a great weekend trip. We must thank the Walton family and the other contributors for this rare gem of culture in our area. Would Sam Walton have considered saving money by not hiring a tenant representative?

 Numerous articles, company brochures and CRE blog’s have been written about the benefits of tenant representation.   So why am I writing another?  National and regional retailers have embraced tenant representation for many years as a way to bring local market knowledge to their real estate site selection equation among the other real and intangible benefits.  The local retailer or restaurant owner is apt to say I know my market well and what location will work for me, so why do I need a tenant representative to increase my cost? As a retail tenant representative, I welcome the opportunity to work with retail and restaurant owners who have firm grasp of what works for them or to work with others who are befuddled with the entire leasing process.   I believe we can be a benefit to both parties.   Although tenant representation is a benefit to all commercial real estate tenants, the need for a tenant representation in the retail site selection and in the leasing process is even more complex. 

 The retail or restaurant tenant is not necessarily looking for the lowest rental expense cost solution, but the most profitable location that will generate the greatest sales in relation to the total occupancy costs.  Do not to negate the excellent work of many of my tenant representation colleagues in the office and industrial market who look at maximizing business profit for their clients.  Retail is just different. Alternatives may not be readily available in each retail trade area.  There are many aspects of their office and industrial tenant representation process that I do not entirely understand.  In the retail arena we may only have one opportunity that may work for the tenant and we need to negotiate the best market deal possible.  The relationship between the retail tenant and the landlord is a partnership that requires on ongoing working relationship.

 I see the retail tenant representative as a direct extension of the retailer’s team.  An outsource resource who is 100% committed to helping the retailer or restaurateur to find the best and most profitable locations to operate their business. 

 So again why do you need a retail tenant representative it would start with asking a few questions of yourself.  These include:

 1. Do you have the time, resources and expertise to do the market research necessary identify all the potential locations?

2. Do you know the market effective leasing rates of all the retail trade areas you may consider?  This is the real leverage!

3.  Do you have both the time and expertise to deal with the various brokers and landlord’s you will encounter while running your daily business?

4.  Do you understand that quoted rents include a brokerage fee?

5.  If you choose a location and it fails do you have an exit strategy?

 Very few local retailers and restaurateurs utilize the services of a good retail tenant representative, but could benefit in the following ways in addition to local market knowledge. These benefits are good for both regional and national tenants too.

 Save you time – The site selection process requires more analysis of many more selection factors than in years past.  A tenant representative can provide you access to up to date market information including at demographics, psychographics and leasing opportunities that may not even be on the market.  He will provide you all available opportunities.  To do it yourself would take time away from your core business and you still will probably miss some good opportunities!

 Save you money – The first thought is that a tenant representative will add a cost to the deal.  A good tenant representative will not only save you money on the easily identifiable quantitative points as lower rents, higher tenant improvement dollars and free rent, but also on the qualitative issues that could include lower renewal options, caps on controllable expenses, exclusives, kick-outs and the right to sub-lease. 

 Increase your profitability – It is important to optimize your retail location from the point of profitability rather than just the lowest rental cost.  This means choosing the location that will generate the most sales relative to the total occupancy costs.

 Provide financial analysis – The true cost of occupancy for a retail tenant is beyond the negotiated base rental rate to include such charges for amortized tenant improvement allowances, common area maintenance, real estate taxes, utilities, construction costs and property insurance.   If you do not deal with these charges on a daily basis, they could decrease your business profitability.

 Navigate the leasing process – A good tenant representative will help you navigate through the leasing process in an efficient manner, and help avoid pitfalls, so you can concentrate on your core business.  The CRE leasing process is complex from the initial letter of intent through opening of your business.  The decisions you make today last the lifetime of the lease.  This will include help with the necessary paperwork to make your business venture a success.

 Provide the tenant leverage – Knowledge is King!  The more information and expertise you have on your side the better deal that you will get.  This created leverage and knowledge helps you mitigate risk.  I just finished the book Great by Choice by Jim Collins and one of the key concepts of the book is “Productive Paranoia” which describes that the great companies planned for the best and worse situations. 

 Well connected – Choose a professional well-respected retail tenant representative who is well connected to both the brokerage and landlord community.  This will provide tenant opportunities that may currently not be available.  This could be simply knowledge of prime space availability, letting you know who would be a good landlord partner or a retailer who is looking to get out of a lease.

 Facilitator – The job of the retail tenant representative is to serve is client.  Sometimes this may include being a voice a reason explaining the current market conditions to you, playing the “bad cop,” or settling disputes with the landlord to maintain the harmonious relationship.  This may also include providing necessary referrals to architects, lawyers, contractors, sign companies and many other vendors necessary to help you.

Avoid a conflict of interest – Since the tenant representative is working 100% on your behalf.  They will show you all opportunities in the market whether controlled by their company or not.  The fiduciary responsibility and loyalty is entirely towards you.

The best retail landlords recognized the benefits of dealing with knowledgeable tenants who have been educated by a quality tenant representative as to current market conditions and have been properly prepared by their extended tenant representative team as to the leasing process.   They do not see them as obstacles to the leasing process that may complicate a deal and cost additional money.  

As a tenant, you are not directly charged for your tenant representation services.  What does not directly mean?  In the CRE process the landlord pays your tenant representative fee.  The fee is included in the total dollar value of the lease and included in your monthly rent.  The bottom line is that it would be included whether you have a representative or not and the services plus the benefits a quality retail tenant representative will far outweigh this cost.   

There are no savings by trying to secure a commercial retail lease on your own.  The commercial real estate leasing is both complicated and risky.  You would not go to court without a lawyer and you would not meet with the IRS without your accountant?  Why should you go into what for most retailers the second greatest expense for your business without an expert on your side?

In future postings, I will go through in detail certain aspects of what quality retail tenant representatives do to serve their clients.  I am fortunate that I have a few clients that see my services to them as an essential part of their entire business process.  In essence, the tenant representative becomes their real estate department. 

I hope you will check out future weekly commentary at

www.RetailRocksintheMidsouth.com

Cheers,

Shawn

Shawn Massey, CCIM, SCLS is a partner with The Shopping Center Group a 3rd party retail real estate advisory firm in their Memphis office, an adjunct professor in the graduate real estate program at The University of Memphis and a co-founder and Chairman of the Board for the Memphis Business Academy charter schools (K-12grade) in the Frayser area of Memphis.  

For all your retail real estate needs (tenant representation, landlord representation and property, investment & land sales) I hope that you will choose The Shopping Center Group and me to represent you and your business.  We understand that representation is a privilege and that you have a choice!

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3 comments

  1. Great comments.However, too long for most people.

  2. Thanks a lot for the tips, and your webpage really looks wonderful. Exactly what word press design are you using?

    • Jeffrey:

      I was fortunate to work with a great consultant who help me very cost effectively. Jason Fox
      Internet Marketing Consultant
      e: jason@jasonfox.me
      p: 425.299.8454

      I cannot remember the exact theme but it was straight off the shelve. Please call Jason and tell him I sent you.

      Shawn

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