In commercial and retail property sales and leasing, regular contact with local landlords will help you with growing your market share, and improving your commissions. Landlords require expert assistance when it comes to quality investment properties. They cannot do everything themselves (although they may think that they can).
Most landlords only have a spattering of knowledge when it comes to the bigger issues and challenges of commercial property ownership and property performance. Consider some of the following that you know and that landlords do not:
- Market rentals for property type and location
- Enquiries by local tenants for new space
- Occupancy costs relating to property types
- Leasing strategies in today’s property market
- Relocation and renovation strategies
- Income improvement processes for leasing property today
- Incentive strategies to create more property enquiry
- Marketing strategies for challenging property situations
- Franchise tenant leasing and occupation
You can be an expert in all of these things. It is that expertise and knowledge that landlords require and you can market yourself around. Local property information will always be of interest to the landlord’s that you talk to.
Over time the relationship that you establish with local property landlords can be strengthened through regular contact, but also through the provision of relevant information and specialized services. Here are some strategies to help you in that process:
- Keep the landlords up to date with information about the changes to vacancy factors in the local area. Throughout the business year, vacancy factors will change relative to the property type and the supply and demand of new space locally. Track these numbers and make them available to your good clients or prospects.
- Given that the property market will change throughout the year, you can provide market updates relating to investment property, market rentals, lease strategies, vacancy rates, time on market, and local business sentiment and activity. All of that information should be at your fingertips as the local commercial real estate specialist. You can produce a research paper on those facts; that paper can be directly distributed and be made available from your website as an enticement to join up to your newsletter or mailing list.
- Any new property developments approved through the local planning office can challenge the owners of existing properties in the same general location. You can keep those landlords up to date with information regards other new property developments and the progress of the development. It is a prime opportunity to help them minimise their vacancy factor as the threat of the new property grows through its construction and project leasing phase.
- You can provide a tenant retention strategy for the landlords that you serve. A good tenant retention plan will incorporate lease strategies, tenancy mix solutions, relocation and refurbishment plans, and vacancy management. Charge a fee for the process.
- Any of the properties that you market locally for sale or for lease can be communicated to the other landlords that you know, in case they have an interest in monitoring or participating in the local marketing campaign. They may even have an interest in property acquisition and portfolio growth.
- When any property is listed in the local area, personally connect with all of the local business proprietors to tell them of the upcoming listing. The same process should apply with all local property owners. This thorough networking approach will show your professionalism in the industry and position you as the local top agent specialising in the property type.
Keeping in contact with landlords will always produce good opportunity over time. Establish your system of contact and keep it moving ahead. Make sure that all the local landlords know you as the expert that you should be.
When it comes to leasing commercial or retail property, the landlords that we work for can be too fixated on the start rent as part of the lease agreement and lease negotiation. If they are holding the property for a number of years, there are some other factors in the lease that are perhaps much more important to the lease cash flow.
The start rent of a lease is only of great concern if the property is soon to be re-valued for finance or to be taken to sale in the near future. In that case the passing rent will be capitalised and a value for the property will be set.
The fact of the matter is that the landlord wants a tenant first and foremost. In this tougher property market the landlord cannot be too focused on the start rent (within reason). As long as they get a rent that is relative to market and not aggressively high, they can pick up the growth in rental through other means over the lease term. That’s where you being a lease specialist will be of great relevance to the client. You should be the strategist to make this happen.
Here are some ideas to help with helping the landlords that you act for, get more rent.
- The start rent should be set with reference to the local market and the comparable properties that are available for occupancy. You have to attract a tenant, so the rent has to be ‘attractive’ to encourage property inspections and lease offers.
- Rent review profiles can improve the rent. Importantly you should select the rent reviews that give the landlord a realistic and sustainable rental increase. There is no point in pushing a tenant to business volatility with a high rent. When the property market is soft, tenant stability is more important than rental increase.
- Face rent and effective rent are two different things. The difference between them will be created by the use of an incentive in the lease deal. The face rent will allow the landlord to get back the cost of the incentive. The recovery should be structured into the lease rental and the rent review process. You can calculate the difference between the rentals by a calculation and an assumption of Net Present Value over the lease term.
- Car parking can be considered a separate rental. I know that some lease deals include the car parking in the base lease rent; whilst that is fine for some landlords, do not overlook the advantage of setting a rent on the car parks that are provided to the tenant. Any car parking rental could be documented on a licence or similar separate document to the lease.
- Naming rights and signage in or on a property should not be provided ‘free’. If the business wants to put their business name on a property, consider the issue of rental for that signage being positioned.
- Storage rental should be charged when possible. On-site storage for a tenant is a business advantage. If you give the tenant a special area where they can store things, determine a rental for that and set up a separate licence agreement.
- The provision of roof top space for an antenna will be another opportunity for a rental. You can add to that rental a cabling space rental for the distance that the tenant takes in dropping a cable down the building riser to their tenancy.
I know that some of you may find some of these things difficult to negotiate in all leases; I also know that some lease deals are special and a base rental ‘covers everything’. That being said, please understand that it is the job of the leasing agent to get the best ‘realistic rent’ for the landlord that helps them improve rent and also stabilise occupancy for the long term. You are the lease strategist.
Many commercial property managers will understand just how important the monthly report is to the clients and landlords that they serve. The information that goes out in the report must be accurate and detailed.
It is interesting to note that many monthly reports sent out to landlords are little more than a financial report from some computer based property management system. Whilst that is just fine for a basic shed or industrial property, it will not suffice for office buildings or retail property. When a property is more complex in operation or tenant mix, then you will need better reports and not just financials for the landlord to look through. Explanation and information is required.
The other fairly common problem in the industry is that many month end reports from computer based software systems are assumed to be accurate and error free; that is a big problem and will let incorrect information reach the property owners.
Here are some of the major issues that should be reported on in the monthly report for a property management landlord.
- Income analysis should occur at month end to ensure that all provided income is accurate and expected. This will include the income received during the month from all the tenancies. Any discrepancies will need to be explained and referred to the property budget. The income commentary should also include details regards rent reviews and options that have an impact on the recovery of income. In essence, you need to provide stability for the landlord in the recovery of income. Any threats of vacancy need to be minimised. Any opportunities to increase income should be identified.
- Expenditure details should be accurate and up to date. The expenditure activity in a property from month to month can vary significantly. Whilst some expenditure will be planned and budgeted for, other expenditure will remain outside a budget and will require adjustments to cash flow for the landlord. It is very important to monitor the larger items of expenditure throughout the year. Some of those larger items will be timed to payment requirements such as rates and taxes.
- Arrears will always occur in a managed property from time to time. It is really important to monitor the arrears in any property. That will firstly be for the requirements of the income recovery and legal action. There will however be secondary situations where the landlord is in agreement to stagger the recovery of arrears over a period of time from a particular tenant. Whatever the situation is, the arrears need to be continually checked and monitored on a daily basis. The landlord should be briefed for suitable action if arrears are unexpected and unexplained.
- Lease documentation changes and tenancy updates will occur throughout the year in any managed property or portfolio. Issues such as a lease option, rent review, and lease expiry will always be management challenges for you to administer in a timely way. The best way to do this is to adopt a forward looking calendar that looks to the next 12 months and any events that occur inside the timeframe. In this way you can prepare for the process and any negotiations that are required.
- Vacancy reporting will always be important. The reality of any property market is that vacancies will occur at any time and will require addressing. It is wise to keep in close contact with tenants within the property. Regular monthly meetings with the tenants will allow you to identify any upcoming vacancy challenges. As part of that process is wise to have a tenant retention plan for each and every property that you manage.
- Maintenance matters within the property will be either planned or unplanned. You should have a budget allowance for each, and monitor the repairs or replacements to plant and equipment in the property as required.
- Tenant mix changes will occur in any property and will become more complex subject to the number of tenants that you have in the portfolio and the age of the property. For this reason you should be meeting with your tenants regularly to discuss occupancy needs, matters of expansion, contraction, and relocation. The renovation and refurbishment requirements will also come into those discussions and strategies.
- Market updates will be valuable as part of the monthly report for landlords. In reporting to the landlords, you can advise them of shifts in market rental, vacancy activity, incentives, and leasing enquiry. Throughout the year there will always be changes to these factors in commercial and retail property.
So this list is not finite and complete. It does however give you an idea of the complexity of a good monthly report for a moderate to large commercial or retail property.
I go back to the earlier point; there is no point in sending out just the property financials to property management landlords, given that there are many other things going on in the average commercial or retail property needing to be fully explained to the client.
It is the quality of the property management service that you provide that will justify your property management fee and ongoing reappointment as property managers.
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