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What to Expect in Industrial Property Sales and Leasing Brokerage

man working in industrial pipes
Industrial property sales and leasing is a special segment of the brokerage industry

In real estate brokerage, the industrial property market offers good levels of entry and activity.  Why is that so?  It is because the property type is ‘entry level’ for investors both in complexity and cost.  It is not hard for an agent to know what is going on in the industrial market place and get the facts of what a property investor in that segment may be looking for.

The aspiring brokers and agents that are starting up in the industry will find it easier to understand industrial property first and foremost.  From that point other property types can be incorporated into market activities and prospecting.

From a career perspective, and to help you get started in industrial property sales and leasing, here are some ideas:

  1. The industrial property market is usually the first to respond in an upturn and a downturn.  Watch the shifts in the economy to capture the market changes and listing opportunities.
  2. Businesses centred on manufacturing and bulky goods usually need larger premises to operate from.  They will chose locations that are relevant to regional raw materials, transport, customer demographics, occupancy costs, and business operations.  This then says that a top agent in industrial property will spend substantial time getting to know the local businesses and what they are looking for in business operations, expansion needs, and locational change.
  3. Some properties in this category can be tenant and business specific.  If that is the case, any landlord should take care in structuring a longer lease with appropriate make good clauses at lease end.  Also allow a reasonable lead time for a tenant making a decision on the exercise of an option.  If the landlord needs to find a new replacement tenant for a highly specialised property, it can take some time to achieve the placement.
  4. In this market segment, a top industrial property agent will work on both leasing and sales opportunities.  One thing can very well lead to another.
  5. With the predominance of industrial parks and the clustering of industrial tenants and businesses into the one location, there are special factors of knowledge that apply to the title types and the permitted uses under the leases.  Get to know how these things work and can fit into the zoning and planning regulations for the local area.
  6. Industrial properties will have configuration and improvement issues to understand.  That will include hardstand, warehousing, office space, staff amenities, car parking, security, and loading areas.  Use and configurations will change.  Get to know what tenants and businesses are looking for locally in property choice and occupancy.

So this is a good market type to enter into as a commercial and industrial property agent.  If you enjoy the market segment you can specialise for many years and achieve.

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Industrial Property Agents – Leasing Tips With Heavy Industry

man working on pipes
Industrial leasing must allow for the special plant and equipment in an industrial property.

The customization of an industrial property is achieved through the integration of the real estate, its established and new property improvements owned by the landlord, and the machinery and inventory of the tenant.  This relationship can occur as part of the lease negotiations between the tenant and the landlord.

If the customization of the plant and equipment is going to be extensive and elaborate, the terms of the lease will need to be suitably and carefully constructed.  It is important to identify the different levels of plant and equipment that are owned by each party.  The lease document is the place to do this.

If costs are to be incurred by the landlord in modifying the plant and equipment and to help the tenant in establishing occupation, then the initial property modification costs should be amortized across the lease term.  Any money outlay by the landlord should be built back into the income recovery.

You can calculate the cost recovery alternatives through a discounted cash flow with appropriate rental recovery assumptions across the initial lease term.  The rent reviews and the market rentals to be charged during the initial lease term can be modified for recovery of amortized costs.

Distinguishing the Differences

It is often difficult to distinguish between the plant and equipment owned by the tenant, and that which is owned by the landlord.  For this very reason, any new lease should clearly detail the ownership factors and the maintenance factors that apply to the existing plant and equipment within the property.

The landlord may own some of that plant and equipment; however the maintenance may be passed across to the tenant as part of ongoing occupancy.  The lease document is the way to detail this factor.  It is then up to the property manager to ensure that the appropriate levels of maintenance occur during the lease term.

Clear definitions and relationships need to be set when it comes to leasing a complex industrial property with complex cross ownership structures of the plant and equipment.

Taxation Considerations

Generally speaking, the costs incurred in establishing new plant and equipment within an industrial property will have some advantage in depreciation when it comes to taxation.  Clear relationships need to be set between the tenant and the landlord as to the initial cost outlay and the application of depreciation.

Any property landlord should consult with their financial adviser before they make the final decisions on capital costs incurred in a new or established industrial property.

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Commercial Agents – Industrial Property Inspection Tips

industrial warehouse
Inspecting industrial property is a complex process.

These are some of the general factors and concerns as they apply to industrial property and your inspection as a commercial real estate agent.  You may also identify other issues which can be included in your listing review process with any Landlord or Tenants.  These have been taken from a recent newsletter for our agent friends.

  • Industrial property needs to be well-positioned with due regard for transport routes and transport access.  Look at the road configuration and proximity with due regard to heavy transport access and deliveries to and from the property.
  • Some industrial tenants and properties require access to raw materials and the labour market.  This could involve public transport or ports, rail heads, and airports.  Look at the access issues here.
  • Power supply with industrial tenants is particularly important as they usually have a high load demands and extended hours of electrical load.  Can your tenants access the power they require easily?  It may be necessary for you to talk to the power grid authorities and the tenants in this regard.
  • Can the tenants dispatch their product easily into the transport corridors and transport facilities within the state?  This is particularly the main roads, airports, ports, and shipping facilities.
  • Is the property located in a recognised industrial area surrounded by good and busy industrial tenants?  Talk to some of the other local businesses to see what they think about the local area.
  • Are there any unsold properties or an abundance of vacancies in the industrial precinct and are tenants and properties in high demand?  Look at those vacancies and get details of the asking rent.
  • Does the precinct feature an abundance of investment type property or is there a balance of Owner Occupation in existence?  Could other tenants in the area be looking for properties to purchase and get away from the rental or lease issue?
  • What is the ratio of floor area between the office areas to the warehouse?  Is that ratio too high or too low given the trends of occupancy in the local area?  This will be relevant to the type of property and the customers that they service.
  • What is the height of the warehouse between the slab and the underside of the steel frame supporting the ceiling or roof area?  That dimension can oppose or restrict certain types of storage and/or access by transport vehicles.
  • What is the access to the warehouse area from the main road fronting the property, and how many roller doors service that access?   Are those roller doors motorised, do they allow the entry of modern semitrailer vehicles?  Is there a need for other access doors in the future and can they be easily installed?
  • Is there an abundance of good lighting, or natural lighting in the warehouse area providing good visibility?
  • What is the load tolerance of the warehouse floor for heavy vehicles, what are the dimensions of the floor surface slab and does it provide ease of access for loading vehicles and trolleys?
  • What are the dimensions between the supporting roof columns of the building?  This will dictate the types of storage and pelleting load area which may affect any future tenant occupancy.
  • What fire prevention systems and security systems exist in the premises that will be relevant to occupancy?
  • Is the building fully compliant with health, safety, and fire regulations?  It may be necessary for you to visit the local building authority to check this.
  • What is the external fabric of the building? Is it easily maintained, does it provide a quality appearance?
  • Is the internal warehouse suitably lined and insulated given the property usage that is expected?
  • Is the property flat and suitable for trucks and or loading? • Does the office area provide good quality presentation, services, amenities, and business environment which will support the tenant in their future occupancy?
  • Is there any asbestos in the building, and if so, is it documented and maintained within regulatory and legislative management practices?
  • Ask about environmental risks and threats from the property or from the occupancy.
  • Look at the local maps to see how the property fits into the location and the geography.  Look for things that can impact property usage such as rivers and creeks that could flood.  Look for slippage potential if the block is sloping or near steep areas.
  • What does the zoning of the property allow it to be used for?  Check out the local development plans.
  • Has the block been filled or re-levelled?  Get details of this.  It may be necessary for a soil report to satisfy buyers or tenants as to property suitability for their operations.

So you can add to this list based on your local area and the types of industrial tenants that you deal with.  Formulate a checklist from this and the other things that you can add. As part of the inspection process, take lots of photographs of the improvements and the property itself.  Loading areas and turning areas for trucks will be of real importance to many property owners, as will hardstand space in the property.

You can get more tips for commercial and industrial real estate agents at our website at http://www.commercial-realestate-training.com/

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How to Read Commercial and Retail Tenancy Leases

When you work in commercial or retail property, you will find that leases feature as a critical part of property performance. On that basis you really do need to know how to read and interpret leases; they will impact property sales and investment performance.

Having been a specialised real estate agent for many years and worked on many large properties, I have used a checklist model to help me read leases and interpret them prior to selling or analysing the tenant mix in the property. Here is the start of my checklist and some of my main items I look for. You may use it or add to it as required given your local property market and the property type.

  1. Get the up to date tenancy schedule to cross reference against the leases
  2. Review the original leases plus any supplementary amendments or alteration documentation
  3. Chase down any licences or deed relating to occupancy and tie those to the leases and relative tenants
  4. Have a copy of all the latest tenant rent and outgoings invoices so you can see what they are paying now
  5. Understand that all rent reviews and options in the property have been correctly processed and that you have been given the latest correct documentation regards that
  6. Know who the tenants are and the contact detail. Does that information cross reference to the leases?
  7. Check out:
    1. Tenant names and business structures
    2. Tenant identifiers or suites
    3. Area occupied versus lease plan description
    4. Plans of tenancies and access details
    5. Plans of the property and relevance to tenancies
    6. Common area proximity to tenants and impact
    7. Options coming up and method of implementation
    8. Rent reviews coming up and the type of review
    9. Lease expiries coming up and the threat to vacancy levels
    10. Current vacant tenancies and details of asking rents.
    11. Outgoings payments under the leases
    12. Recoverable outgoings under each lease
    13. Market rent structures versus fixed and percentage or other types of rents
    14. Insurance risk matters for the tenant and the landlord
    15. Permitted use in the leases and current compliance
    16. Make good obligations for the tenant
    17. Handover strategy at end of lease
    18. Landlord obligations written into the lease (and current compliance)
    19. Tenant obligations written into the lease (and current compliance)
    20. Refurbishment requirements
    21. Relocation provisions
  8. Inspect the property as part of understanding the leases

So this list can go on but it will give you a good start with some of the key things to look for with tenants and landlords leases. Remember that every property is unique and on that basis should be individually reviewed. Expect the unusual and look for it.

You can get more tips for real estate agents in commercial and retail property at http://www.commercial-realestate-training.com/

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Lease Analysis in Commercial Sales

When selling commercial or retail property to the investment market as a real estate agent, it is very much the case that the existing tenant mix and lease profile of the property will impact the sale timing, strategy, and the eventual price to be obtained. So if you are a salesperson specialising in commercial or retail property, you should get very familiar with lease analysis and interpretation. Here are some of the things to be reviewed in a lease prior to any sale strategy implementation.

  1. Types of tenants and relative stability. Are they the types of tenants that a purchaser would see as adding value to the property
  2. Anchor tenants in the property and how much more time they have on their lease
  3. Tenant mix around the specialty tenants.
  4. Vacancy history in the property and any current vacancies
  5. Rent reviews coming up and the types of reviews. They may improve the landlords cash flow and hence the value of the property.
  6. Options coming up and the timing relative to sale. It sometimes pays to get these things done before the sale marketing commences.
  7. Any lease incentives that are still current and that may drag on the landlord’s cash flow. It is best to get these out of the way before sale.
  8. Recovery of outgoings in the lease and how they improve the landlords cash flow will be a factor in the sale.
  9. Make good issues and costs could have an impact on the landlord or the tenant. Check the lease to see just who is responsible for remediating the lease at expiry.
  10. Any supplementary rents and income should be identified. This can be licences for storage, car parks, signage, and similar income that improves the bottom line for the landlord

So if you want to sell commercial or retail property as a career, get used to reviewing and interpreting leases. It is a skill that will improve your chances of winning the landlords confidence and the listing.  You can get more information about lease analysis at http://www.commercial-realestate-training.com/

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Commercial Estate Brokerage – Tenant Advocacy Challenges

In tenant advocacy, the real estate agent works for the tenant and has them as the client.  This is a deliberate shift from the normal work that a real estate agent will do with a landlord in letting vacant space.  Most particularly tenant advocacy is a real and significant service for corporate businesses that require relocating. 

In normal circumstances corporate tenants consult with their solicitor to assist them with the lease and relocation process.  In real terms, the solicitor will usually know nothing about the property market and only becomes useful when legal documentation is to be prepared.

The tenant advocacy service is therefore a specialised offering for the corporate customer requiring new premises.  In this market, as we adjust to a new commercial real estate cycle, the movement of businesses and corporate tenants is becoming more frequent and will remain so for the next couple of years.  The corporate real estate customer will be looking to seize the opportunity of new premises at realistically lower rentals.  At this point in time, landlords are still under pressure to find tenants in many locations.  This produces lower rentals, higher incentives, and tenant favourable lease documentation.

Tenant advocacy, as a specialised service offered by a real estate agent to a tenant, effectively costs the tenant nothing when handled correctly.  This is because the real estate agent provides real savings through market intelligence and negotiation skills.  The tenant pays for those skills through commissions.  They get the expert they require for finding the new premises.

For some property agencies, this is a significant shift in mindset; they would normally work for the landlord.  This can also provide difficulty if they work for landlords in a smaller precinct or real estate market.  In a larger property market it makes no difference.

If you are in a smaller property market, or are worried about the impact of working for tenants specifically, the best way forward is to appoint a specialised staff member who will focus only on this tenant advocacy market segment and therefore not cross over to the landlord client relationship.  Conflict of interest is therefore reduced, although it should be said that the tenant as a client should never be introduced to a property that is listed with your real estate agency from the landlord client relationship.

You can get more detail on Tenant Mix and Tenant Advocacy at our website http://www.commercial-realestate-training.com/

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Handover of Commercial Premises

In commercial property the handover of premises is a critical time to take note of important issues and matters requiring attention.  These notes can later support the tenant or the landlord in any matters of debate or dispute.  There is a handover and the beginning of occupancy and again at the end of the occupancy.

In all respects the occupancy of the tenant and the premises handover should be in accordance with the lease.  This says that you as a property or leasing manager must read the lease and understand it.  Even in a single property with many different tenants, the leases can be different and usually are.  The ‘make good’ clauses and the ‘handover provisions’ of the lease are unique and should be understood relative to each tenancy.

Taking photos also is part of the documentation of premises at handover time.  It is recommended that the photographs taken are date and time stamped in the camera, and the photographs are later saved as ‘gif’ files and not ‘jpg’.  This is because ‘gif’ files are a more stable and fixed format that cannot be manipulated by software editing tools such as ‘Photoshop’.  If you want the photograph to be evidence of something important, then the ‘gif’ format is a reliable choice.

Whilst every tenancy is unique, let’s set some rules to give you some benchmarks to work with at handover time.  You can then add some other matters that may be applicable to the location or property that you work on.

  1. Take ‘gif’ format photographs as evidence of important things and levels of presentation
  2. When taking photographs it pays to put a scale reference such as a ruler into the picture
  3. Take notes of any comments or agreements from any parties to the lease
  4. Check all walls and painted surfaces for damage and or current condition, taking photographs as appropriate to record the current condition
  5. Check ceiling tiles and t-bars for ceiling presentation and integrity
  6. Look above ceilings for the satisfactory removal of any unnecessary cabling that should have been removed
  7. Check all floor coverings for any damage or deterioration beyond normal ‘wear and tear’
  8. Look for any floor or wall penetrations that exist or need to be remedied noting that any penetrations must be fire rated to the standards of the local building codes.
  9. Check air conditioning function and note any need for air conditioning balance due to fitout or altered or installed partitions in the leased space
  10. Check lights and light switches for function and safety.  It may be necessary to replace all tubes in the light fittings as part of the make good provisions of the lease
  11. Check all doors and locks for safety and security.  Do not overlook the need for doors and locks to comply with all building codes.  All keys to the doors should be provided or returned as appropriate.  If a master key system is installed in the building then check that the keys all comply with the master system
  12. Check windows for function, security, and safety
  13. Check electricity supply to the tenancy and any metering of consumed energy
  14. Check the installation and compliance of any signage for the premises and that such is in accordance with architectural rules set for the building.
  15. Look for any matters of change to the structural integrity to the building and the premises

As part of the checking process it sometimes pays for the landlords contractors to inspect the premises and provide a full report of any complex or sensitive issues.  This will support any later legal dispute over make good terms and conditions.

When keys are exchanged between the tenant and the landlord, or the landlord and the tenant, a receipt should be obtained as a record of handover of the keys.  The real estate agents actions in the handover to any tenant should also be supported by notes.  It is surprising how many disputes arise later when you least expect it; in such case your notes are invaluable.

Never hand back any bond money or bank guarantees to tenants until you are absolutely certain that all make good requirements of the lease have been satisfied.  It is also of note that all make good must have been done at and before the expiry of the lease; it is not something that is done after lease expiry.

Efficient make good and handover procedures are a critical skill for the real estate agent to develop and implement on every lease situation.  You can see more about this on our website here http://www.commercial-realestate-training.com/

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Rent Strategies in Commercial Real Estate

Not all rentals are the same when it comes to commercial property.  Property Investors and Real Estate Agents and Brokers should understand this when considering property leasing and pricing.  Use the right rental in the lease that suits the landlord, and the market.  Know the long term impact of a poorly negotiated rental.

So there are two main types of rental and they are:

  • Gross Rent
  • Net Rent

As the name suggests, a gross rental is an all-inclusive rent for the tenant.  They pay one amount of money to the landlord.  To strike a rent like this, the landlord has to carefully assess the outgoings or operational costs for the property and load them on top of what would have been a net rental.  There are some dangers in the process in that the landlord has to get their figures right from the start.  If they do not, then the rent reviews applied to the tenant during the lease term may not keep up with the prevailing market rent.  The property then becomes underperforming as an investment and will not be attractive at time of sale.  Visit our site here to get more detail on this http://www.commercial-realestate-training.com/

Commercial real estate is all about cash flow; today’s cash flow or that which you can get in the future.  Cash flow and rental are linked and the lease for the tenancy will protect the cash flow for the future.  When purchasing a commercial property the lease has to be reviewed for its future cash flow and stability.  An astute buyer knows this, and will want to see some advantage that the tenancy can provide.

Net rent is the base rent on top of which the tenant will pay outgoings for the premises.  Whatever the outgoings are, the lease will again be a part of the protection of payment of outgoings for the landlord.  Reading the lease will tell you exactly what outgoings a tenant needs to pay and how that will be done.  The more outgoings the tenant pays the better.

Should property investors read leases themselves or leave that to their solicitor?  The real answer is that a good property investor must know how to read commercial leases, and they should also have a good solicitor that will support them with a deeper review of the document as required and particularly before purchasing the property.  This is called ‘due diligence’ and is one of the checking processes before the settlement of a property it made.  Property Investors that are purchasing a property should make their contract and purchase subject to a satisfactory due diligence process.  Expect that the due diligence process will take days if not weeks depending on the size of the asset.

One other matter that affects leases and rentals is the existence of an incentive in the tenancy.  This incentive would have been created at the time of lease commencement to influence a tenant to take the lease of the premises.  Incentives are common when the property market is slower or there is a lot of space available to lease at the time.  Incentives could be:

  • Low rent start
  • Rent free period
  • Fitout payment
  • Cash payment
  • Discounted rent, etc 

If in doubt ask questions.  Incentives can exist for months and possibly years after the commencement of the lease, and on that basis a purchaser of the property has to know about them prior to purchasing the property.  The purchaser may choose to get the seller of the property to payout or discharge the incentive at time of sale.

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Lease Details Matter in Sales

As the opportunity for listing commercial investment property arises, we can sometimes be too eager to take the listing without getting all the important facts that effect price.

Check the leases on a commercial investment property before you talk about price on the property as the leases may assist or hinder the sale.  They can also dictate a sale strategy.  This says that a good commercial real estate broker or agent must know the structures of a lease and what makes a good lease.

Depending on the age of a property, the next phase of its lifecycle may be refurbishment, demolition or remix of tenancies.  Every phase is different.  The demographics of the region in which the property is located will also have something to do with the future of the property.

A property that has a majority of leases that are soon to expire may be attractive to a purchaser that wants to owner occupy the property or a developer that wants to change the site and create a new building.  On the other hand the same property in such circumstances will not be attractive to a new investor unless they want to undertake refurbishment works and re-position the property with new tenants.  Decisions are based around strategy needs and timing; as agent or broker for commercial property you need to be the ultimate strategist.

When looking at the potential sale of the property, the lease aspects requiring future awareness and understanding in the sale include:

  • Rent review profiles – are they strong and well timed or do they just gear to the consumer price index?  Also look for the market rent reviews and see if they are well timed or
  • Lease expiries – these are always a concern if the property requires stable cashflow, so look for multiple lease expiries that are close to each other and that may consist of a majority of the lettable space in the building.
  • Option periods – from a landlord perspective, lease options are not always a good thing to have as they can frustrate the future of the property; it really depends on what the landlord thinks that they want to do with the property.  It is of note that many large shopping centres and malls do not allow lease options for that very reason.
  • Details of any current incentives with existing tenants – some lease incentives carry on impacting the property for some months or even years.  When the property is to be sold, these incentives must be offset or discharged at settlement as the future purchaser may not want to take over the burden of such.
  • Outgoings recoveries – leases and most particularly net leases will allow the landlord to get back some of the building operating costs.  It pays to check the leases to see exactly what those recoverable items may be as it can impact the property sale or buyer interest
  • History of income and expenditure performance – I always go back at least 3 years to check these numbers and to see what have been the major changes in the outgoings.  What you are looking for is overly large imbalances in outgoings from year to year that indicate that something major has impacted the property or a strategy has changed.  Get reasons for any changes of this type so that any astute buyer can be given logical explanations.
  • Current budget of income and expenditure performance – every commercial investment building of any type should function to a budget each year and the details should be available for your review.  Parts of the expenditure that impact greatly on the property are the rates and taxes as they take up on average a full 33% of most building expenditure.  You need to know that these rates and taxes are on average with other properties in the region.

 

Property performance elements such as these will affect the potential income from the property well into the future and will also dictate the best time to sell the property.  In an ideal world you would time the sale so that the income is optimised and the outgoings are controlled to acceptable levels.  This cannot always be done especially in markets like that which we have today, but you should know where you stand on the property performance before you proceed into a sales program.  Strengths and weaknesses of cash flow should be identified and logical reasons provided before any sale campaign starts.

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High Value of Real Estate Agency Advice

Some clients in commercial real estate are unaware that they have a problem with their property, or do not really know or can define specifically what the problem is.  They struggle to find the way ahead; they do not really know or will admit that they cannot get themselves out of a property problem.

Do you think there are some businesses and property owners out there at the moment with problems? Of course there are, and you as the real estate agent or broker have to be the relief to the property pain.  You can only be so when you really know what you are doing.  That means a really good knowledge of property types, leases, and rents, building costs, regional demographics, and operating costs.

It is not sufficient to think you know how to sell or lease a property.  That skill is not enough as most other agents will think the same.  After coaching agents for many years, I know that the reality is most of your competition is very ordinary in knowledge and property understanding.  That is the leverage you should work with to generate a massive real estate sales and leasing business.  Serve your clients as the best choice in the industry.  Is that hard?  Perhaps it takes more personal effort and certainly more study, but the rewards are significant.

Let’s just look at the types of clients you could have for a moment; they are landlords, business owners, tenants, and investors.  Within those groups you have differing relationships to the property improvements, rent, lease, location, operating costs, tenancy mix, and the list goes on.  So what do you know about these things?  What should you do?

Become an expert in every sense of the word.  Supply the best and most important information about property that you can for the client.  Make sure that you are better than the rest of the real estate people in the local area.  Become the property strategist and not just a salesperson; know what are the real reasons for a sale or lease, and help the client understand them.  Provide the best timings to use in the sale or lease processes.

The problems and challenges that these client groups have are radically different than each other.  Your solutions and responses should be set accordingly.  The best model for a real estate agent or broker in a client relationship is to become an advisor that is trusted.  Your knowledge should stand head and shoulders above the rest.  There are three stages to the process.

  1. Seek to become the clients trusted advisor from the outset.  This means building the relationship before the client really wants to do something with their property.  Prospecting is essential every day of your business life.  Your database is the tool to progress.
  2. Get the client to agree that there is a need with their property or business.  Knowledge of the property types, performance issues, lease strategies, development alternatives, tenant mix alternatives, are just some of the things to learn.
  3. Plan your solutions around the problems.  When the client fully understands the problems that you have identified with the property, and that you really know what you are doing, the choice of property agent becomes an obvious choice.

Stop thinking that as an agent you must discount your commission, or pay all the advertising costs for the client just to win the new business.  These clients are not the ones you want.  In most cases they are the hardest to deal with because their motivation is ‘cheap’.  Logical decisions are not part of their mindset and negotiations are therefore harder with these clients.  More often than not the listing does not sell because the client will not listen to the market trends and choices (they think they know better).  Time does invariably take care of these unreasonable clients, with no sale resulting and a distressed property sale or lease later on.  You can then move back into the picture to offer your special services.

Be the best real estate agent out there and make sure your clients know it.  Chase the quality listings owned by quality clients that will listen to the market trends and choices that you offer.

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Tenant Move In Checklist Investment Property

Whilst every commercial or retail property is different in design and usage, a process of moving a tenant into a property should be standardized.  This is for the simple reason that the tenant occupation is the beginning of the lease administration process.  The leasing or property manager for the property thereby sets the foundation for future occupation and lease stability.  Sound lease administration starts at this point.  Sound lease administration is the foundation of good property performance.

Close communication with the tenant will ensure that the tenant’s needs and that of the landlord are well balanced in the establishment of lease occupation and commencement.  The three parts of the lease establishment and commencement that need balance and monitoring are:

  • Lease documentation signing and establishment
  • Physical premises fit-out design and usage
  • Rent collection and financial guarantees

 

One important rule needs to be made here about the commencement of lease or premises occupancy.  No tenant should be given the keys to the premises until the lease is signed by all parties and the full financial commitment of rent and all guarantees are given.  No fit-out work in the premises should commence until all of these things are done.  Many a tenant has slowed or avoided the signing of the lease once they get the keys to the premises.  If the real estate agent or broker has allowed this to occur, then embarrassment and time wasting disputes evolve.

When all of these three occupancy elements are well managed, then the occupation of the premises starts off in the best way possible setting the scene for positive ongoing relations between interested parties.  The interested parties to a new lease occupation are:

  • Tenants
  • Landlord
  • Customers
  • Property Manager
  • Leasing Manager
  • Legal Advisor for the Landlord
  • Financier for the Landlord

 

One of the common weak links in the leasing process with new tenants can be the poor interaction or failed communication between the leasing manager and the property manager.  Both of these people should be working in harmony when new tenants are to commence occupation, given that building relations and other tenants may be impacted by mistakes and miscommunication.  Tenants in a property will talk between each other and will inflame problems quickly.  This is more the case in retail property with many smaller tenants in the one building.

All instructions and agreements made between the tenant, the landlord, the leasing manager, and the property manager should therefore be made in writing or evidenced as such.  It is common for disagreement and disputes to occur at the start of lease occupation given that so much is going on at the one time, so attention to detail in documentation at this point is critical.

An organized approach to tenants moving in to a property is the best way to set the scene for property stability and the future respect between the landlord, the property manager, and the tenants.

A checklist approach to the tenant moving in to your property is productive.  Whilst every property is different and therefore special elements of occupation need to be documented and provided for, the list below will get you started on the road to leasing best practice.  You can modify the list and change the order to suit your property type and location.

The Lease Move-in Checklist:

  1. Tenant name and full contact details sourced
  2. Lease signed and copies served to all parties
  3. Tenant provided with all emergency contacts and procedures for the building
  4. Rent, outgoings, and all guarantees paid in accordance with the lease
  5. Insurances and currency certificates are given by tenant in accordance with the lease
  6. Any other special conditions of the lease are complied with by the tenant and the landlord
  7. Landlords works are completed as per lease agreement
  8. Premises inspection and documentation is made as part of handing keys to the tenant
  9. Details of fitout changes and plans given
  10. Approvals of fitout changes and plans given
  11. Lease commencement date
  12. Rent commencement date
  13. Anticipated move in dates and times
  14. Method of move in and access points for goods and materials entry
  15. Instructions letter to tenant explaining the move in rules and conditions.
  16. Building Rules and Regulations Manual is provided to tenant
  17. Tenant Fitout Guide is provided to tenant
  18. Advance notice of move is given to other tenants in proximity
  19. Power, lighting, air conditioning, communications and other services to premises are operational for the tenant move.
  20. Lift isolation is made (out of main building hours) for the new tenant to use for the move
  21. Directory board changes are made to allow for the correct new tenant description and location
  22. All relevant locks and keys are made available for the tenant to use to the premises
  23. Security passes are organized as necessary for the building security system
  24. Parking details and documentation is signed and passed issued relevant to the lease and the tenant.
  25. Storage for the tenant is organized on site as required for the move and the creation of occupancy
  26. Electricity meters are read for the premises before lease occupation starts.
  27. Emergency Evacuation Systems and Procedures are provided to the tenant and training provided as necessary.
  28. Other tenants are advised of the new tenant name and a welcome to the building is provided.
  29. Rent and other outgoings charges are entered and actioned by the property manager into the building financial system.
  30. Lease details are checked and entered into the property management system.
  31. Tenant is met on site as required by the property manager to strengthen communication and feedback.
  32. Property manager to monitor tenant activity closely for the first few weeks of occupation to ensure full compliance to all agreements and arrangements.
  33. When the tenant has completed fit-out works, the property manager should check that the finished construction complies with the submitted and approved plans.

 

This then becomes a way of controlling the start of lease occupation in the most productive and professional way.  This will set the scene for a well performing property and investment asset for the landlord.

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Tenant Lease Commencement

When a tenant commences occupation in a commercial building it is essential to set some solid rules and channels of communication early in the occupation cycle.   In this way you will have a harmonious relationship into the future that can benefit the investment property.

As landlord works near readiness for occupation, it is wise to inform the tenant of the next stages that effect them and methods of occupation that are to follow.   Standard letters and procedures are ideal for this purpose.

As part of this process there are 3 main outcomes that you should be seeking to satisfy in this process.   

They are:

  1. To control the way the tenant moves into the building and that the process is well managed.   This will involve the use of loading docks and perhaps lift and escalators after hours.   As a general rule the movement of a new tenant into any building is best managed after hours and on weekends.
  2. To identify tenant details that need to be entered onto the building directory and similar lists and displays used by occupants and customers that visit the building.   As part of this process it is important to tell other tenants in the building of the new tenant and their entry to the building.   In this way you preserve quality of communication to all parties concerned.
  3. To keep the new tenant well informed on property matters that will impact them into the future.   You should be seeking to inform the new tenant of the building rules, operational elements such as air-conditioning and security, and fit out guidelines and approval processes.

 

Elements of the introduction letter to the tenant can incorporate the following informational topics on the property and the building:

  1. Establishment of the move-in date to the property so that the security and lift access can be provided.   You are also seeking to avoid conflict with other tenants as the move occurs.   This becomes more complex and difficult if a number of tenants are moving into the property at the same time.
  2. The tenant needs to be approached regards the detail required on the directory board to the building.   It can also be that the graphics and design of the tenant’s logo will need to be incorporated into the directory board layout.   It is debatable whether the tenant should pay for the entry of their business name onto the directory board.   This will come down to the landlord’s decision on the matter as a gesture of goodwill in the leasing process.
  3. Any tenant signage on the entrance doors to the tenancy or the building will need to be approved so that it does not conflict with other design elements of the property.   In some circumstances it may be necessary to seek architectural comment on behalf of the landlord before the tenant can proceed with their signage.   Take particular care with colours and location of the signage.   If the signage is on the outside of the building, it is likely that the local planning authority will need to approve the signage before it is installed.   Engineering comment may also be needed for signage placement on the exterior of the building.   Signage of the tenant can or should attract a separate rental for the landlord particularly if the sign is in a place of prominence on the outside of the building and the building is located on a main road with high numbers of passing cars.
  4. Car parking licences should be established for the tenant’s vehicles and the parks then clearly laid out on a car park plan.  It is normal for car parks to have separate licence documentation that provides for both the unique elements of the property function and the use of the car park by tenants.
  5. Communication systems access points such as those for telephone and data should be explained to the tenant.   Any matters of access or special charges should also be outlined to the tenant.   Take care with the tenant using the risers to the building to run cables as riser space is limited.   Some landlords will charge a rental of space within the riser for this very reason.
  6. Electricity switchboards and access points should be outlined to the tenant.   Any methods of recovery of tenant electricity should also be explained.   It may be that the landlord buys the energy for the building in bulk and then charges the tenants for their consumption on a monthly arrears basis.   As an alternative it can be that the tenant is buying energy direct from the local energy supplier.   Importantly the property manager needs to know what is correct for the property and the local energy supply legislation.   Today energy supply and consumption is a critical part of building cost management; both tenants and landlords want to know that the energy supply and consumption systems on the property are correctly managed and charged.
  7. Services and amenities that are available for the tenant should be clearly described and any costs thereto detailed.   A plan of the building or the floor should detail the services and amenities that are available and how the tenant may access them.
  8. Use of common area facilities should be shown on the appropriate floor plans.   This can include toilets, showers, tea rooms, entrance foyers, lift foyers etc.
  9. The use method and operational hours of the air conditioning for the building should be detailed and explained to the tenant.   In most circumstances the air conditioning supplied by the landlord will only operate during certain daylight hours between Mondays to Fridays.   Any tenant usage beyond those hours should incur a special hourly charge based on the size and type of air conditioning unit.   In such circumstances the tenant consumption is metered and charged.   If a tenant is a sole occupant in the building then the air conditioning running costs and maintenance may be the responsibility of the tenant; in such cases the lease of the premises should explain and support the process.
  10. Security access systems should be explained to the tenant so that they can order the necessary security passes for staff and the passes are coded to the hours of access that the tenant needs for each individual on staff.
  11. Security Patrols and Guards need to be briefed about the new tenant to the property and any emergency contact points or response methods documented for that tenant prior to their move to the property.
  12. Door keys should be ordered to the access needs of the tenant.   It is likely that the building master key system will be part of the keying system for the tenant doors.   It is normal for tenants to seek any new keys for the premises via the property manager as the authorized party on the master key system.
  13. Emergency evacuation procedures must be communicated to the tenant at the earliest opportunity and prior to occupation.   Any threats and evacuation needs of the tenant must be efficiently handled in the evacuation plan established in the building.  If the tenant brings any unusual and special threats to the property and the other occupants, then the property manager needs to take action on any needed changes to the evacuation procedures.   It is normal for the property manager to appoint an expert contractor to design and implement the correct building evacuation plan for the building.   That contractor will then also maintain the tenant training needed for the evacuation plan in keeping with local building and safety legislation.
  14. Building rules and regulations are typically written into a building manual that is supplied to all tenants.   From time to time the building manual will be updated.   This becomes a great tool of control for tenants and building function.  It also supplies the tenant with all the important and critical information relevant to the property in a concise and specific form.
  15. Fit out procedures and approval processes must be understood by the tenant, as they will need to make changes from time to time to premises design and usage.   Local planning and building codes can dictate that any tenancy changes must firstly be approved by the planning authorities.   In moderate to large buildings with multiple tenants it is normal to create a fit out guide and supply such to the tenants in the building.   This then becomes the rules for any changes to the tenant premises.
  16. Property Manager and Property Maintenance contact methods should be outlined to the tenant in a contact register supplied to them.   From the earliest stages of occupancy things will not always operate each and every day on the property.   The tenant needs to know where to call to advise the right people of any problems.   The property manager as part of this process needs should have a procedure to keep the tenant up to date on any advancement on repairs and delay times.  Not all maintenance matters can be attended to quickly and efficiently if large items of cost or unusual parts are required to complete the work needed.

 

So these details can be a way of introducing the tenant to the building and controlling ongoing occupancy.    Add to this list as your property requires.  A standard letter can be framed to incorporate the necessary information relative to the tenants lease and the site.