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Traps in Leasing Commercial Property and How to Avoid Them

Office property lift foyer
Leasing commercial property needs strategy and control.

When you lease commercial property you want things to run smoothly so you can get the tenant into the premises as soon as possible and have the rental and income flowing.  Now all that is just fine, but the leasing process is quite complex and a few unexpected problems usually arise as you proceed through the leasing stages.   Here are some tips from our bulletin for Commercial Real Estate Agents.

It is best for the property manager or landlord to develop a checklist to help lease negotiations and keep matters under control.  In a complex property the lease matters are numerous and can slow down the final agreements and access to the premises.  That being said, there are no short cuts when it comes to leasing, and the best lease agreement is one that has been well controlled from the start.  Never let a tenant have access to the premises until they have fully complied with the terms of the lease agreement and lease.

To help your checklist creation and process for the leasing of the premises here are some things to consider.

  1. Get the lease document created as quickly as possible.  The lease should reflect the essential main terms of agreement between the parties that arose in the negotiations.  The landlord’s solicitor should prepare the lease in accordance with the factors of the property and the instructions of the landlord when it comes to standard leases for the property.  Some solicitors can take an unacceptable length of time to create a lease document to be signed by the parties.  A lease document should be created and presented to the parties for signature within 48 hours of the initial lease agreement.  From that point onwards the discussions and debate between the parties can slow things down, so stay on top of all issues and pressure the parties to keep things moving.
  2. The lease document should always be signed, deposit paid, rent paid, and guarantees lodged, before any premises access is given to the tenant.  Everything from the initial lease agreement should have been satisfied and signed off before keys are given to the tenant.
  3. Fit out plans, drawings, and approvals are required before any tenant fit out works commence.  The approvals for such works should have been correctly obtained from the landlord and the local building regulatory authority.
  4. The finishes and types of materials to be used in the fit out should be approved by the landlord so that the building maintains a level of consistency in presentation.
  5. Security systems and locks on the premises should be maintained to the building master key system.  In this way the landlord and the property manager can access the premises in times of emergency or when and if a lease default occurs.
  6. The permitted use of the premises should be in accordance with the planning regulations and the lease as signed by all parties.

The process of putting a tenant into a property is complex, and every step of the process should be carefully managed.  Keep notes on any discussions and actions taken by all parties.

If you need some more tips on leasing for commercial and retail real estate agents you can get our bulletin here.

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Commercial Agents – What Should You Do in Slow Leasing Markets?

commercial office tower and leasing market
Leasing strategies in city office towers

The leasing market will become difficult and slow from time to time.  It really doesn’t matter what property type you work on, you simply need to be sensitive to the pressures of supply and demand that impact your local area.  Here are some tips from our bulletin for commercial property agents.

As property leasing experts, we need to see the rental and leasing market changes before they take a real hold and then impact our clients property.  That foresight would normally involve ongoing research with rental levels, lease incentives, tenant enquiries, property improvements, and new developments in the local area.

So if you are experiencing a slow property leasing market the following strategies will be very useful.

  1. Local businesses will always be a valuable source of market intelligence and future leasing needs.  Business people talk to each other and share information about property changes, business pressures, and landlords.  When you connect with the local businesses on a regular basis you will see and experience a goldmine of opportunity and information.
  2. Competing properties exist in your local area and will have impact on the marketing of your listings.  When you are marketing a property or tenancy for lease, you really do need to know about the competition that you are up against.  Compare the rentals, the lease terms, and the property improvements.  Advise your landlord accordingly so they can make adjustments in their marketing of vacant space.
  3. Tenancy schedules should be obtained for as many large quality properties that you can get your hands on.  The quality properties will contain larger and successful businesses.  Over time you can build your own tenancy schedules within the targeted buildings by talking to the tenants and inspecting the properties.  Enter the information into a database so you can maintain ongoing contact in a relevant way.
  4. Accountants in the local area will normally serve the local business proprietors when it comes to issues of business performance and taxation.  On that basis you will find that accountants are very good sources of lease leads and opportunities.  Build relationships with these accountants so they come to respect your skill as a leasing expert.  Very soon they will let you work with the business pressures of occupancy that can apply to some of their clients.
  5. Franchise groups are always looking for new space to occupy subject to their business type and lease requirements.  Get to know the franchise groups that are active in your area and location.  Further to that you can identify franchise groups that have not as yet moved into your territory.  They will all require particular property types and lease terms and conditions.  You simply a matter of understanding the needs so that the appropriate properties can be provided at the right time.

Database tools and technologies are integral to making inroads into the local business community.  Prospects and business proprietors should be entered into the database given their property types and needs.  Over time your database should grow to at least 1000 qualified people.  When you grow the database through continual daily effort, the leasing opportunities will start to grow, as will your commissions.

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How to Do a Market Rent Review in Commercial Property

office space commercial building
Get all the facts when doing a Market Rent Review

In commercial and retail property, the market rent review can be quite challenging.  There are many variables that can apply to the review process.  As a property manager or leasing manager, it is important that you gather all the correct facts in preparation for the market rent review process.

So, exactly what is a market review?  It is the establishment of a rental taking into consideration similar rentals with similar properties in the same general location.  Unfortunately, this process can be difficult and slow given that many other properties are not directly comparable.  In some cases, your particular property may be so unique that you will need to look well beyond the local area for comparisons and market rental evidence.

As part of the process of gathering information, keep your notes regards findings and assumptions.  When it comes to a rental dispute, these notes and findings will be supportive of your rental choices.

So here are some ideas to incorporate into the market rental review process:

  1. Review the lease document fully before you start the process.  Understand all the terms and conditions of the lease document with particular care in identifying critical dates connected to the review.  Some of these critical dates will need to be satisfied and adhered to as you negotiate between the landlord and the tenant.  Time can be of the essence when it comes to responses and notices in the review process.
  2. After you have reviewed the lease document, visit the property and inspect the premises internally and externally.  Take many photographs as evidence of the existing conditions of occupancy.  As you move through the review process, these photographs will help you identify and match the tenancy to other relevant properties.
  3. When you look through the tenancy, understand the premises as supplied to the tenant by the landlord.  You cannot take into account any factors or improvements of occupancy provided by the tenant within their own fitout.  The rent review applies to the premises as supplied to the tenant by the landlord at the commencement of lease.  Go back to the lease negotiation file for information in this regard.
  4. If the tenant occupies space within a large building, it is possible that you will have other market rental evidence within the single property.  This will be of great assistance if that is the case.
  5. Any rental evidence that you are given or find in and from other properties, should be qualified to understand that the rental is truly on the basis of market evidence.  There is no point in using rental information that was generated from review methods other than the market process.
  6. Other situations of market rental evidence may be biased or skewed due to the impact of lease incentives negotiated between of the landlord and the tenant in particular buildings.  If any lease incentives were provided in those comparable transactions, the value of the incentive should be removed from the calculation so you can truly understand the effective rental in each particular case.
  7. Inspect the premises located in other properties that you believe are comparable.  Take into account the factors of occupancy, services and amenities, property access, lease terms and conditions, permitted use, and length of lease in each case.  Property managers will usually share information to assist you in your market rent review.  A reciprocal process of information should apply at a later stage when they need help with their property.

This list can be expanded subject to the factors of property type, lease terms and conditions, property age, and market evidence.  Expect that the process of review will take time so start the activity early.

Need more ideas with rent reviews and leasing in Commercial or Retail real estate?  Join our Newsletter here.

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Tenant Rentention Plans and Strategies for Commercial and Retail Real Estate

skyscraper office buildings
You must have a tenant retention plans for your property management buildings.

When you work in commercial real estate as a broker or agent, the fact of the matter is that you are serving a number of clients and helping them through the challenges of property performance and liquidity.   Here are some tips from our Newsletter for Commercial Real Estate Agents.

If you are managing a lot of properties at the same time, it becomes a real challenge to administer the issues related to firstly performance and secondly the liquidity in all the different and diverse properties.  Every property owner will have different rules and regulations relating to their lease management, cash flow, and approvals process.

To define both of these important matters:

  • Property performance is in how you optimise the result the property.  Performance can be a number of different things including income, reduced expenditure, tenant mix, tenant retention, and market rental.
  • The liquidity of the property is the ability to sell it at any particular point in time and the properties attractiveness to the market in general.  Throughout the given year, liquidity will vary given the pressures of the economy, and the rates of enquiry that are coming in from buyers.

Today we have a property market that is under some pressure.  The global economy is creating some difficulty for many local businesses.  That has an immediate flow through to the tenancies in our managed properties.  This is where the leasing manager or property manager can provide a high value service to their clients through a tenant retention plan.

The tenant retention plan is designed to identify the critical tenants within each and every property, and then manage them to optimise rental income and minimize vacancy risk.  Experienced property managers do this very well and will usually have a tenant retention plan as part of their toolbox of services.

To implement a simple tenant retention plan the following rules can be adopted:

  1. Take the individual property and look at all the leases for each and every particular tenancy.  Identify the critical dates that will have impact through the term of the leases and look for those dates that will be related to rent review, option, or lease expiry.
  2. Given these critical dates, look at the next period of 24 months and track any dates that are inside the ongoing 24 month timeframe.  The dates related to the exercising of option, or the negotiation of lease expiry will require action as early as possible.  There is nothing wrong with negotiating early in each case.
  3. Some tenants within the property will be regarded as more important and critical to the tenant mix.  Any negotiations with those tenants should be optimised through attractive terms and conditions that the tenant will find hard to refuse.  Any new lease can pick up the growth of the rent for the landlord subject to a strategy and the required holding strategy.
  4. If your property has any anchor tenants, those tenants should be closely monitored for business stability and interaction within the property.  Successful anchor tenants create an immediate flow through to all other tenants and give confidence to the property function and identity.  Support your anchor tenants at each and every opportunity.

Attention to the tenancy mix and the retention plan will help you through difficult times with the performance of a property.  When well maintained and managed, a property will always be saleable and attractive as an investment if a sale has to occur.  Property investors and buyers like to see a stable tenancy mix supported by professional lease and property management.

Need more help with your tenancy mix plans?  You can join our Newsletter for Commercial Agents right here.

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3 Tips for Leasing Commercial Property Today

Commercial Office Building Leasing
Lease more commercial buildings the right way. Use a checklist approach.

When it comes to leasing commercial property you really do need to know what is going on in the local property market.  In only this way can you match your marketing activities to the levels of enquiry that currently exist.

Three tips to help you with the leasing process centre on market evidence and market activity.  Here they are:

1)      Assess the levels of net and gross rent for comparable properties nearby before you start your leasing process.  Your property will need to have asking rentals that are similar to the other properties because the tenants that you attract through marketing will already know what the rental levels are in the market today.  The differences between net and gross rent will also be of interest to tenants and centre on the levels of outgoings that apply to the asset.  Most tenants will be concerned regards any extra rental payments that need to be made beyond the base rent.  This is where the levels of outgoings can frustrate the leasing process.  Make sure that your outgoings are in parity to properties of a similar type nearby.  If they are an extra payment to be made by the tenants, ensure that the outgoings are realistically structured and charged.

2)      Choose a lease format that covers all the activities and uses of the property.  The use of generic leases today is far too common.  In most cases generic leases are only relevant on the most basic of property (such as an industrial shed).  It is interesting to note that many landlords take the generic lease process because it is way cheaper than a specific lease; when things go wrong with the property or tenant they then have troubles in solving issues given that the lease is just too basic.  The message here is for the lease to be drawn up by a good commercial property experienced solicitor.

3)      Get a good rental guarantee to boost your landlord’s position and protection in the case of lease default.  Tenant default is a common problem today, and the traditional ‘Directors Guarantee’ is not much value in the scheme of things.  The landlord must be able to get easily their hands on ‘real money’ if the tenant defaults; that will normally be only through a bank guarantee or cash bond.  As to the amount of what should be asked for and held as part of this process, the answer is usually ‘the most you can get’.  That should be between 3 and 6 months rental (all types of rent including outgoings and any taxes paid) depending on just how difficult the property could be in the reletting process.

There is no doubt that the leasing process and activity is high in many locations today.  When sales opportunity slows, the leasing activity tends to lift.  Good agents can handle leasing as well as sales and they adjust their activities depending on what the property market requires.

You can join our commercial agents newsletter right here.

If you want more free tips on commercial real estate you can get them right here at our main website http://www.commercial-realestate-training.com/