Over the past few months, our clients experienced some unexpected tenant turnover due to early lease terminations and unforeseen non-renewals. The reasons varied, and the tenants spanned a range of sectors such as retail and industrial, and various industries like food production, service, auto, among others. They differed in unit sizes and operated in diverse sub-markets. There was no common thread.
The approach we took and relayed to our Landlord clients was, in a nutshell, “remain calm, all is well”. We aimed for a favorable outcome rather than a chaotic scenario reminiscent of “Animal House”. We put our hard hats on and got to work. We helped our clients negotiate reasonable early termination agreements that safeguarded the landlords’ interests while allowing the departing tenants a hassle-free exit, devoid of lingering lease defaults and overwhelming financial burdens. In most instances, we managed to strike a balance, achieving a ‘win-win’ even in such less than ideal circumstances.
Fast forward a few months, and the results are in. Not only were we successful in re-tenanting the spaces, in all instances, the new tenants are either paying higher rents, presented better financial credentials, or added value to the space/property with significant TI work.
It’s not just about the dollars and cents, it’s about seeking the right fit, which can differ immensely from one tenant to another, or one property to another. As an example:
It could be a tenant that complements others in a shopping center setting. Or, one that thrives in a property with robust power provisions and strategic location, with less of a need for major parking accommodations. The requirements and conditions for running a successful operation are vastly different, but the right fit is a paramount.
A Glimpse into some of Our Success Stories
Change of Heart: A long time existing tenant with an expiring lease in a client’s shopping center, expressed interest in renewing the lease and extending his run at the center. Leases were drawn up and sent out. At the last minute, a change in the tenants’ business plans prompted him to advise us that they will not be renewing the lease. After the initial disappointment, we dusted it off our shoulder, and within 2 weeks, managed to secure a new tenant (beauty services), a well-established family business with over 20 years in operating history, who was looking for a new home. The new tenant’s rent was significantly higher than the rate which was offered to the existing tenant had he renewed.
Post-Pandemic Puzzles: An existing Tenant faced financial difficulties post COVID. He had significant term remaining on his lease term. Understanding that this was not a premeditated situation, it was agreed and decided that a search for a new tenant will commence and the existing tenant agreed to fulfil his obligations during this time. It was a testament that clear communication between the parties, and an understanding of the situation, can really help streamline the process. Result, we were able to secure a great fast growing Tenant who invested heavily in improving the space and will be adding significant value to the property. Downtime was minimal, and having negotiated a buyout, the old tenant was able to move on.
Global Business Shifts: A fairly new Tenant had reached out to the Landlord and indicated that he was no longer able to maintain operations due to changes in the business environment of an out of country parent company. This was very disappointing as this was a fairly new Tenant, and the space was delivered to him with some improvements form the Landlord’s part. We managed to negotiated a buyout with the existing Tenant which was satisfactory to the Landlord. Subsequently, we managed to secure a new, local tenant, a well-established business with ties to the community, who will be paying higher rent and, as a bonus, the new tenants customer base is expected to increase foot traffic at the center and increase store visits to the centers food & beverage co-tenants.
Unexpected change definitely creates some uncertainty. We are very fortunate to have insightful clients who partner with us, and have an open dialog with us where we discuss the challenges, the opportunities, and most importantly, they communicate their expectations, goals, and vision for their assets. These partnerships, built on trust, have reiterated that real estate investments require more foresight than signing up the first tenant that comes along or demanding exorbitant rents; it also requires patience, commitment, and being resourceful with efforts towards finding good tenants & operators. Sometimes waiting a bit longer for the better fit, pays off.
If you seek guidance on sales or leasing of Retail, Industrial, Land, or Flex properties, don’t hesitate to reach out. We’re here to help.
Get in touch with RJ Feder & Associates Team today:
Ron Feder, Senior Managing Director, 818.222.0404 [email protected] DRE #00983855
Rami Meheraban, Director, 323.471.4747 [email protected] DRE #01957846