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🛍️ Retail

Most visible and can bring great value to a neighborhood

Over reliance on anchor tenants will end up determining future tenants in the rest of the strip.

Types of Retail

Malls

A place where a consumer can purchase from a great diversity of shops. Malls are typically enclosed (under a roof), and often have department stores as their anchor tenants. Some malls might have movie theaters and most malls are heavy on apparel tenants.

Department store and Apparel businesses have led to their downturn.

Open roof is more modern

Neighborhood Centers

U or L shaped strips

Typically anchored by supermarkets.

Strip Centers

A strip center, or strip mall, is a series of attached stores where on-site parking is usually located in front of the stores. Open awnings may connect the storefronts but strip center stores do not usually have enclosed walkways that connect their stores. The storefronts of strip center locations usually face the road.

Anchored by convenience stores or none at all. One of the most stable asset classes given a busy street and the right tenant mix

Important KPI’s

  1. Upcoming vacancies – Watch for the vacancies that could occur in the property in the coming 18 months. Negotiate early with any tenants to solve vacancy problems before they occur.
  2. Tenant mix functions and balances – Some tenants match the mix or a particular location in the cluster of other tenants. Avoid buildings where a single tenant has more than 20% of the space outside of anchored retail
  1. Customer numbers and demographics – Every shopping center should be tracking foot traffic numbers and customer counts at all the main doors. Car-parking numbers and use should also be tracked on different days of the week.
  2. Market rents – How do your rents compare with other local shopping centers?
  3. Maintenance routines – The maintenance activities within any retail property will be ongoing and sometimes unexpected. You will need a group of maintenance contractors that understand the property and the challenges of day to day events. Some of the maintenance routines can be planned as part of a budget process.
  4. Insurance
  5. Income and expenditure budgets
  6. Anchor tenants, Specialty tenants
  7. Operational budgets – It costs money to run the property and outgoings must be controlled.
  8. Landlord requirements – Many property owners have specific requirements when it comes to income, expenditure, rental, lease documentation, tenant controls, maintenance, and reporting. All of those things should be structured into a management system and reporting process for the landlord.
  9. Property reports
    1. Arrears and aged debtors,
    2. vacancy updates,
    3. tenant communications,
    4. lease negotiations,
    5. and maintenance updates.
  10. Property presentation

Modeling

  • Price per sqft is key
  • Typically will have percentage leases where landlords will take a portion of business profits

Canvassing Tips

  • Go for tenants that are paying higher rent than your building
  • If you have a difficult spot to lease out, look at similar centers and canvas for the tenants in those locations

Pre Acquisition

Leasing & Development Considerations:

  • Occupancy Cost: Use ULI (Urban Land Institute) data to calculate occupancy cost percentages.
  • Talk to Neighbors: Speak with neighboring businesses and leasing agents for insight.

Post Acquisition

Payment Terms

  • Payments are due on the 1st of the month.
  • A grace period of 10 days is allowed for ACH payments (bring the form on takeover).
  • Late fees begin accruing after the 5th and 10th of the month; use this as a negotiation tactic.
  • 3-month window to make changes post-takeover.

Leasing Agents

Leasing Agent Activity: Give leasing agents 3 months to get acclimated; cut ties if there’s no activity after 9 months. Maintain a leasing activity sheet and ensure prospecting.

Land Lord Maintenance

  • Visibility, Cleanliness, and Security:
    • Use reverse lettering (white letters) for visibility.
    • Require porter service; sweeping optional.
    • Pressure clean the property quarterly.
    • Conduct weekly light checks; perform monthly inspections with an electrician.
    • Security Measures: Lock roof hatches and remove accessible trash cans (Really piles up).
    • Graffiti: Quickly cover any graffiti and repair lighting issues.
  • Dwell Time: Increase dwell time with music and benches.
  • Social Activities: Ensure there are social activities related to the asset.
  • Broken Roof abatement: No free rent offered, but you can negotiate for half base rent and CAM charges.
  • Number the light poles: easier for future maintenance.

Asset Management Visits

  • Inspection Frequency: Visit the location at least once a year as the asset manager.
  • Cancel half the planned trips as an asset manager to manage time effectively. PM will clean it up before you arrive, but you don’t have to actually show up

Tenant Conversations

  • Include a cover letter for all formal communications.

Refinancing

  • Be "equity ready" as financing may require a complete overhaul of the property.

Prospective Leasing Interview

  • ☐ Assess the building's overall condition and features
  • ☐ Analyze how the property fits into the submarket
  • ☐ Identify the competitive set of properties
  • ☐ Determine necessary enhancements for the building
  • ☐ Evaluate the current ownership's deal-making process
  • ☐ Review current market transaction trends
  • ☐ Understand tenant preferences and requirements
  • ☐ Establish expectations for tenant improvements and rent in the subject building

Data

Excerpt omitted: see ICSC, “The Halo Effect III: Where the Halo Shines” (research on how opening or closing physical stores affects online sales in the surrounding trade area).

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