Five Best Practices for Neighborhood Shopping Center Owners and Investors
In an ever-changing economic environment, many commercial real estate investors continue to seek out multi-tenant retail shopping centers as important assets to add to their portfolios. If you currently own a shopping center or are in the market to acquire one, keep the following tips in mind to maximize your rental income and ensure your investment retains its value over time.
Pursue a Robust Yet Synergistic Mix of Tenant Uses
There is significant benefit to diversifying your rental income at a property. Rather than having all your tenants being concentrated in a specific sector, such as food and beverage, seek to bring a complementary variety of offerings and services to the center that address the daily needs of the surrounding community, including medical and service-oriented businesses.
Don’t Ignore Your Asset
Although many leases place much of the day-to-day operational responsibility on the tenant, it is important to be mindful of ongoing landlord obligations in your leases, specifically as they relate to items that are capital in nature and require regular inspections or servicing. If you are not already doing so, be sure to keep detailed records of all work that is performed on your property as this will help tell the story of how well the asset is being maintained and managed.
Get to Know Your Tenants
Many neighborhood retail centers are comprised of both national and smaller mom-and-pop tenants. It is critical to foster and maintain strong tenant relationships as it can pay huge dividends down the road, especially when it comes time to negotiate a renewal. Do not ignore your tenants – be responsive and proactive in making sure it is clear how much you value their business.
Understand How to Navigate Lease Renewals
When it comes time to discuss a renewal, be sure to assess the surrounding market and potential relocation options. Important considerations are visibility and access, age of the building, and prevailing market rental rates in the immediate surrounding trade area. It’s also critical to understand the unit level sales performance of a specific location, particularly as it relates to the tenant’s occupancy cost/rent, which ultimately impacts their overall profitability and ability to remain at the center.
Know Your Strategy and Seek Out Professional Advice Early On
We have found the earlier our clients seek out advice when it comes to negotiating leases, the better the outcome. In fact, many of our clients engage us during the acquisition phase to strategize on specific factors they should be considering that impact the underlying valuation and liquidity of an asset. We strongly encourage landlords to keep their advisors abreast of the terms being negotiated at the letter of intent (LOI) phase, and even more so into lease negotiations, as such provisions can significantly influence the value of your asset upon a sale.
