A shopping center is a valuable investment with HUGE upside potential.
But owning shopping centers isn’t like other investments. Stocks, bonds, and even stakes in startup businesses are celebrated for their “passive income” earning potential.
Shopping centers, on the other hand, require much more direct, hands-on attention. Which makes it difficult for many landlords and property investors to generate truly passive income.
But it Doesn’t Have to be This Way…
The truth is, plenty of shopping center owners enjoy the financial rewards of their investments, with little to no direct involvement.
It all comes down to having the RIGHT TOOLS. Because with property support, it’s far easier than you might think to achieve maximum returns with minimum effort.
So, What Are the “RIGHT TOOLS?”
Two things: Professional Leasing + Professional Property Management.
Here’s a closer look at how these two services can benefit landlords and property investors…
1. Professional Leasing
What do you do when a vacancy pops up in your shopping center? Well, you can certainly try and lease the space yourself… Put up a FOR LEASE sign with your phone number. And post the vacancy on a free online listing service.
But as already noted above, handling your shopping center is NOT your primary business. Which means you not only have limited time to deal with prospective tenants, you may not be entirely savvy when it comes to qualifying tenants, or negotiating retail leases.
The solution? Hire a professional leasing broker.
Here are the three primary benefits of hiring a leasing agent…
Signage – A leasing agent will put up a sign, just like you would. But here’s the difference. A broker with a multitude of listings throughout your area and adjacent areas receives hundreds, if not thousands of calls a week. So, in addition to the calls on your property, your broker also receive tenant calls on the rest of their listing inventory. And if a particular vacancy doesn’t work for a prospective tenant, the broker will move them along to another space that does. Which could be your property!
Online Listing Services (MLS) – These days, landlords have access to a handful of free online listing services. In addition to posting your vacancy on free sites available to anyone, a broker will also list your property on a variety of paid platforms exclusively aimed at real estate professionals. And these platforms not only have a local and regional presence, but a national, and even international reach. This expanded coverage amplifies your property’s online exposure by 10-fold.
Active Tenant List – Most brokers, even landlord representation focused brokers, have an “active tenant list.” This is a list of tenants either actively seeking space to lease. Or tenant who would consider leasing a space if the right unit came along. Upon securing your listing, this is your leasing brokers first stop. They present the space to any tenants on their “active” list they feel would be a good fit and have a desire for the unit.
Tenant Broker Relationships – Landlord representation brokers are dialed into the tenant representation brokerage community. Landlord rep brokers are constantly pitching sites to tenant rep brokers. And when marketing a new space, a landlord broker’s second stop, after exhausting their own tenant contacts, is their tenant rep broker contact list.
Again, managing a retail property likely isn’t your primary business. As such, are you’re probably not 100% clear on what makes an ideal tenant for your property.
A broker, on the other hand, is immersed in the retail world. In fact, brokers are busy qualifying tenants all day long. Which gives them specialized knowledge. Specifically, a broker understands…
== > The use types that make the most sense in your property’s area.
== > The uses that best synergize with the existing tenants in your shopping center.
== > And the financial position of a tenant that has the capability to not only survive, but thrive in your center.
All of which are key consideration when sourcing a tenant for your property. And one of the most important aspects of the services a broker provides.
Protecting Your Financial Interest By Drafting AIR Leases
When you find a qualified tenant who’s ready to sign on the dotted line, what lease form do you use?
You can find free forms online – But as the old saying goes, “you get what you pay for…”
You could use a friend or colleagues form – But who says the particulars of their agreement really applies to your situation?
You could hire an attorney – But at hundreds of dollars an hour, that’s a very pricy proposition. And truth be told, many attorneys don’t understand the nuances of crafting a retail lease that genuinely protects your interests. Plus, you often wind up with a document no tenant wants to sign because the attorney (serving as your paid advocate) has stilted the document too far in your favor.
Brokers, on the other hand, rely on AIR Leases – A stock format, AIR leases are accepted throughout the California commercial real estate industry and the Gold Standard of commercial lease forms.
Moreover, a broker draws on the benefit of tremendous practical experience – They’ve drafted hundreds, if not thousands of leases over their career. And they understand how to draft a lease agreement that stridently protects a landlord’s financial interests.
2. Professional Property Management
When you first purchase a retail property, the deluge of responsibility is generally overwhelming.
Suddenly… Tenant rent + CAM payments start rolling in (or, more distressingly, don’t materialize). Countless vendor and utility invoices clamor for payment. Mortgage payments are due, promptly, the first of each month. And then there’s semi-annual property tax bills. Oh, and don’t forget about reconciling your NNN fees on a bi-annual basis.
Then there’s site visitation. Maintenance + vendor oversight. And tenant relations management, which includes presiding over tenants’ endless complaints, demands, internal squabbles and so on…
Needless to say, it’s a huge job. And the task is not only time consuming, but it can difficult to grasp. Particularly if you don’t have relevant experience. Worst of all, errors, even innocent mistakes,can create ENORMOUS problems.
The solution? Hire a professional property management company.
Here are three primary benefits of professional property management…
When you’re overseeing a shopping center… Rent and CAM payments are coming in. Vendor, mortgage and property tax payments are going out. And the entire process has to be carefully document according to exacting standards defined regulatory legislation. Otherwise, you may wind up sitting down for an audit with local, state or even federal financial regulators. A position NO ONE wants to find themselves in.
Suffice it to say, most shopping center landlords struggle to stay on top of their property’s accounting. Fortunately, a management company can help. Here’s several examples of how…
Dedicated Accounting Department – A property management company employs an accounting department specifically dedicated to managing your property’s finances. This department records, monitors and tracks all incoming rent + CAM collections and all outgoing vendor and utility payments, in addition to issuing monthly mortgage payments and bi-annual property tax payments. Accounting also conducts complete bi-annual Common Area Reconciliation.
Specialized Property Management Software – The facilitate the recording, monitoring a tracking process outlined above, property management companies use specialized property management software. CBM, for example, uses a software platform called Skyline. The entire collections and payables process outlined above is recorded into. And debts and credits are reconciled monthly with property bank trust accounts.
Monthly Financial Statements – Your individual property manager, using software like Skyline, generates a monthly financial statement and property narrative. This financial statement is a detailed report of your financial position, including all funds collected and payments issues, in addition to outstanding collections and debts.
Site Visitation + Maintenance Oversight
Staying abreast of your shopping center’s physical condition is a key concern for any landlord. If your center is consistently dirty or trash frequently piles, prospective customers are likely to avoid your property. And that’s bound to aggravate your tenants. Not to mention destroy their business and send them fleeing at another property.
Additionally, if maintenance issues aren’t addressed quickly, particularly potential hazards – sizable cracks in the parking lot or sidewalk, for example – you’re likely to wind up with a trip-and-fall lawsuit, if not worse. Eradicating graffiti as quickly as possible is another major concern. Lest your property garner the wrong kind of reputation. In addition to racking up expensive fines many municipalities now levy for failure to remove graffiti.
Long term maintenance issues are another important consideration. As a property ages, large scale maintenance projects need to be addressed… Eventually parking lots and sidewalks must be repaved. Facades need to patched and repainted. Roofs must be restored. And HVAC systems must be replaced.
Meanwhile, monitoring these maintenance issues can be an endlessly time-consuming and exhausting task.
Fortunately, site visitation and maintenance oversight are two key services property management provides.
Regular Site Visitation – Your property manager will visit your shopping center on a regular basis. During visits, they will take note of sweeping and trash collection, ensuring property is clean and trash-free. They’ll scrutinize your center for potential hazards, recommend appropriate action, and hire vendors to address necessary repairs.
Monitoring Property Condition – Your manager will also monitor your center as whole, taking note of any potential large maintenance projects that may be order. For example… Parking lot or sidewalk reconstruction, roof repair or replacement, HVAC repair or replacement, in addition to ADA compliance violations, which is currently a MAJOR concern for shopping center landlords in the wake of so-called “drive-by lawsuits.”
As we’re already noted, maintaining your property’s physical condition is central to preserving and enhancing your property’s investment value.
But all that maintenance requires sourcing and managing a host of vendors. So now on top of dealing with leasing, accounting, and tenant relations, you’ve also got wrangle a bevy of property service vendors.
Here again, property management comes to the rescue!
Sourcing Quality + Affordable Property Services Vendors – Thanks to the portfolio of properties managers oversee, they deal with countless vendors. As such, your property manager can help you identify competent, competitively priced vendors to service your property.
Vendor Services Oversight – Your manager will your oversee vendors’ work, ensuring they not only complete their prescribed tasks, but deliver quality service. And they’ll also take vendors to task for failing to meet their obligations.
Bidding Alternative Vendor Services – If a vendor’s quality wanes or prices rises unreasonably high, your manager will bid out alternative vendors services.
Construction Project Bidding + Oversight – If your center requires major construction – parking lot + sidewalk replacement, roof or HVAC replacement, ADA upgrades, etc… – your manager will help gather bids from qualified contractors. Make informed recommendations about your options. And your manager will monitor construction and help keep you appraised of project progress.
Tenant Relations Management
Tenants are life-blood of your shopping center – they’re literally your property’s income generation engine.
But dealing with tenants is a never-ending task, not to mention a tricky business. When it comes to your center’s function, condition and management, tenants have no shortage of concerns, complaints, and demands, which they’re all too eager to voice. There are also frequent, if not petty and often ridiculous, internal squabbles between tenants occupying a center. And, of course, the not uncommon claims of financial hardship and accompanying pleas for rent and CAM reductions.
Once again, your property manager insulates you from these issues. All tenant communications are routed through your manager. And following your instructions, your manager will adjudicate tenant demands, inter-tenant disputes, and requests for rent + CAM concessions.
Your manager effectively serves as a buffer between you and your tenants. They bear the brunt of emotionally overwrought tenants and play the “bad guy” role, sparing you the angst and consternation.
Need Help Leasing + Managing Your Shopping Center?
If you’re interested in enhancing your property’s investment value, professional leasing + property management can help.
To learn more about our leasing + management services, visit our services page at: cbm1.com/services