Sale-Leasebacks Gain New Appeal for Retail Owner/Occupiers

By Globe St | June 25, 2018

Scott Holmes, Marcus & Millichap “Retail companies operating out of a property they own face new tax rules,” says Holmes, “and many could benefit from selling their property and leasing it back from an investor.”

CALABASAS, CA—Strategy changes for retail owner/users have become more frequently debated, says Scott M. Holmes of Marcus & Millichap, who reports that this shift in approach is largely due to changes to the tax code. This bodes particularly well for the sale-leaseback sector, as the SVP and national director of retail indicates in the firm’s Retail Spotlight.

“Investors’ desire to own stabilized assets with long-term tenants,” he says, “and the ability of owners to unlock equity for reinvestment into operations keep retail sale-leaseback transactions steady.”

This consistency in deal flow occurs against the backdrop of equally firm market fundamentals. “Encouraging single-tenant trends persisted last year,” Holmes states, “as demand for single-tenant locations held firm and rents continued their upward trend. Limited development will support the current trends through 2018, reinforcing the demand of these generally stable assets.”

Simply put, the new tax code minimizes some former benefits of ownership for companies operating from a location they own. “Previously,” says Holmes, “owner-user companies could deduct all of their interest expenses on their taxes, but the new provisions restrict the deductibility of business interest for companies with gross receipts in excess of $25 million. Now, interest totaling just 30 percent of earnings before taxes, depreciation and amortization can be deducted on taxes.” By selling the property and leasing it back from the investor, the facility cost once again becomes deductible.

Investors are focusing heavily on several single-tenant retail types, including quick-service restaurants. These assets are especially attractive, given their brand visibility and ability to resist both economic mishaps and e-commerce. “Investors also seek grocery stores, discount stores, fast casual dining, pharmacies and a range of other business types,” Holmes adds.


In a prior post, we addressed our #1 most frequently asked question: How Much Does Property Management Cost?

Which brings us to our second most frequently asked question: What Services Does Property Management Include?

This is a GREAT question! And obviously, key to any landlord’s decision when considering hiring a property management company to oversee their portfolio.
So, to answer this all-important, burning question, here are the 7 Primary Services Retail Property Management Services includes:

Accounting

At CBM, we employ a dedicated accounting department and use specialized property management-specific software to monitor and track all aspects of Accounts Payable (AP), Accounts Receivable (AR) and Common Area Maintenance Reconciliation for our entire management portfolio.

Software platform – We use a property management software platform called Skyline, which is specifically design for commercial retail properties.

Accounts Payable – Our AP services include paying, recording, and cataloging all utility bills, vendor invoices, mortgages, and property taxes. At the end of the year, just hand your CPA our General ledger to provide a complete property accounting!

Accounts Receivable – Our AR services include receiving and depositing monthly rents and Common Area Maintenance (CAM) payments. Additionally, to make these payments, most of our tenants use an automated online bill pay service (ClickPay.com) that debits funds from their bank account and transfers them directly into the property’s trust account.

Common Area Maintenance Reconciliation – Our accounting department conducts Common Area Maintenance Reconciliations, ensuring tenants on Triple Net (NNN) leases are paying their proper share of Common Area Maintenance (CAM) fees.

Site Visitation

CBM property managers visit the sites they manage on regular basis with detial reprots that include photos communicated electronically. These visitations serve several purposes:

Monitor property condition – Managers ensure the property is in good physical condition and free of any damage or hazards that may cause accidents and lead to lawsuits. Additionally, managers monitor the property as a whole, and take note of any larger issues that may require maintenance – HVAC systems, roof, building façade + structure, parking lot, sidewalks + curbs, etc…

Confirm + evaluate vendor services – Managers ensure vendors are not only performing the services for which they have been contracted, but executing those services at a high level.

Develop a rapport with tenants – Managers make themselves visible to tenants onsite, both to establish authority at the property as an agent of the landlord, and to allow tenants the opportunity to voice concerns and make complaints.

Tenant Relations Management

Managing tenant issues is a never-ending and thankless task. Tenants gripe and complain. Tenants have disputes and conflicts (with one another and landlords). And tenants ask for breaks and reductions in rent and CAM payment, often accompanied by hardship pleas (whether legitimate or not). Meanwhile, dealing with this relentless stream of demands is exhausting and often emotionally draining.

To mitigate this drudgery, property managers step in to create a buffer between landlords and tenants. Managers fields tenant requests and report all communications to landlords. Landlords are then free to make carefully considered decisions, without pressure from emotionally overwrought or manipulative tenants.

Ultimately, managers enforce lease terms, carefully balancing landlord rights and tenant concerns. In short, exercising a firm but fair hand.

Vendor Oversight

To ensure your property remains in peak physical condition, property managers closely monitor vendor services to confirm consistent and high caliber performance.

As part of site visitations, managers verify that sweeping + general cleaning, trash removal, landscaping, and other Common Area Maintenance task are being executed. And executed with careful attention to detail.

Additionally, if a vendor fails to perform a contracted service, performs inconsistently, or performs poorly, the manager will hold that vendor accountable. And if the vendor fails to improve, the manager will terminate their services and hire a replacement provider.

Finally, if a vendor’s fees increase while their level of service declines, a manager will source alternative providers, solicit bids, and make recommendations as to which alternative makes the most sense for the property.

Project Management

Over time, as a property ages, wear-and-tear is unavoidable. Eventually, building exteriors + facades, roofs, HVAC systems, parking lots, sidewalks + curbs, etc… all need to be replaced.
Obviously, this is a Herculean task that involves identifying contractors, soliciting bids, selecting a suitable vendor, and overseeing the project.

Now, a property manager is by no means a general contractor. And possesses neither the expertise nor legal authorization to act as one.

But your manager can help you…

== > Source contractors for various construction projects

== > Solicit construction bids

== > Advise you on the pros and cons of each option

== > And interface with your contractor of choice, acting as your agent in monitoring the construction process

Lease Assignments + Subleases

In many cases, tenants come and go before the term of their lease is fulfilled. It’s just the reality of the retail strip center world.

Of course, to vacate before a lease term has expired, a tenant must “assign” their lease or or sublease their space. And while not quite as difficult as executing a brand-new lease, assigning a lease is still an involved process that requires fully qualifying a replacement tenant.

Managers undertake this qualifying process, conforming prospective replacement tenant’s use-type acceptability, verifying their experience and business ownership track record, and determining their overall financial fitness. Ultimately, managers strive to ensure the replacement tenant will meet the vacating tenant’s financial responsibilities.

Lease Renewals

Whether lease options are in place or an initial lease is simply expiring, tracking and executing lease renewals is an integral part of maximizing a shopping center’s profitability.

To ensure lease options + lease renewals are handled accordingly, managers…

== > Keep landlords appraised of approaching renewal dates

== > Update landlords on tenant decisions to exercise options or vacate following lease expirations

== > Advise landlords on current market rents to negotiate competitively price renewal agreements

== > And assist landlords in negotiating financially beneficial lease agreements

And These Are Just a Few of the Core Services Property Management Provides…

For more information, visit our Property Management Services page at cbm1.com/propertymanagement


Why Fitness Tenants Are Leading Retail Leasing

By Globe St. June 29, 2018

Petra Durnin is the director of research and analysis for the Southern California market at CBRE.

Fitness tenants are driving retail leasing activity in Southern California. According to a new report from CBRE that looked at retail leasing activity, fitness tenants are among the top five retail users in Southern California, and they are expanding. This is a stark change from the activity from this retail segment in the past, when fitness centers were not considered a primary tenant. Today, fitness centers are occupying big boxes as well as smaller footprints and in some cases can even serve as anchors in shopping centers. Last year, there were nearly 1.2 million square feet and 100 transactions of fitness centers in Orange County, the Inland Empire and Los Angeles. This year, there has already been 400,000 square feet in fitness leasing activity and nearly 40 transactions. We sat down with Petra Durnin, director of research and analysis at CBRE Southern California, to talk about the research and what is driving fitness center activity.

GlobeSt.com: Why have fitness tenants become such active retail occupiers?

Petra Durnin: Fitness clients seek more experiential retail options that extend beyond the workout period. Fitness centers provide a service that is internet proof, occupy much of the space left behind from big box/department store closures, fill non-peak retail hours, and attract new customers willing to travel farther for unique fitness experiences. The natural partnership between anchor tenants such as grocers is formed due to the trend towards healthy living. Nearby amenities such as restaurants, coffee shops and personal services attract gym goers, increase foot traffic and sales.

GlobeSt.com: These were once considered undesirable tenants. How have landlords responded to this new demand, and has the lease negotiation or vetting process changed?

Durnin: Fitness retailers have become much more demanding in their requirements for stronger co-tenancy, earlier termination rights, and more exclusive contracts to protect their brand and business. There is also strong demand among budget-oriented fitness clubs that require 15,000 square feet and up to provide a no frills experience and a clean/well-equipped center.

GlobeSt.com: Is the growth of fitness operators enough to absorb the space from some big box closures that we have seen? Why or why not?

Durnin: Big box product appeals to many different types of tenants, but those located in close proximity to amenities that tie in to fitness and health will appeal to gym goers and attract fitness tenants.

GlobeSt.com: Restaurants have been another tenant that has driven retail leasing, but there is some talk about a surplus of restaurant options. Is there any concern about the number of fitness spaces opening or if the consumer demand can support the trend?

Durnin: The rise of health and fitness supports the current growth and options are important in relation to the live/work/play paradigm. Both the aging population and younger generation will further drive the evolution of this sector.

GlobeSt.com: Is this a lasting trend? What is your outlook for fitness center activity?

Durnin: A future trend could be for fitness clubs to locate near residential communities or medical/hospital complexes. They could partner with mixed-use and lifestyle centers with a larger experiential platform instead of traditional retail centers. Boutique fitness clubs could look to diversify further to provide an even more personalized experience with unconventional offerings such as trampoline parks and skydiving centers.


Did The Supreme Court Just Save Retail?

By Globe Street, June 22, 2018

WASHINGTON, DC–In September 2019, a mall in Toronto owned by Ivanhoé Cambridge will debut the first Cirque du Soleil Entertainment Group’s concept of indoor family entertainment experiences specially designed for retail locations. Called CREACTIVE, it basically lets shoppers take the stage and flex their inner circus skills. “CREACTIVE is perfectly aligned with our vision for the future of retail: to join forces with the right partners to offer innovative experiences for the benefits of local families and communities,” said Claude Sirois, president, Retail at Ivanhoé Cambridge in a prepared statement.

CREATIVE is the latest example of how retail is remaking the shopper experience by offering exciting experiences and entertainment. Experiences and entertainment, it can be noted here, cannot be disintermediated by the Internet. Retail has been heading in this direction for some time and for many reasons — a main one being the bleeding it has suffered from online sales competition.
South Dakota v. Wayfair

Yesterday the US Supreme Court struck a blow on behalf of physical retailers with its 5-4 vote in the case South Dakota v. Wayfair. Essentially it ruled that US states may impose sales taxes on Internet businesses, even if they don’t have physical locations in those states.

The justices, led by Justice Anthony Kennedy, overturned the court’s 1992 decision in Quill v. North Dakota, which had affirmed the “physical presence” test for state sales-and-use tax collections.

“Each year the physical presence test becomes further removed from economic reality and results in significant revenue losses to the States,” Kennedy wrote. “These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the commerce clause.”
A Game Changer?

At its heart, this was a story about states seeking to recapture lose sales tax revenues as well as one about the supposedly unfair advantage that internet retailers have had for so many years over brick-and-mortar stores that must pay sales taxes.

Now that the Supreme Court has spoken, the question becomes how much of a benefit will physical retail realize?

One thing is for certain: the trend of experiential retail offerings such as CREATIVE is here to stay. Or put another way, the concept and culture of e-commerce is so baked in with consumers that the additional costs that will be imposed will not be a game changer.

“Physical retailers surely will benefit from this decision, but the universal sales tax imposition alone will not be enough to reverse retail’s decade-long slide, in part because consumers already are very comfortable with shopping online, and the lack of sales tax is only a relatively minor consideration in their shopping decisions,” Colliers Chief Economist Andrew Nelson tells GlobeSt.com.
What Sales Tax Holiday?

He notes that surveys by comScore show that the lack of sales tax is the primary factor motivating only 10% of online sales, while free shipping (54%) and the availability of exclusive online deals (23%) are far more important.

Also Nelson says, most consumers no longer enjoy the online sales tax holiday anymore.

“Amazon — by far the dominant e-commerce retailer, with more online U.S. sales than the next nine such retailers combined, according to ecommerceDB.com — already collects sales taxes on all products it sells directly in 45 states plus Puerto Rico and the District of Columbia though not always on goods it sells on behalf of affiliates.” And with other leading retailers having followed suit, as a practical matter most consumers are already paying the tax.

Indeed University of Richmond tax law expert Hayes Holderness tells GlobeSt.com that Amazon quite expertly has flipped the script on e-commerce from “buy it sales tax free” to “buy it conveniently from your home.” “In light of this change, don’t expect the ruling to hurt the growth of e-commerce in any significant way,” he says.

With this Nelson agrees. “The diversion of these sales from physical to online retailers undoubtedly has hurt brick-and-mortar retailers, but physical retailers are facing a host of other challenges that are forcing a fundamental reckoning.”

He notes that e-commerce itself is nearly not responsible for all of the problems befalling the nation’s malls and shopping centers. “Online sales still account for only 10% of non-auto retail sales, rising to 20% or more if the retail categories that typically are not sold online are excluded, such as groceries, home improvement, small convenience items and prepared foods.

“Physical retail will still have to find ways to counter e-commerce’s convenience argument, and the change in tax collection obligations is unlikely to alter that fact,” Holderness says.
Challenges In Both Camps

It should be noted that this decision will move forward into the online retail world ease. E-commerce vendors will have to figure out how to handle the byzantine system of sales and local taxes, although many have anticipated this ruling and gotten a jump on this issue. “How it is implemented will be important and will be subject to much debate especially as the tax relates to companies doing business across and within every state,” says James M. Rishwain, Jr. Partner of Pillsbury Winthrop Shaw Pittman LLP.

Meanwhile retail, for all the challenges it is still facing, can expect easier times — although not necessarily because of the ruling.

“There’s reason to believe that some of the worst pain is behind us as industry players adapt to the new market and consumer realities,” says Collier’s Nelson. “But that doesn’t mean retailers can now rest. Hardly. Retail sales will not swing strongly back to physical retailers just because sales taxes will now be universal online.”


5 Trends in Retail Reinvigoration

By Globe St | May 30, 2018

The face of retail has changed over the past decade with the introduction of e-commerce and changing consumer spending habits. Though it may appear this is having a negative effect on the retail real estate world, it’s become an age of reinvigoration for these properties.

With Partner touching around 10% of CRE transactions in the US (during due diligence or development), we asked our staff from across the country “What are you seeing? What are some of the interesting retail transformations happening?” In this informal poll, these 5 trends stood out:

1. Big Box Getting New Purpose in Life

Many of the big box and anchor mall stores are being left vacant due to poor performance, bankruptcy of retail chains, or in favor of a smaller space for those still operating. While these spaces are generally considered a difficult property to reuse due primarily to the sheer size, a new type of consumer is creating different needs and therefore bringing new life through re-purposing.

We’re seeing the repurposing of ‘big box’ retail stores into self-storage facilities, especially those with highway visibility and those that can be fitted for the often requested climate controlled storage fact, we are seeing self-storage not just transforming big-box stores but also underused urban mid-rise buildings with the suburban to urban shift. For example, we helped Hickory Capital with the adaptive reuse of a 75-year old downtown Cincinnati building into high-density storage.

We are also seeing examples of grocery stores conversions to medical office or assisted living. These projects are unique from an engineering perspective with the need to re-work the mechanical, electric and plumbing (MEP) system demands that are required in order to support medical needs, such as specialized ventilation/heating/cooling systems, electrical system support for emergency generators or medical equipment, and plumbing systems that can accommodate the new use.

Another trend we’re seeing is conversions to trampoline parks, a reflection of consumer desire for “experiential” visits and a more family-friendly destination. We see this particularly in the Midwest region via former grocery stores. Some lenders hesitate to finance such a creative reuse, but others including 44 Business Capital (a division of Berkshire Bank) are willing with the right safeguards in place. In one instance, we provided construction risk management support for the conversion of a former HHGregg into the Altitude Trampoline Park in Sanford, FL.

2. From “Busted Mall” to “Experiential Destination”

Consumers are driving retail to move from the traditional, now-struggling suburban malls to lifestyle centers where retail is a part of an overall experience. Consumers are looking for an experience – whether it be going to a restaurant, catching a movie, or just enjoying outdoor recreation. By creating a mixed-use campus, retail shopping can be more of a leisure activity and not a chore. A notable example is Orlando’s former Festival Bay Mall / Artegon Marketplace. We contributed pre-development due diligence here for luxury developer Dezer Development in turning this struggling mall in a prime location into an entertainment complex and event center. The redevelopment includes an automotive museum featuring Mr. Michael Dezer’s private collection of James Bond movie vehicles. A movie theater and non-traditional anchor tenant, along with the large parking lot presenting hospitality opportunities will ultimately bolter the property’s value and overall experience. In another creative example, we performed environmental due diligence at a Prescott, AZ retail property being transformed into an activity center featuring rock climbing, yoga studio and a café.

3. Industrial to E-commerce Warehouse

With the inventory of space sitting vacant in prime locations, some investors and lenders are looking for ways to make these facilities useful again and the e-commerce trend is helping. The need for warehouse and distribution facilities in metro areas are at an all-time high and with little to no green lots, these large, open, unoccupied buildings can be an answer. In the time of Prime’s 2-day or same day delivery model, inventory must be easily accessible to not only to urban and metro areas, but to surrounding suburbs and even more rural areas. With these projects, we help clients to take a close look at whether the structure and configuration are appropriate for distribution purposes. We answer questions such as: is there enough turning radius in the dock area? Is the clear height sufficient in all or certain areas? Is the concrete pad suitably flat for lift truck traffic, and strong enough for heavy racking systems?

4. Retail to Residential

A multi-building/strip mall style retail may initially seem difficult to re-purpose, but thinking outside the big box is key to creating attractive possibilities. We’ve been involved in multiple projects where retail strip malls centers or and multiple stand-alone retail buildings are turned into multifamily or student housing when in the higher education setting. We’ve also seen a larger stand-alone retail building be converted into multiple housing residential spaces. In an urban example, we were involved in the conversion to luxury apartments of an historic downtown Detroit building with a long-time vacant big box store.

5. Digital Brands Expanding into Brick and Mortar

The convenience and easy accessibility of online shopping has become a daily habit for most consumers but there are still some who like to see and feel the actual product before making a purchase. Some exclusively online retailers, like Modcloth, Glossier, and Boll & Branch have begun opening small ‘showroom’ type stores with a variety of online inventory displayed, customer service representatives that are knowledge about the product available to answer questions, and in store ordering systems that will still give you the convenience of delivery to your door.

More than others, retail is an evolving market in terms of commercial real estate, and we are fortunate to have the hands-on experience of the changes that are occurring today. Distinct trends have emerged and it’s clear that thinking outside the big or small box is worth the risk and investment.


Taken a gander at the news lately?

Seemingly every second headline touts the closure of yet another retailer. Either they’re “downsizing” (or “rightsizing” in the politically correct vernacular) and shuttering locations. Or they’re closing up shop altogether.

Here are some of the more notable retailers currently “rightsizing” their operations or on their way out for good…

  • Toys R Us – 735 locations
  • Abercrombie & Fitch – 60 locations
  • Foot Locker – 110 locations
  • Best Buy Cellular Stores – 250 locations
  • JC Penney – 8 locations
  • Sam’s Club – 63 locations
  • Macy’s – 11 locations
  • Michael Kors – 100 locations
  • Sears & K Mart – 103 locations
  • J Crew – 50 locations
  • Gap & Banana Republic – 200 locations
  • Teavana – 379 locations
  • Ann Taylor, The Loft, Dress Barn and Lane Bryant – 268 locations
  • Nine West – 70 locations

Obviously, this is bad news for a large segment retail real estate. But notice something all of these businesses have in common?

None would occupy a typical strip center. Malls, for sure. Power and lifestyle centers, too. And probably large-scale regional strips as well.

But you wouldn’t find any of these businesses in your everyday urban shopping center.

And this shift, believe it or not, is GREAT news for shopping center landlords like you!

Why, you might be asking?

Well, a number of economic, societal, and business development factors are at play, which is not only enhancing the value of strip center real estate but ensuring the stability of this asset for years to come.

Specifically, here are five key elements that make this the best time in history to invest in strip center real estate…

1. Demand for Services

Much of “traditional retail,” which has depended largely on selling physical products, is disappearing.

But guess what’s not diminishing? The public’s demand for services, a demand that’s ramped up like never before.

Nail salons, massage, tax prep, insurance, tutoring, child care + early child education, pet grooming + kennel services, veterinary clinics, urgent care, dental clinics, optometry, martial arts studios, fitness and personal training, restaurants, cafes, bakeries, and the list goes on and on.

And where do the vast majority of these businesses locate?

Your good ole traditional urban strip center!

And speaking of restaurants…

2. Eating Out is Outpacing Grocery Store Sales

In 2016, for the first time in history, gross restaurant sales exceeded grocery store sales.

In other words, the nightly “menu plan” for many American families has become picking from a deck of quick-serve takeout menus.

And once again, where do most quick-serve and fast casual restaurants locate?

You guessed it, retail strip centers!

3. Strip Centers Have Already “Rightsized”

Once upon a time, urban strip centers hosted their share of tenants selling physical products.

But as department stores, and large-scale discount stores, like Walmart, Target, TJ Maxx, Marshalls, Ross and others crept into the retail landscape in the ‘80s + ‘90s, small format retail stores selling physical products were steadily edged out.

And with the rise of internet sales beginning in the early aughts, by the end of the first decade of the new millennium, product sales based retail was in the serious death spiral.

Thus, strip centers have already weathered this contraction and reinvention storm currently facing shopping malls and other large format shopping centers. And strip centers have not only weathered the storm but righted the ship and become more profitable than ever!

4. Smaller Spaces + Reasonable Rents = Lower Attrition

Looking at the list of failing retails above again, what’s another common thread among these businesses?

All either occupy physically large sites or are positioned in high-profile locations. Two factors that demand high rents.

So, of course, when sales fall off, it’s impossible to meet those significant financial obligations. And business either downsize or fold up their tents for good

Strip centers units, on the other hand, are far smaller and typically situated in urban locations that don’t command the same “prestige” as shopping malls. Also, on average, strip center rents are far less expensive.

So, while sales may ebb-and-flow, a bad month, or even a bad couple of months, isn’t likely to sink a tenant’s entire operation.

5. Reasonable Rents = Easier to Lease

When JC Penny’s vacates a mall, abandoning 50,000 SQFT, what’s a landlord to do? The odds they’re going to find a replacement tenant willing to take even a fraction of that space or pay anywhere near the same rent are slim to none.

So, not only has the landlord lost that income, a huge hit to their bottom line, but those dollars may never be replaced.

Meanwhile, when a cellphone tenant paying $2.50 per foot vacates a 1,200 SQFT space in corner strip center? It will probably only take a matter of months to replace that tenant. And in all likelihood, the new rent will be higher.

The Bottom Line? Strip Centers Are a Secure Investment…

The headlines are genuine. There is real carnage in the retail real estate industry at the moment. And there’s likely to be some serious pain for many involved.

But strip center real estate has already weathered this storm. Retail strip centers have adapted to the “service economy.” Locations were “rightsized” years ago. And most strip center landlords aren’t facing financial ruin if a tenant goes out, because the economic hit is minimal, and the income imminently replaceable.

The Key to Maximizing Your Strip Center Investment?

Effective leasing and property management.

Quickly filling vacancies with qualified tenants that synergize with existing operators is key to maintaining your income stream.

While ensuring your property remains in good condition and fostering positive tenant relations is critical to keeping tenants in place.

Need Leasing + Property Management Support?

CBM can help! Visit our Services page to find out more about our retail leasing + property management services.


by Geoff Grossman

The internet is GREAT at a LOT of things…

Probably seems like the understatement of the millennium, huh? The World Wide Web has revolutionized communication, spawned entire new industries, and killed off quite a few trades, too.

In short, the web has fundamentally alternated the fabric of our society at large, not to mention drastically reshaped much of the business world, and commerce as a whole.

Real Estate and the Internet…

The impact of the internet upon commerce is CLEARLY evident in real estate.

One of the initial adopters of what, at the time, was a rudimentary form of the internet, early Multiple Listing Services put entire market inventories literally at the fingertips of every real estate agent working that market.

Few in the business now remember a time when there was no such thing as “comprehensive inventory list.” A time when agents relied on manually published lists share office-to-office and person-to-person. And local newspapers SINGULARLY DOMINATED real estate advertising.

Landlord + Tenant Deal-Direct Listing Services

Nowadays, beyond just the MLS, there are direct-to-consumer real estate listing and search tools. Landlords can list retail space and tenants can locate said space entirely online. An approach that ostensibly eliminates the need for a broker.

Marketing Vs Sales – Where an Actual Broker Defeats the Internet

But while this so-called “revolution” in real estate seemingly saves landlords on commissions (and potentially lowers rental rates for tenants based on those commissions savings), it forgets the fundamental HUMAN factors that have driven real estate since the very first property ever changed hands.

Yes, the internet is an exceptional marketing tool. Perhaps the greatest our society has yet to devise. But there is an essential difference between MARKETING and SALES. And in the real estate game, there is no better SALES tool than a real live broker.

How so? Well, friends, that’s the central question at play here. And to answer this query, here are four reasons a why a broker is every landlord’s most invaluable sales tool…

Information on its Own Only Has So Much Value…

The internet is GREAT at cataloging information. You can find ANYTHING + EVERYTHING. In fact, online you can stumble across lots you’d rather never have known even existed.

And the internet is great a making vast stores of knowledge immediately accessible. It’s all there, literally at your fingertips.

But information alone is just a pile of facts… You could exhaustively research the three laws of Thermodynamics. But if you’re like most people, that wouldn’t get you any closer to a thorough grasp of physics. For that, you’d need a knowledgeable expert to interpret and explain the material in language that someone short of Ph.D. in theoretical physics could understand.

Similarly, you could compile a list of every 1,500 SQFT retail unit for lease in Los Angeles. But that wouldn’t tell which vacancy genuinely suited your purposes. You’d need a knowledgeable expert to help you make that determination.

Information Vs. Persuasion

As stated above, the internet makes it easy for tenants to determine space availability. Anyone can hop online and pull up a relatively comprehensive list or the retail space available in a given market or even variety of markets.

But again, that’s just a big pile of info. The internet opens the door and peaks interest. But posting your vacancy online doesn’t persuade, it doesn’t close the deal.

That requires a knowledgeable sales professional…

The Value of a Sales PROFESSIONAL

A sales agent offers far more than just facts. An agent knows a property, intimately. An agent knows the tenants in and around the center. Understands the community and surrounding areas. And has a strong grasp on the type of tenant that will thrive or wither in a particular property and given location.

The qualification process, which is the ultimate deciding factor in any retail lease, resides solely with the leasing agent. The internet can’t help you evaluate a prospective tenant’s financial position, track record, or ultimate viability in particular property or broader location.

A Stake in the Final Outcome

The internet doesn’t care one way or another whether you lease your vacancy. It’s just a catalog of information. The internet persists irrespective of your circumstances.

A leasing agent, on the other hand, has skin in the game.

An agent…

== > Is motivated to lease your property as expediently as possible – because that’s how they get PAID…

== > Has vested interest in placing a viable tenant guaranteed to survive over the long haul – lest they must re-lease the vacancy after a failed tenant departs for little or no additional compensation…

== > Strives to do the best job possible – because they want to earn your repeat business and referrals thanks to you sharing your satisfaction with fellow landlords and real estate investors.

The CBM Difference…

These days, most leasing and sales brokerages provide agents with a phone + computer, and turn them loose. Meanwhile, most of those agents spend the majority of their time hanging around the office, waiting for leads to fall into their lap.

Because it’s the “internet age,” right? So, everything comes to you. Not hardly.

At CBM, “Old School Methods” of retail leasing reign supreme!

So, what does that look like, practically speaking? Our agents are…

== > In the car, driving their territories. Every day. Day after day…

== > Out canvasing, meeting + greeting, glad-handing, passing out flyers, and generally seeing and being seen in their marketplaces…

== > And actively sourcing new listings and potential tenants.

Our agents are NOT…

== > Hanging around the office, playing on the computer, waiting for the phone to ring.

Need Assistance Leasing Your Shopping Center?

If the CBM method of retail leasing appeals to you, find out at: cbm1.com/services.

About the Author

Geoff Grossman, a senior retail broker, joined Centers Business Management (CBM) in 1999. Mr. Grossman primarily handles landlord representation, specializing in retail leasing and investment sales throughout Southern California.


Last fall, international toy merchandising giant, Toys ‘R Us, filed for bankruptcy under Chapter 11 protection. The move was intended to give the struggling business “greater flexibility” in dealing with it’s $5 billion in long-term debt.

Then last month, the company announced the intention to close 184 stores, paring down its 700+ locations across the United States. This step was a further effort to clear the financially ailing retailer’s balance sheet in hopes of attracting a would-be investor to bail out the company.

Unfortunately, the bid failed. As a result, Toys ‘R Us has announced plans to close all US-based stores.

The company’s faltering sales are largely attributed to increased competition from eCommerce outlets, chiefly, Amazon. In addition to a strong push among discount retailers, such as Target and Walmart, to capture a larger portion of the toys sales market. An effort that has proven successful, much to the chagrin of Toys ‘R Us.

Toys ‘R Us has offered no immediate timeline for store closures. And no outline for where the process will begin or how it will progress regionally.

The silver lining…

In CoStar’s recent State of The Retail Market presentation, the firm’s economists noted the majority of Toys ‘R Us stores boasts a strong “location score.”

This is a proprietary scoring metric that factors income demographics, the financial health of adjacent retailers, and overall commercial property values to determine a location’s “investment quality.”

And according to CoStar’s data, Toys ‘R Us anchored or occupied shopping centers demonstrate consistently high investment quality.

This indicates that despite the fact that Toys ‘R Us happens to be vacating a center, the property is none-the-less an ideal site for replacement credit tenant.

In other words, a bevy of prime real estate ripe for willing takers is about to open up!

And this is good for…

Landlords:

Yes, many an aggrieved landlord is about to lose a major credit tenant currently occupying a LOT of space in their center. That said, however, there is a sizable pool of strong replacement tenants waiting in the wings.

Tenants:

The shortage of A+ space has been one of the biggest roadblocks to many expanding tenants. Meanwhile, the locations the majority of Toys ‘R Us stores currently occupy are exactly the type of sites most credit tenants salivate over. And more than a few of these locations are about to become available.

Brokers:

There many big deals looming on the horizon ; —)

Thus, despite Toys ‘R Us’ clear misfortune, the situation is by no means a net loss.


Grocery Stores Slow Expansions, but Prepare Big Changes

By Globe St | February 28, 2018

CHICAGO—Grocery-anchored centers continued to be an attractive property type for investors in 2017, with sales volumes increasing by 5.3%, according to JLL’s Grocery Tracker 2018 report. The asset class remained stable even though investors kept most other retail types at arm’s length.

But regardless of the overall stability, many grocers continue to experiment with new strategies like healthier food options, more advanced technology, and the possibility of alliances with non-grocery companies, leading Chicago-based JLL to conclude that this retail sector will have an eventful 2018.

Last year, the industry took a breather in some ways. Builders slowed the pace of new construction in 2017, opening 13.4 million square feet of space, which represents a decrease of 28.8% year-over-year, JLL finds.

“It’s not surprising that overall grocery store expansions fell in 2017, when compared to the boom in 2016,” says James Cook, the company’s director of retail research. More than one-third of new store openings were in just three states: CA with 1.6 million-square-feet, and NC and VA with growth of 2.7 million-square-feet across both states. “Retail follows rooftops, so the states with strong population growth will continue to see an influx of grocers.”

Consumers have become partial to specialty grocers, discount grocers and wholesale clubs, he adds, putting pressure on the largest grocery chains. “But we are seeing strong local chains competing head to head, and winning. Locations within the trade area and in the right markets is key.”

Healthier food choices, especially at affordable prices, was one of the three main strategies which helped many grocers compete. Aldi, Lidl and Grocery Outlet have done well by embracing gluten free and vegan-only diets. Aldi, for example, launched LiveGFree, a gluten free product line, in 2014, while Lidl offers shoppers a vegan option.

Moves like this helped Aldi expand its market share, JLL finds. The discount grocer significantly grew its presence last year in CA, VA and TX. And it plans to invest $3.4 billion in store expansions over the next four years while also remodeling 400 existing properties.

Grocers that sell products under private labels also have a competitive advantage. Consumer tastes can change quickly, JLL points out, but private labels allow grocers to quickly respond to market changes. Furthermore, cutting out the middlemen can double profit margins. Albertsons, one of the nation’s top grocers, recently added hundreds of new USDA-certified organic products to its O Organics private label. The line just hit $1 billion in sales in the most recent year, a 15% increase, and the grocer plans to add hundreds of more new products in 2018.

Like most brick-and-mortar retailers, grocery stores have begun establishing online shopping options. Still, JLL finds that online penetration in the sector remains at a mere 0.8%.

But property owners can expect grocers to continue experimenting with online shopping, grocery delivery and click and collect. Kroger opened its 1000th ClickList store, where customers can have items brought to their car after ordering online. The service has been a hit with shoppers, and Kroger has seen digital sales more than double since the launch.

JLL advises investors to pay attention to the strategies adopted by grocers. “Owning a property anchored by one of the top grocery chains is no longer a guarantee of strong performance,” says Chris Angelone, the company’s retail investment sales leader. “Owning retail is like owning an operating business, and investors need to keep in mind changing consumer preferences.”

The biggest recent news in the grocery world was Amazon’s $14 billion acquisition of Whole Foods. The implications of that move are not yet clear, but JLL expects more partnerships between grocers and non-grocery companies “that focus on innovation and technology that can build upon digital networks, logistics, delivery, and customer engagement.”