So far in our continuing series addressing Frequently Asked Property Management Questions, we’ve covered:

How Much Does Property Management Cost?

What Services Does Property Management Include?

How Often Will a Manager Visit My Property?

And Can I keep My Bank Account?

The next installment?

What Do I Do If a Tenant Consistently Pays Late or Doesn’t Pay Rent At All?

Another excellent question! And an issue that far too many retail landlords struggle with. But as common as this matter may be, it’s one of the more complicated problems to solve. More often than not, there isn’t one “ideal resolution.” The best course of action generally varies and depends on several key factors…

The Quality of the Tenant

Is this a tenant that’s typically reliable but happens to pay rent late on occasion?

Is this a tenant that pays rent, but consistently pays late?

Is this a tenant that pays late and is few months delinquent?

Or is this a tenant that has ceased to pay rent and is months behind?

The Frequency of Late Payments

Every month?

Every couple of months?

Once or twice a year?

The Amount of Outstanding Rent Owed

How much back rent is owned…

A couple of months?

More than six months?

Over a year?

The Difficulty to Re-Leasing a Vacancy

If a tenant vacates, of their own accord or is evicted, how difficult will it be to release the space?

How Do These Factors Impact Your Decision-Making Process?

It really boils down to how you chose to address different tenant types…

A Quality Tenant with Rare or Occasional Late Payments

This is a tenant well worth keeping and worth keeping happy. Thus, charging a late fee is likely not in your best interest.

A Consistently Late Paying Tenant

This tenant definitely deserves to be charged and late fee. And late fees should be leveled until the tenant gets the message and pays their rent in a timely manner.

A Delinquent Tenant

Continually charging late fees is only adding to their balance, making it that much tougher to bring their account current, and pushing than that much closer to breaking their lease and vacating the space. This scenario comes down to whether or not you really want to keep the tenant. Either you organize a payment plan and offer incentives to help the tenant bring their account current. Or you take steps to evict the tenant.

A Tenant Occupying a Difficult to Lease Space

A tenant that consistent pays late or is delinquent but occupies a difficult to lease space may be worth keeping. In this scenario, it’s a matter of weighing the potential revenue the tenant’s occupancy implies verses being saddled with a space you’re unable to lease for years to come.

As you can see, there are several important factors to weigh in deciding how to deal with late, delinquent or non-paying tenants.

But regardless of the circumstances, there are tactics you can employ to ensure tenants (generally) pay rent on time.

Strategies to Avoid Late Rent Payment

The most effective method to avoid chronic late rent payments? Employing: “The Carrot and the Stick.”

In other words, rewards for “good behavior” (the Carrot), and punishment for “bad behavior” (the Stick).

But let’s flip the script and start with the Stick, as “bad behavior” is what generally brings this situation to a head.

The Stick… This can take the form of both threats and actual punitive measures.

Late Fees

Late fees are typically written into lease agreements. But such fees are exercised at your discretion. Thus, if a tenant is late once or twice, you can threaten to charge a late fee. If a tenant is late on multiple occasions, you can exercise your right under the lease and charge a late fee. And you can continue to charge late fees if a tenant’s late payments persist.

3-Day Notice to Pay or Quit

Here again, you can threaten to post a notice. And if this fails to impress your point upon a tenant, you can make good on your threat and actually post a notice to prove you’re serious.

Eviction

To clarify, an eviction is a long, complicated, and difficult to navigate process that generally favors the tenants. One misstep in procedure or paperwork can completely foil your efforts and force you to start the entire process over again, from the very beginning.

As such, an eviction this should always be your last course of action. But both the threat and the exercise of an eviction action (at least initiating the process, but not necessarily carrying it through) can be a strong motivating factor that renders many tenants “scared straight.”

The Carrot… On the other side of the coin, you have incentives to motivate tenants to pay rent in a timely manner and keep their account current on a consistent basis.

Managing Late Rent

Let’s say a tenant has consistently paid rent late for 12 months. If that tenant can pay rent on time for 12 consecutive months, they will receive a 20% discount on their rent in the 13th month.

Or let’s say a tenant has consistently paid rent late for 6 months. If they can pay rent on time for 6 consecutive months, they will receive a refund of all late fees collected during the six months their payments were lagging.

Managing Delinquencies

Let’s say a tenant owes several months of back rent. If they are able to consistently pay rent on time for 12 months, a portion of the back rent will be forgiven on the 13th month.

Or let’s say a tenant owes a great deal of back rent. If they are able to consistently pay rent on time for 12 months, the landlord will agree to a payment plan in which the tenant can pay down the back rent without incurring any interest fees or additional charges.

These are just a few examples… There are a number of possible incentive programs to help keep tenants on track and up-to-date on their monthly rental payments.

Need Help Dealing with Late + Delinquent Tenants?

One of the key services professional property management provides is Tenant Relations Management. We’ll step in and deal directly with your tenants, taking the burden of frustration and stress off your shoulders.

And we’ll work with you to assess a given tenant’s situation, and make recommendations on when to take punitive action (administer the “stick”) and when to offer incentives (dangle the “carrot”).

For More Information on Professional Property Management Services

Visit our Services page at: cbm1.com/services


In our ongoing Frequently Ask Questions series, we’ve covered How Much Does Property Management Cost?What Services Does Property Management Include? and How Often Will a Manager Visit My Property?

So, what’s next on the list?

Can I Keep My Own Bank Account (for the property the management company is to oversee)?

Another great question! And certainly, a prudent consideration for any commercial real estate investor.

In fact, if you’re like many of today’s shopping center landlords, one, or both, of the following scenarios probably sounds familiar…

1. Partnership Selected Bank

You own a shopping center in partnership with several parties, and the group has collectively agreed to process all property finances through a specific bank.

2. Lender Designated Bank

You financed the purchase of your shopping center, and the lender requires that all property finances be processed through a specific bank (usually the institution making the purchase loan).

Well, the good news is in either case, CBM can accommodate your situation!

Now, just to clarify our typical process…

When taking on a new property management account, we open a property trust account through our preferred bank.

We Use a Preferred Banking Vendor For Several Reasons…

== > We have a long-standing relationship with our bank and hold tens of millions of dollars in deposits with the bank, which entitles us to individualized attention and preferential treatment.

== > After so many years in partnership with our bank, we’re well versed in their procedures. And they’re similarly acquainted with our processes. This ensures transactions run smoothly, with no surprises, or unexpected bumps in the road.

But Using Our Vendor is Purely OPTIONAL

With all of the above said, however, holding a property trust account with our bank is merely an option. Not a requirement.

We can, and often do, work with many landlords to accommodate trust accounts at any bank.

Our lead accountant will interface with bank administers and establish our depositing and payment processing in accordance with that institution’s protocols. And given that we process tenant rent and CAM payments via ClickPay.com (an online automated payment portal), our accountant will ensure this payment portal integrates seamlessly with a landlord’s bank of choice.

For More Information on CBM’s Property Management Services…

Visit our Services page at cbm1.com/services


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.”


Which Net Lease Assets Are Selling Like Hotcakes?

By Globe St | March 1, 2018

CORONA DEL MAR, CA—Single-tenant retail assets priced $5 million or less continue to sell with the most velocity due to having the largest audience of prospective investors and all-cash buyers that are less dependent upon financing, Hanley Investment Group EVP Bill Asher tells GlobeSt.com. In addition, he says grocery-anchored shopping centers with reported successful sales and a complementary mix of Internet-resistant retailers will continue to be in high demand and command top-of-the-market pricing.

“In 2017, we saw sellers continue to push the market with aggressive pricing on the marketing and sale of single-tenant retail, especially coming off peak market pricing in 2016 driven by record-low interest rates and investor demand,” says Asher.

He adds that overall activity and buyer interest decreased, with buyers proceeding with more caution in previous years. This created larger spreads between where a property was listed for sale, what range buyers submitted offers and final closing prices. “Watch for brokers to strategize with sellers in more depth in 2018 in properly adjusted pricing to better meet the transitioning market on all retail product types to more efficiently and effectively consummate sales this year.”

Another development that was pleasing to the net-lease sector was where 1031 exchanges wound up in the new tax plan. “We were pleased when the 1031 exchange was left alone in the tax bill, and that activity will continue to support our business as long as it remains intact,” says Adam Scherr, an advisor with Sands Investment Group. However, he tells us there is some concern with interest rates rising since the end of last year and a lag time between rise in cap rates and interest rate.

Still, the net-lease investment market is seeing increased velocity and deal flow on a national basis, Kyle Gulock, senior managing director of Charles Dunn Co. Inc., tells us. “The main drivers for this are a strong economy, job growth and overall consumer confidence. This has led to increased deal flow across all sectors of the real estate industry, which has created an expanding buyer pool of 1031-exchange buyers.” Gulock says that 82% of the net-lease transactions his group completed in 2017 involved a 1031-exchange buyer from California.

With a market that appears to be trending toward a more consistent, higher-interest-rate environment, net-lease investors should be paying more attention to their strategies with existing properties they own and properties that they are looking to acquire, says John Read, first VP with CBRE’s National Retail Partners—West team. “Interest rates and cap rates remain near historical lows, and it makes sense to sell, buy and/or refinance. If investors are not doing one or all of these in today’s market, they might be missing an opportunity.”


Vibrant Retail Pockets Exist Everywhere

By Globe St. | February 26, 2018

The “demise” of brick and mortar retail, pop-up shops, new technologies, decreasing sales, increasing sales, destination retail—opinions on the future of retail are many and varied, causing a pause among traditional investors. That is according to a panel at the recent MBA’s CREF/Multifamily Housing Convention and Expo 2018. “As ecommerce continues to grow, the risks and opportunities for lenders remain difficult to forecast,” panelists said.

In the brick and mortar, e-commerce, demographics and technology session, panelists took time for a reset and provide their perspectives on retail real estate and the components necessary for success in an e-commerce environment. Victor Calanog, chief economist and SVP of REIS, said that the big boogie man in the room is how online sales are affecting brick and mortar. But he said the answer is that the number is really only 9%, which he says is “surprisingly low.”

But that number, he says, includes things like gasoline and car sales, and if you strip those out, the number is closer to 30%. “Sure, there is a lot of stress on brick and mortar, but those scary headlines don’t capture the full picture.”

Calanog explained that it is easy to really highlight stories of store closing, but there is a lot happening out there that don’t highlight that the action might just be shifting somewhere else. “What’s more important is to look at which brick and mortar are doing well and why.”

Ryan G. McCullough, senior real estate consultant at CoStar Portfolio Strategy, says that while there is some concern from retailer productivity, ultimately when we look at what public retailers are reporting today at in store sales, they are 19% less than they have done over a long term average. But what does that mean for the market, he asked? “It means closures in some cases, but it is for the worst performing stores.”

In some cases, he explained, e-commerce is complimentary to brick-and-mortar. “If we didn’t have online sales, we would have about 300 million square feet more space occupied for retailers. The question then is, if e-commerce is hurting some stores, but it is benefiting others, how can we tell the difference?”

He pointed out that vibrant retail pockets exist everywhere. “When you look at the assets you are lending on, you have to think about all that. Tenants also plan an important role in the success of a center long term and location quality is a strong predictor of loan performance.”


2018 is upon us… Can you believe it!? Where or where does the time go?

Anyway, if you’re like a lot of people out there, in the run up to the end of the year, you’re consumed with…

NEW YEAR’S RESOLUTIONS!

And what are New Year’s Resolutions, really? In a word, Goals.

Now, for most business owners and investors, annual goals involve improving your business and bettering your investments.

As a shopping center landlord, your property IS your business AND your investment. Thus, your goals for the New Year center on improving your property – thereby bettering your investment.

Here are three of the most common goals for shopping center improvement…

Reducing Vacancy

Are you struggling with lingering vacancies that you just can’t seem to fill? Despite the economy’s improvement, many landlords are in exactly the same boat.

If you’re facing this problem, here are the three most likely culprits:

Unrealistic Expectations

Endcap spaces in prime locations command high dollar rents. Inline and elbow spaces in sub-prime locations do not. It’s really that simple.

So if you’re dealing with a lingering vacancy, it may be time to consider lowering your asking rate or being more flexible with the offers you receive.

Also, if you’re trying to fill a larger space, it may be worthwhile to market small space availability, and offer tenant improvement dollars to subdivide the larger space.

For Lease By Owner

It’s certainly fair to say you know your property, likely better than anyone else. And having owned the property in its current location for some time, you’re probably knowledgeable about the surrounding area.

Leasing agents, however, are zeroed in on the tenants best suited to your property-type, the tenants active in the marketplace, and the real PULSE of the area. If you’re like most landlords, it’s doubtful you have the time to acquire and maintain this board of a knowledge-base.

And a leasing agent’s value doesn’t end with property-type and market knowledge. Typically agents have a list of tenants actively seeking space. And they’re connected to a city, state and even nationwide network of brokers and corporate tenant real estate agents all representing active tenants.

Hiring a leasing agent, who doesn’t get paid until your vacancy is leased, puts all of these resources to work in the effort to find you a higher quality tenant, faster.

Time For Some New Blood

Perhaps your property is already listed with a broker. Maybe it’s been listed with that broker for a long time. A REALLY long time. But with little or no results to show for the time and effort.

This doesn’t mean your current broker isn’t competent or qualified. And it doesn’t mean they’re not doing a good job.

Sometimes listings just get tired. There may have been a rush of activity when your property first came on the market. But that time has long passed, and now your empty unit is just one more in vast sea of vacancies.

In this scenario, the best thing to do is to bring in some new blood. A new broker with a fresh perspective, different connections and another approach to leasing your vacancy.

Lowering Property Expenses

Your shopping center is an investment, right? It’s supposed to generate money. Not rack up costs.

Yet each month as look down your list of property expenses, you scratch your head and wonder “what are all of these charges!?”

Unfortunately, it does cost money to maintain a shopping center. But there is a strong possibility that you’re paying for more than you have to.

Here are three potential property cost-reducing strategies:

Lower Your Vendor Expenses

Of course vendors are necessary to maintain your property. But are their services REALLY worth what you’re paying? In other words, is the quality of the service your current vendors provide really worth the fees they charge?

Could it be other vendors provide comparable or even superior quality services for less money? Seek bids from alternative vendors, and you’re likely to find higher quality, lower cost providers begging for your business.

Reassess Your Property Taxes

The economy has certainly improved since the depths of the Great Recession. But that doesn’t mean your property’s value has rebounded to its pre-recession level. And that means in all probability, your property’s current assessed value exceeds its actual market value.

Fortunately, there are companies that specialize in reducing commercial property assessments. They don’t charge a dime unless they’re successful in lowering your assessment. And their fee is merely a percentage of you assessment reduction.

Convert to Triple Net (NNN) Lease

We probably don’t need to reiterate the details of how a Triple Net lease works, but here’s a quick crash course… Your tenants pay for your property taxes, building insurance, and common area maintenance (with a charge added to their monthly rent).

If your tenants aren’t on Triple Net Leases, your property expenses are SIGNIFANCLY higher than they could be.

But this is an easy fix. As existing tenants come up for lease renewals, and as new tenants enter your shopping center, sign them to Triple Net Leases. It’s the single largest property expense reducing tool at your disposal.

Maintenance

As we’ve already discussed, your property is supposed to generate money, not vacuum it out of your bank account. That’s what makes maintenance, especially big, expensive projects such a bitter pill.

But the reality is, the condition of your property is directly proportional to its value and income generating potential.

Deferred Maintenance

A property in poor physical condition, with lingering issues – leaky roof, cracked and deteriorating parking lot and sidewalks, dying or dead landscaping, ADA non-compliance – isn’t well-patronized. And it winds up filled with frustrated, underperforming tenants that grow more and more eager to vacate the property every day.

One by one, your tenants depart. And you’re left with an empty shopping center no one wants to lease, because no one wants to shop there.

Liability Issues & ADA Non-Compliance

Cracked and broken parking lots and sidewalks are trip and fall lawsuits waiting to happen.

And ADA non-compliance is a huge legal can of worms that no landlord wants opened.

In short, deferring maintenance may improve cash flow in the short term. But it seriously hurts your property’s value in long term. The potential lawsuits can be financially devastating.

How CBM’s Professional Leasing & Property Management Services Can Enhance the Value of Your Shopping Center

Whether you’re facing long term vacancy, rising property expenses or mounting maintenance issues, CBM can help.

Our team of industry leading shopping center leasing and management pros will solve your problems.

And the end result? You’ll achieve your 2018 goal of improving your shopping center’s investment value!

Find Out More About CBM’s Leasing & Property Management Services

For more info on how CBM can help enhance your property’s investment value, visit our services page.


Mom-and-Pop Shops Are Threatening the Mall This Holiday Season

By Bloomberg, November 22, 2017, 5:00 AM PST

More bad news for America’s shopping malls: Consumers are shopping closer to home. And increasingly, home is not where the malls are.

Spending growth at mom-and-pop businesses has outpaced that of the big chains in the past two years, according to Sarah Quinlan, senior vice president at credit-card giant Mastercard Inc., which tracks purchasing patterns. When they’re not shopping online, Americans are seeking more personal connections and advice — something they can find lacking at national retailers.

“The consumer is shopping small,” she said.

Big chain stores still account for the majority of shoppers’ purchases, according to Mastercard. But many of the most affluent consumers are now clustered in walkable neighborhoods, letting them skip the mall in favor of neighborhood hardware stores, bookshops and grocers. And they’re willing to pay the higher prices, Quinlan said.

That doesn’t mean malls are going away. The A-rated shopping centers — the industry’s cream of the crop — are still doing fine. But the other roughly two-thirds of malls are struggling to cope with shifting spending patterns, an aging population and the rise of Amazon.com Inc. The uncertainty has even led tenants to push for significantly shorter leases, sometimes of only a year or two.

Independent retailers and small chains have been able to step into the void. Many of them are thriving in categories like hardware, furniture and crafts.
‘More Conscious’

Holiday markets have capitalized on the trend, letting small businesses offer their wares in bustling pop-up shopping districts. Keoni DeFranco, who was shopping at a holiday market in Manhattan’s Union Square on Thursday, said he tries to support local stores when possible.

“I’ve become more conscious about what I’m purchasing and eating,” said the 29-year-old software executive. “I do a lot of browsing online, but I do enjoy going into stores and looking at what I’m buying before I purchase it.”

But local shoppers frequently have to overcome a big hurdle: price.

Since smaller businesses often can’t buy in bulk, customers typically have to pay more. Increasingly, that’s a sacrifice shoppers seem willing to make — at least when they’re shopping offline, Mastercard’s Quinlan said.

Sales growth at small businesses, defined as having less than $50 million in annual sales, was 7.3 percent last year, according to Mastercard. That compared with 4.6 percent for total retail sales. Small business purchases account for 37 percent of total spending.
Online Gains

But online growth still overshadows both the big chains and local stores.

E-commerce sales are expected to swell by 18 percent to 21 percent during the holiday season, the National Retail Federation estimates. That’s a faster clip than last year — and well above the roughly 4 percent expected for the retail industry overall.

It’s hard for brick-and-mortar chains to beat the convenience of a few mouse clicks. So they’ve promoted the idea of a retail “experience.” Smaller stores — with all their quirks and idiosyncrasies — may have an easier time offering a memorable time. They also can be more nimble in catering their selection to local tastes.

The ultimate goal for all stores is greater personalization, said R.J. Allan, head of retail corporate banking at Mitsubishi UFJ Financial Group. Getting that right means more loyalty and profit.

The bigger chains have the advantage of being able to invest in technology, including apps and loyalty programs that keep customers coming back. They also can connect an expansive e-commerce operation to their physical stores.

“Retailers that are able to bridge the consumer experience across brick and mortar and online will be best positioned for success,” he said.

The smaller stores, though, have another edge: The clerk might actually remember your name when you come in.

“I prefer to shop local when I can,” even if prices are higher, said Mary Bresette, a 66-year-old resident of Manhattan’s Upper West Side. “For me, it’s a sacrifice I’m willing to make.”


7 Key Retail Property Valuation Considerations

By Bisnow, November 13, 2017

As retail evolves and adapts to a new competitive landscape, so do the criteria used for assessing property values. Retailers face new pressure to refine, differentiate and Amazon-proof their business models, often by combining excitement, digital integration and a high level of service.

Here are the top seven factors investors, appraisers and landlords should weigh when considering existing and potential retail properties.

1. Highest And Best Use In

some cases, a property may no longer be financially feasible to continue operating as a retail property. A growing number of landlords are realizing retail may not be their property’s maximally productive use, according to RSM Real Estate Valuation and Advisory Director Kenny Kim. Symbolic of this shift is the repurposing of the 676K SF Lord & Taylor flagship store in Manhattan into WeWork’s new global headquarters, with plans to convert all but the lower three levels to office. The co-working giant acquired the iconic property from Hudson’s Bay for $850M.

2. Tenant Mix Investors

historically sought retail properties with traditional anchors like Macy’s and Nordstrom because they drew a strong consumer base, Kim said. There were 34 billion visits to U.S. stores in 2010, nearly twice as many as the 17.6 billion recorded in 2013. Some forward-looking landlords are hoping to attract customers, refresh their malls and, in some cases, quadruple their rental income, by replacing these struggling department stores with a number of smaller, experiential shops. “As investor demand shifts toward malls with more experiential tenants, such as movie theaters and food and beverage, real estate appraisers or investors need to have a fresh mindset in how the preferred tenant mix impacts value,” Kim said. 7 Key Retail Property Valuation Considerations Unsplash/Shravan Vijayabaskaran

3. Retail Category

According to Kim, some property types, such as lifestyle centers, entertainment-centric malls and Class-A regional malls may continue to thrive, while big-box retail may transform into a combination of store and distribution/warehousing space. “As the integration between online presence and retail stores evolve, so too will the retail physical spaces,” Kim said. “These changes may have a material impact on rent and expense levels that drive the valuations.”

4. Co-Tenancy And Go-Dark Clauses

Kim said leases should be examined for co-tenancy and go-dark clauses, which can dramatically impact the rental income collected. A major tenant’s departure can have a devastating effect on surrounding retailers’ foot traffic and sales. Co-tenancy clauses protect remaining retailers by lowering their rents in this instance. But because the stores’ sales may decline as a result of the overall property occupancy fluctuations, the rent paid to landlords as a percentage of store sales can also diminish, Kim said. Depending on the overall health of the mall and its anticipated response to store closures, future cash flows may be significantly lower and difficult to estimate.

5. Lease-Up And Downtime

Newly developed retail properties may take longer to lease up vacant space as the uncertain competitive climate inspires greater caution, according to Kim. Historical property data and assumptions may no longer be valid forecasting tools. “Downtime and re-leasing assumptions of vacated space will require reconsideration,” Kim said. 7 Key Retail Property Valuation Considerations Unsplash/Tom Sodoge

6. Tenant Improvement Allowances And Capital Expenditures

Landlords may need to allocate more money for tenant improvement allowances to incentivize new tenants. As ambience becomes increasingly necessary to lure shoppers, additional capital expenditures may be required to update common areas and building exteriors, Kim said.

7. Investment Rates

The capitalization and discount rates are key assumption drivers of value in the discounted cash flow analysis. “As e-commerce continues to challenge retail properties, many retail assets will be in a state of being nonstabilized, and the estimation of the capitalization and discount rates will require much greater consideration,” Kim said. “An appraiser or investor will need to evaluate the risk inherent in the cash flows projected, such as the net operating income growth over the analysis period, and properly reflect market and execution risk in the investment rates.”

View original article here…


By Bisnow, Thursday, July 7, 2016

Experts Say Medical Tenants To Become Even More Prevalent At Shopping Centers

As struggles in the retail sector persist, landlords are looking even more heavily at medical centers. Bisnow sat down with CBRE Americas head of retail owner/agency practices Todd Caruso (below, left) and CSG co-chair of real estate, development and land use Mitchell Berkey (below, right) to discuss the growing presence of medical facilities at retail centers.

Bisnow: Why do we see an uptick in medical facilities taking space in retail centers?

Mitch: There are three major forces at work regarding the growth in urgent care centers in what were traditionally retail properties. One is that Americans are spending an increasing amount on healthcare; two, Americans want healthcare that is easily accessible, faster and less expensive than the traditional emergency room experience; and three, in the real estate world there has been a shrinking in the number of creditworthy tenants over the years. The urgent care center sector has grown substantially, and these establishments generally seek accessible and safe locations with parking, and tend to have strong balance sheets.

Todd: We have an aging demographic that has an enormous appetite for health-related services. One of the driving factors is the overall cost of having someone in a hospital for an extended period of time. Many surgeries are being done through outpatient these days. Urgent care Wikimedia

Bisnow: What benefits are landlords seeing with these tenants?

Todd: It really depends on the market and merchandise mix of the retail shopping center. Investors and owners have been very positive for reasons you might guess—creditworthiness. In general, many of the expanding hospital systems have robust balance sheets. When combined with extended lease terms, it makes for an attractive tenancy. Owners consequently have less attrition in their retail space, and lower overall expenses associated with having to “build out” due to turnover.

Mitch: From the landlord’s side, urgent care operators are attractive because they are strong financially, invest in their space and generate traffic to the center. Their staying power and stability adds certainty to a landlord’s tenant roster and the seven-days-a-week operations drive shoppers to other retail tenants. This new breed of retail tenant is here to stay as landlords seek to reposition centers which have suffered due to the impacts of e-commerce and retailer consolidation.

Bisnow: How has the changing healthcare landscape affected this trend?

Todd: If we’re thinking about growth industries in the US, certainly healthcare would be one of those. Think about the potential for all of the medical-related companies that have been developed over the past several years—from the financial end to outpatient services like dialysis centers, MRI facilities, surgery centers, dental and ortho, chemo centers, urgent care centers, etc.

Mitch: Take urgent care centers, for example. There are over 7,100 urgent care centers now in the US and the typical urgent care center experience includes seeing a healthcare provider in 30 minutes or less and being in and out in 60 minutes or less. Compare that to the typical emergency room visit, and you can see right there why they have become so popular. There is tremendous growth in this field.

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By Globe St, Tuesday, May 3, 2016

Sports Authority Sets Auction Date, May Close All Stores

ENGLEWOOD, CO—A date has been set for the auction of Sports Authority Inc. store leases, according to court documents filed Tuesday. Judge Mary Walrath at US Bankruptcy Court for the District of Delaware has set May 16 for the auction, which follows the sporting goods retailer’s announcement that it was pursuing a sale of “some or all of the business.”

Published reports have indicated that all 463 Sports Authority stores could end up closing, although the company has not yet committed to that course of action, and that the retailer had abandoned attempts to reorganize because it was unable to get its creditors to agree on a reorganization plan. “It has become apparent that the debtors will not reorganize under a plan, but instead will pursue a sale,” attorney Robert Klyman told Walrath at a hearing last week, according to the Wall Street Journal.

Headquartered in Englewood, CO, Sports Authority filed for Chapter 11 protection this past March, citing debt of more than $1.1 billion. At the time, the company planned to shutter 140 of its stores.

It’s still proceeding with that plan, but in a statement, the retailer says the outcome of the auction process “will determine whether any additional store closings will be required.” The stores already slated for closure will not be part of the May 16 closing store lease auction, according to court documents. According to the statement, the company has received “initial expressions of interest from a number of potential buyers, and we are optimistic” about the results of the sale process.

When Sports Authority announced its original Chapter 11 filing, which had been widely expected, it cited “a comprehensive review of the Sports Authority store portfolio in light of the increasing amount of shopping that is occurring online. As a result of these changes in consumer buying patterns, Sports Authority determined that it needs fewer stores as part of its long-term business model.”

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