Holliman Column
As commercial property absorption remained flat in Laredo for 2010 Landlords and leasing agents had to result to more creative strategies to maintain acceptable occupancy levels. The Black Death to any income property is the dreaded “Vacancy Rate” and just like bubonic plague nothing else can bring down a property’s value or outright kill it faster that prolonged high vacancy. Vacancy directly impacts scheduled rent and reduces the availability of cash flow to cover operating expenses and debt service. In worst-case scenarios negative cash flow can result in landlords having to come out of pocket to cover the difference.
In Laredo the commercial sectors hit hardest from high vacancy have been primarily retail and office type properties. Landlords and property managers in this sector have experienced prolonged contraction as rental rates and tenant turnover have been highly volatile. In spite of these negative factors all has not been lost as property owners have become more creative and are thinking outside of the box when it comes to lease negotiations.
Communicate with your tenants
Just as stated communication is key it is important for landlords to have a healthy channel of communication with existing tenants as well as prospective tenants. One major mistake commercial landlords make is either not having any communication or allowing an existing channel of communication to become nonexistent. It is important to realize essentially the landlord and tenant are partners as the success of one’s business is dependent upon the other. Landlords should take the time to visit and schedule meetings with their tenants to discuss matters such as sales, customer trends and market conditions. These types of meetings will provide invaluable insight and will allow both parties to be more preemptive in developing new plans or adjust existing plans in order to be prepared for financial problems in advance.
Renegotiate leases
One strategy that is often overlooked is the fact that the lease document is not necessarily fixed in stone. Basically lease documents should be viewed like an instrument that can be adjusted or recalibrated as current conditions may dictate. Leases can and should be renegotiated when appropriate. It is far better to adjust an existing lease either temporarily or permanently to make it more compatible with current conditions than it is to continue with an outdated lease and run the risk of losing the tenant to default.
Bartering
Think win-win. Take a closer look at the goods and services that tenants have to offer as some of these services could be potentially bartered successfully in exchange for rent abatement. Although collecting rent checks is still king, successful bartering opens up additional mediums of exchange for value conversion. For example if a janitorial service company can provide cleaning services and parking lot maintenance for a proportionate reduction in rent a win-win situation could be established. The services could be offset directly from the landlords operating statement; in other words money saved is just as good as money earned.
It will be increasingly important in 2011 for landlords and property managers to stay focused on the long-term game plan and not become overly distracted with short-term issues. Remember proper strategy and execution is key take a holistic approach, develop a high-quality team and keep everyone on the same page. Communication must remain active between landlords, leasing agents and tenant end-users. The success of your center depends on flexibility in communication never allowing relationships with tenants to become adversarial. As with anything contractual there are cases where tenant defaults cannot be avoided however maintaining an amenable communication will reduce the cost of eviction and or legal action. At the end of the day the game is all about keeping your building leased and collecting rent checks.
