By Joe Aquino, president and CEO,
Joseph A. Aquino Commercial Real Estate Services
As the new season gets underway, I have some pointers on how to lease your store quickly. I wish you good luck in your efforts.
• Your space must be broom-swept clean with nothing inside it except the four walls. There should be no chairs, desks, cans of paint, hangers or debris from the last tenant, and no piles of dirt or debris on the floor. Make sure all the closets are clean, too, and more importantly, wash the windows inside and out. Do not go to market with dirty windows.
• The space must be freshly painted white, give the space a good whitewashing throughout.
• The space must be brightly lit and lights must stay on in the evening, too. How bright? One string of temporary lights in a space is not what I am thinking. Light up the space like a football field. It should be a beacon of light that can be easily seen by passersby on foot or in a cab. Look at the electric bill as a marketing expense to lease your space. If it was me, I’d leave the lights on all the time. If you cannot do that, then make sure they are on at night especially. If just one CEO passes by in the evening and calls you the following day, itʼs worth it. So don’t be penny-wise and dollar foolish.
• Demolish the space. No decent company is going to use any of the former tenantʼs design, nor do you want them to. You may or may not decide to keep the bathrooms. However, if they are an eyesore, or located in the middle of the space blocking the sight lines, then they have to go. Remember, a cleaner palate is better for marketing.
• If there is an elevator in the space, make sure it is working 100 percent. There should be no bumpy rides, doors that close improperly, or elevator doors that donʼt open in line with the floor you are going to. Get this fixed.
• Pricing the property is probably the most important part of your strategy. Real estate has done so well these past 10 years that property owners are sitting on huge piles of equity. It’s great to go to the country club and brag about what your retail space is worth, but is it realistic?
Let’s look at it from the retailersʼ point of view. Rent is a derivative of sales. An urban property owner never says, ‘What can a retailer do in sales versus a shopping mall owner.ʼ In the last five-to-ten years, rents have skyrocketed in the major markets while consumer salaries have barely risen.
The cost of goods has also spiralled and the internet has impacted retailers’ bottom lines. Retail margins have also been squeezed and are much smaller than they were. So it is no surprise we are seeing so many store closings in and around the city. Retailer margins are the lowest in years.
The other properties on your block may be set at a certain rental rate, however, before you follow suit, think hard — is this the real rent you want to tell the market? Remember, retailers are the geese that lay the golden eggs, so try not to eat the goose.
• Produce a flyer. The flyer should have a good photo of your newly-cleaned storefront with freshly washed windows. The photo should show the neighboring stores on the left and right. Don’t exclude them, the retailer wants to know who their immediate neighbors are. Don’t write a lot of copy and keep it simple. Write a sentence or two about the block and discuss who the other retailers are. Use a good size font to describe the size of the space. If there is a future possession date, note it on the flyer.
• List your property on CoStar and Loop-Net. This will get you out to the local brokers. Retailers do not use these services as much as brokers do. The brokers rely on these services almost 100 percent.
• Hang signs, but make sure they are not too wordy. In a good-sized font, it should include the rent, contact name, phone number and email address. Don’t put email addresses that are too long or complicated because they are always copied down incorrectly.
• Negotiate. If the pricing is done properly, then getting close to your target price will not be hard. Escalations can be negotiated in one of three ways: Three percent per annum for the life of the lease; 10 percent bumps every three years or; 12 to 15 percent bumps every five years. There are other variations, but these three are the most common.
Rent-free should be three months or more, depending on the size of the tenant and their demands. Remember, it’s a global market and even though New York City is desirable, the tenant has many other profit choices in other cities around the world.
In New York City, a cash contribution is rare unless some property owners have high expectations on rent levels and there is a trade-off where the property owner tells the tenant; “I’ll give you this much cash or build the store in full, but you need start paying the rent at this rate.”
• When you receive an offer, you want to get as much information on the tenant as possible. You want all the promotional materials, financials, photos of what their store looks like, a list of all their locations. Check whether the company closed stores in another market and why. You have to be careful not to inherit another property owners’ problems, especially if a tenant is relocating from across the street. Ask for other property owner references and don’t forget to call them. Get their banking reference, too. This is a marriage for at least ten years, so do all your pre-nuptials now.
Finally, a good, experienced broker will have a large data bank of retailers in their portfolio. Besides knowing who is already in the market, nowadays a good broker will email the flyer. In an instant, it goes around the globe and they are fielding inquiries from top retailers with stores and offices here in New York, Los Angeles, London, Hong Kong, etc.
It takes years to develop such a data bank and build a solid deal base, but for an owner with retail space to lease, you want to make sure your broker has the walk to match their talk.