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Negotiating Your Lease: Why You Need a Good Broker

We read an article recently on what tenants should not be missing in their leases. This brought us back to one of our previous blogs, “Commercial Leasing: Hidden Tenant Costs That Tenants Shouldn’t Pay” that stresses the importance of having a good broker who understands these items and can negotiate them on the tenant’s behalf. This new article, from Retail Real Estate Law, talks about why landlords should be “elephants” in the lease drafting process.

The article is encouraging landlords to save money and headaches by creating versions of the lease provisions in a more favorable way by facing reality and starting with a complete lease form. It’s another example though of why tenants have to be careful of what they could be missing in their leases. It’s also another example of the importance of having a good broker to negotiate these lease terms for you.

From our previous blog on the topic:

“When leasing commercial real estate space of any type, there are many ways for landlords to hide extra costs from tenants that tenants are usually not aware of. […] If tenants aren’t careful to use a broker that understands the operating expense share, this cost to the tenant can be quite large during the lease term.  Many times this costs starts out low and then later on in the lease gets quite high.  It is best, in my opinion, to negotiate an overall annual cap and also have a list of expense exclusions that aren’t reasonable for a landlord to include as part of the tenant’s share. […]Measuring the building is another area where landlords can pad the numbers that will result in a higher rent to the tenant without a tenant even knowing it’s happening and this happens most commonly in office buildings.”

Retail Real Estate Law’s article adds to these thoughts:

“We suggest the following. These items are going to be added to any decent, important lease. Why not pay once to have them included in the lease instead of paying, each and every time a lease is negotiated? And, deny it as people may, the person whose lease form is used controls the outcome. When a provision is not in the form lease and everyone knows that it will wind up there before execution, why should the landlord (who invested) in a lease form in the first place, cede control over the “missing” provisions to the tenant. After all, if the lease is missing something that’s going to be in there at the end of the day, the tenant will supply the initial draft and thereby control the negotiation.”

If you want to learn more about your specific situation and why a good broker will be the difference for you, contact David Massie at DJM Commercial at 805-217-0791 or david@djmcre.com – we can help! For more details from Retail Real Estate law, read the full article here.

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Landlord Rents are Falling: National Office Vacancy Climbs 

We recently read an article in Connect Commercial Real Estate highlighting how national office vacancy continues to climb. Rent growth, on the other hand, has headed into an incline in the last two quarters. This means that there is potential for tenants to lease office space for less than before.

From Connect Commercial Real Estate:

“The national office vacancy rate climbed 0.1% to 16.6% in the second quarter, according to research by Reis. Vacancy increased in 39 of 79 metros in the quarter, with just two metros posting a decline in effective rent, as the gap between the “better” office markets and lagging ones widens and gets more pronounced. […] Rent growth, in contrast, was healthier in the last two quarters than in the previous seven, as a number of metros had rent growth of 1% or more in the quarter and 4% for the year. The stronger metros helped buoy the national average more so than in previous quarters.”

This article is a great example of how a landlord rents are falling. If you want to learn how to lease space for less as a tenant, contact David Massie at DJM Commercial at 805-217-0791 or david@djmcre.com – we can help! For more details, read the full article here.

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How Retail Tenants are Saving on Rent Right Now

We recently read an article in Bis Now highlighting how small retailers are finding their opening while old giants shrink. The general premise is that retail landlords are willing, more and more, to take on smaller retailers by dividing up their spaces and leasing them out where they can instead of holding off for the big fish that probably isn’t coming.

From Bis Now:

“As the country’s largest retailers struggle to adapt to 21st century consumer demands, retail landlords are increasingly willing to slice up their space, take on riskier tenant options and offer flexible lease terms — and smaller retailers are reaping the benefits. […] The market has been marred with a number of big-name store closures in the city. But brokers said the conditions are paving the way for smaller retailers to get their foot in the door, as increasingly desperate landlords stop holding out for the national operators with established track records.”

This article is a great example of how a retail tenant can save on rent right now. Even better news? We can help. Contact David Massie at 805-217-0791 or david@djmcre.com if you are a retail tenant and you want to find a great deal on a retail space like mentioned in the article. For more details, read the full article here.

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Westlake Village Medical, Dental or Office Space for Lease in Prime Location

We have a fantastic property for lease currently. This existing dental office is in a prime Westlake Village location and the price was just reduced from $1.95/SF/month to $1.50/SF/month. This space is not limited to dental office use though. The office can be used for dental, medical or even office uses.

This amazing location has the best of both worlds. It sits appealingly at end of a quiet cul de sac while also being walking distance to retail, the post office and many other amenities nearby.

There are several opportunities with this location as the landlord will allow new prospective tenants to sublease all or part of the space. The landlord is also giving the option to have the lease assigned or do a direct lease, your choice.

This really is the perfect opportunity to dive in on a prime Westlake Village location with a sublease or a direct lease with low rent for dental, medical or office space. Interested in learning more? Full property details can be found by clicking here.

Contact us today for more information! Call 805-217-0791 or email david@djmcre.com

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Agoura Hills City Mall Retail Spaces for Lease!

If you have a retail business, including a restaurant, and would like to join existing successful tenants with a great location, this is a great opportunity for you! The Agoura Hills City Mall currently has openings for new retail spaces. Most recently, there is new restaurant space available at what is now a current Pizza Hut and a new location for a smoothie / yogurt / coffee or dessert location available!

A few of the already established and thriving businesses in this shopping center include: Agoura’s Famous Deli, Vincitori, Sushi Wasabi, Maral Cuisine, Citibank, Kanan Pharmacy, California Dance Theatre, I Love Kickboxing, Journey Martial Arts, Agoura Mexican Café and more!

The landlord has agreed to give a reasonable amount of time for you to construct your retail space, without having to pay rent! This location comes with a new common area, improvements and renovations. Some of the spaces have outdoor patios. The space is great, but the location is truly what can’t be beat.

The Agoura Hills City Mall is adjacent to two major retail centers anchored by large grocery and drug stores. The location also includes great signage that is visible from Kanan Road. It’s located on Kanan Road near Thousand Oaks Boulevard. This is a main and busy intersection that’s less than one mile north of the Ventura Freeway (101) on Kanan Road for easy access! For those that don’t know, Kanan Road is the main road in Agoura Hills linking to the Ventura (101) Freeway. The shopping mall is centered in an area with great demographics; there are over 100,000 people in a 5 mile radius. Click here for more property listing details and additional photos.

Contact us today for more information about introducing your business to this busy retail center with great traffic from local residents as well as the nearby schools! 805-217-0791 or david@djmcre.com

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Full Service Hair Salon For Sale in Busy Retail Center

The full service hair salon BLO is for sale in Newbury Park in a busy retail center. This property has great potential! It’s an upscale hair salon located in a high traffic area that’s right off the 101 freeway. This sale is a turnkey deal that will include established clientele as well as stylists ready to transition right into your new business.

Also includes:

  • Modern décor with all fixtures custom built
  • A waiting area with a beverage station
  • A reception desk
  • 6-7 hair stations, 1 makeup station, a color processing area with two seats, 2 shampoo bowls, and a dispensary with a full washer and dryer
  • The inventory is included in the asking price

This is a great opportunity for buyers. The property is 900 sf and has a private office that can be used as additional storage. The salon includes a retail display, a camera system throughout the premises for security, lots of free parking and more. This space is conveniently located in a newly renovated shopping center with no major competition in the immediate area! This is a truly great buying opportunity in Newbury Park. Click here for more details on the property!

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Potential Fix For Medical Space Shortage & Retail Vacancies in Southern California

There is a shortage of medical space and an increase in retail vacancies in southern California right now.  So, why don’t medical tenants lease space in retail centers as compared to an office or medical building that they traditionally lease space in?  Doesn’t this solve some of the problems for both types of spaces?

Some medical tenants such as optometrists, dentists, physical therapists, chiropractors, and a handful of others do lease space in retail centers.  Why do they lease space in a retail center?  Because they probably make more money when their businesses are in a quality retail center with good parking, signage, and retail visibility from shoppers at the retail center.  The main criteria for any business is usually the bottom line so, if being in a retail center increases your net income, wouldn’t you want to be there?  This is rule #1.

Sometimes the rent, improvements and other costs can be higher in a retail center, but not always. If you make enough additional income leasing at a retail center to offset this cost, then this objection isn’t a good one.  Another objection might be that medical providers get more referrals from other medical providers that lease in the same medical building.  This can also happen in a retail center if there are other medical providers there. They can still get referrals from outside the retail center from these medical providers that lease in the medical office buildings if they develop a relationship with them. It might not be the same, or potentially as many, referrals as the medical building scenario, but again, see rule #1 above. At which location are you making more net income?  The referrals might not be the same as in the medical building scenario, but there might actually be more referrals in a retail setting because of the other retail tenants now referring you and the amount of potential customers a retail center has. This is especially true in comparison to a traditional medical building scenario which is much more limited in potential new customers finding you.  Finally, it’s possible that some medical providers simply think their status will be somehow lowered by leasing space in a retail center and that a nice medical building is preferred by their patients.  This might be true for some patients, but I would doubt most of them would care. If they are like me, they want their trip to the doctor to be the least painful as possible. Not to mention that a good retail center is much more fun than a boring medical building any day.  I can see some types of medical users and their patients wanting it to be quieter than a retail setting, but again -doesn’t rule #1 above trump even that for most medical tenants?

Retail space in southern California is undergoing a change.  The smaller to medium sized retail centers in particular are starting to become more restaurant/food and service focused as opposed to other types of retail uses.  Customers at retail centers want to enjoy their experience and be able to do as much as they can at one location.  So, with the foregoing in mind, wouldn’t many medical tenants fit in with this new retail trend of a retail landlord leasing to service providers like doctors and providing a better experience for the retail customer?  I think so.

If you want to learn more about leasing, buying and/or selling any and all types of commercial spaces or if you have questions about any subject related to commercial real estate, please contact me at david@djmcre.com or 805-217-0791.

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Options to Renew Your Lease: The Good, The Bad, The Ugly

You are a tenant leasing some kind of commercial space like retail, office, industrial or otherwise.  You were smart and negotiated at least one option to renew your lease.  But, should you exercise that option to renew?  Do you really understand what conditions in which it would be favorable or not to exercise this option?

In my market in Southern California, most landlords will grant a tenant who is leasing commercial space an option to renew their lease for one additional lease term that is less or equal to their original term.  For example, if you leased for a 5 year term then you could usually negotiate a 5 year or less option to renew.  If you leased for 10 years, you might get one 10 year option to renew or perhaps two 5 year options to renew.

But here is where it gets tricky.  It’s generally not in your best interest to exercise your option to renew. Instead, you should think of it as a last resort.  Option to renew language usually contains a certain minimum rent to the landlord. For instance, it may be no less than what you were paying at the end of you current term or maybe it has a 3% bump above what you are paying at that time.  I have found that market rents are usually lower than what your option to renew requires you to pay.  And what about current market tenant concessions like free rent, improvements, etc.?  You will most likely miss out on these.

Another provision that option to renew language usually contains is that the lease (except for the rent) will be on the same terms and conditions.  So, if there is a clause in your lease that needs to be negotiated you may want to reconsider the option to renew.  These clauses could include receiving a new base year for operating expense increases for an office tenant or excluding unreasonable lease clauses from applying. For instance, certain Triple Net clauses could be excluded for a retail tenant if you negotiated your renewal instead, but these exclusions won’t apply if you simply exercise your option to renew.

What is a tenant to do?  Hire a good commercial broker to help.  This broker will know the current market rents and be able to review the lease with you and recommend all necessary changes.  If the broker is active in your area, then the landlord will be concerned that this broker might relocate you to another building if the landlord isn’t fair.  You simply don’t have the same clout without a good broker and you won’t get as good of a deal.  But do it at least 6-12 months in advance of when your current lease terminates or at least 3 months before you have to exercise your option to renew so your broker and you have time to review your needs and options. One other really good thing that happens when you don’t exercise your option to renew, but rather negotiate your renewal, is that your option to renew many times gets left in place and is still valid the next time your lease terminates.

I have successfully represented many commercials tenants for renewals for their leases and not just new leases.  I can’t remember the last time I didn’t do much better than the tenant could do on their own.  Many times the landlords end up paying my fee for the tenant’s renewal just like they always do when I represent a tenant for a new lease.

For more information about commercial leasing, buying, and selling please contact David Massie at DJM Commercial Real Estate at 505-217-0791 or david@djmcre.com.

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How to Terminate a Commercial Lease Early

Many of my clients have stated, “I don’t want to sign a long term lease like 5 years or more because I’m not sure I will be in business that long or might need more or less space.”   My answer to them?  It’s usually in their best interest to sign a long term lease and there are ways to terminate a lease early.

Signing a longer term lease between 5-10 years makes good sense for many reasons.  You normally get the best economic deal that way with lower rent, more free rent and more tenant improvements paid by the landlord.  You normally get more options like renewal options with more time.   You don’t have to worry about moving sooner either or having to pay a much higher rent in 1-3 years if the market rates increase.  Keep in mind that many landlords won’t agree to less than a 5 year term, especially for space in demand where another party will lease it for 5-10 years, so it will really limit your options for properties if you want to do less than a 5 year term.

If you need to terminate a lease early, you have many options available to you.  You can request an early termination option of the landlord in your lease, but most landlords don’t like to grant them.   If they do, they want enough time to release your space so a 6-12 month notice from you might be required.  You might then have to pay back unamortized tenant concessions like free rent and tenant improvements.  But this is still a good option to have if you can get it.

What if you can’t get the landlord to agree to an early termination option?  There are still other good options like having the right to relocate in the project to a larger or smaller location.  You also generally have rights to sublease or assign your lease to another qualified tenant.

If none of the above options work out, then you can still legally terminate a lease in most states like California.  Courts usually require a landlord to mitigate a tenant’s damages.  This usually means the landlord has to take reasonable steps to re-lease the space, but this mitigation usually only starts after you vacate the space –not while you are in it.  However, I have seen most legal awards and arbitrations settle between 6-12 months of rent.  This is generally the most a landlord can squeeze out of a tenant in Southern California.  This can be a tricky matter, so you have to make sure you do it right and use someone familiar with the process like me or a good real estate attorney. You might need both.  But I have been very successful negotiating an early lease termination for my clients.

Contact David Massie for more help:   805-217-0791 or david@djmcre.com

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Commercial Landlords and How Their Reputations Affect Leasing

Most commercial landlords that I deal with don’t seem to understand the relationship between leasing their office, retail or industrial buildings, and their reputation in the community.  It’s pretty simple really.  If a landlord has a poor reputation, it will make it harder for them to lease their building spaces.

Here is a prime example.  Before I was a full time commercial real estate broker, I worked directly as the Director of Leasing and Property Management for a large landlord who owned more than 50 commercial buildings. There were many different types of commercial buildings -usually office, retail or industrial spaces.  Before I accepted this job position, I found out that the local brokers whom I knew well and worked with closely did not like working with this landlord -my new employer.  So, I convinced the landlord to let me leverage my relationships with the brokerage community for 6 months to see if it made a difference in our leasing.  Guess what?  In my first year, I negotiated and completed over 125 commercial leases!  This was more than double the number of commercial leases than anyone else that had the job before me.

Another example is when I had just finished acting as an expert witness where I had to go into court and testify that the landlord had ripped off a tenant for over 15 years.  This included millions of dollars related to the tenant’s share of NNN/operating expenses.  Our side won the case.  But the landlord didn’t just lose this case and have to pay my client back for millions of dollars, he also lost the trust of my client going forward and the trust of the other tenants, brokers, attorneys, other people in the community, and so many more.

Think about it Mr. Landlord.  If you treat your tenants poorly, and try to cheat them on their share of their operating expenses or add expenses that aren’t reasonable (even though maybe legally allowed), you are going to have poor relationships moving forward. If you don’t care about their business and working with them in ways to help them do better, have an unfair lease, or don’t check in with them regularly on how they like being a tenant and how they are doing, etc. -then your landlord reputation will hurt your leasing.  People talk.  And they will talk about you not being a good landlord.

My clients ask me all of the time for intelligence on a landlord.  I tell them what I know and when I tell them that a particular landlord is difficult to deal with, doesn’t have a good reputation or has a lease form that is unfair, etc. then many times this client will simply opt to not even consider the property owned by the landlord with a poor reputation.

My advice to landlords:  Treat your tenants like clients and not tenants.  Treat them like you would like to be treated.  You as the landlord many times have the upper hand in so many ways and if you use this leverage incorrectly you are making a mistake.  Tenants are your life blood and you need them as clients not just tenants.

If you are a landlord and want more information on how you can change your reputation, please contact me as I have many ideas on how to do this.  Some of these include calculating NNN and operating expense increases correctly and fairly, fair lease documents, correct property maintenance, and general things that will make your clients (tenants) want to stay in your building and new ones want to lease there.

Contact David Massie for more help: 805-217-0791 or david@djmcre.com