Retail tenancy advice from the masters
Over the past 20 years of working in the retail property industry I have repeatedly been surprised at how few retailers, including large chains, value the real estate functions and people within their businesses.
Despite some retailers making multi-million dollar investments (rental payments) into REITs every month, their real estate focus is often just about their next deal or somebody else’s deal.
While both are interesting, the management of the existing real estate investments is even more fundamental. The first time I attended the National Retail Tenants Association (NRTA) (www.retailtenants.org) conference in Florida, US, back in 2006, I expected to witness an industry complaining about landlords, talking lease deals, and telling each other how good they were.
But what I quickly found was an awakening into how the best retailers manage their real estate portfolios, and an industry group 100 per cent focused on retailers educating retailers, becoming smarter at the management, administration and finance businesses of retail leases and saving hundreds of thousands of dollars.
Founded in 1996 the NRTA and its members have fundamentally changed retail leasing in North America.
NRTA executive director, Paul Kinney explains, “when the NRTA was formed we had some of the same issues in this country as you have in Australia – high rents, restrictive leases, concentrated ownership and a lack of industry coordination”.
“Companies in the US and Canada now realise that the management of retail leases is a highly-skilled profession, not just a simple administrative function,” says Kinney.
“Once the deals are done, we all become tenants in the same mall or shopping centre and that’s where working together becomes more important than ever.”
So, fast forward to this week and I have just attended the NRTA’s latest national conference, joined by more than five hundred delegates, representing hundreds of retail chains and for the first time by several Australian lease administrators.
Across three days an amazing curriculum of nearly 70 courses was presented to delegates by either peer retailers or industry professionals.
Just sitting at breakfast with real estate executives from an 11,000 store chain like Regis Corp certainly opens your eyes to the types of initiatives and conditions that some retailers are negotiating.
We heard dozens of examples of tenants undertaking audits and achieving significant cash recoveries due to the incorrect allocation or of capital expenses or expense apportionments.
Says former NRTA governor, Jerry King: “The idea of auditing outgoings reconciliations didn’t really even exist here in 1995, however, through the education of members these and other initiatives are now fundamental to the management of retail leases in North America.”
There is no doubt there are differences between the market in North America and Australia.
Take the fact that many of the delegates have store portfolios in the thousands or tens of thousands, have real estate departments with more than 50 or 60 staff, and have virtually no specific legislative controls on retail leases. There should be no question that the same principles of the NRTA would work just the same for Australian retail chains – if not for the single fact that an industry that works together will perform better.
So after everything learned from some of the biggest, best, and most experienced retailers in North America, here are my favourite ways that retailers can improve the management of their retail occupancy investments:
1. A good lease administrator will make you money – part lawyer, part accountant, part negotiator, part analyst, part administrator, and 100 per cent important if you want to minimise your occupancy investments. Under invest in this role and you will literally pay the price.
2. Make sure your real estate and finance team members are friends – the fastest way to stop retail occupancy investments leaking cash is to make sure both these departments know how important the other is to your company. But seriously though, make sure they eat lunch together once a week.
3. Never let your lease negotiator manage the leases or the landlords – the person who does the lease deals in your business is so valuable they shouldn’t really be doing anything else. At least tell them that and keep their ego up or you’ll end up with the person who sold you that house looking after it for you.
4. Negotiate the commercials and the legals of your leases. There is no law that says you have to sign a landlord’s standard lease no matter what they say. You may not get everything you want once the offer’s signed. You’re in a strong position to negotiate the lease because they won’t want to lose the deal either.
5. Always read your outgoings statements with cynicism – compared to many other markets Australian shopping centres can cost up to two or three times more to operate. With the concentration of landlords in this market you would have thought the salves of economy would be better. Ask some questions on the millions you’re paying on these charges, you owe it to your shareholders.
After you start doing all of that, why don’t we see the formation of an Australian/New Zealand chapter of the NRTA and have retailers learning from and sharing knowledge together? After all, once the deal is done you’re all in it together.
* Lee Trevena is CEO of LeaseEagle. He can be contacted at [email protected]
This article first appeared in Inside Retail’s Digital Weekly. Subscribe here.