Carrie Bobb is the CEO of Carrie Bobb & Co., a consumer analytics nerd and an expert at driving revenue for brick and mortar real estate.
The struggle in retail leasing is real. There are many hurdles affecting retail leasing, and there are a few things some landlords need in order to make long-term impacts for both their retail properties and their tenants. Each of these require cooperation from a retail landlord’s lender or capital partner. It is difficult for these actions to be taken into consideration if a retail lender does not cooperate with the retail landlord.
The Ability To Put Together Creative Deal Structures
There seems to be a disconnect between what retailers are requiring from their landlords and what lenders are willing to do with retail property owners. There is only so much relief a retail landlord can provide without receiving relief in turn from their lender. The trickle-down effect of lenders not providing relief to retail landlords goes all the way to individual employees and their families. If a property owner does not receive grace periods on their loans, they cannot provide free rent to business owners. If retailers and business owners are burdened by their rent payments, they cannot bring their employees back to work.
What is market rent anyway? Rent is a function of sales. Until retailers can get their sales back to what market used to be, landlords need the flexibility to get creative with their deal structures.
Deeper, More Meaningful Relationships Between Tenants And Landlords
The most meaningful relationships are not arm’s length transactions where it’s all about how much rent a tenant can pay. Landlords are playing an even more pivotal part when it comes to supporting the longevity and overall growth of a retailer.
The relationship should be more collaborative and center around the long-term success of a retailer. A landlord can help alleviate risk and participate in the upside. This can take shape in many different forms — percentage rent deals, tenant improvement allowances or even capital to grow the brand. We will see some of the best retailers strategically aligning with landlords as equity partners on growing their brands in the brick-and-mortar space.
This can only happen if the landlord has a cooperative lender. This isn’t just for the benefit of the retailer. Landlords need to keep occupancy up with the right kinds of tenants. Building a relationship with aligned interests is beneficial for both the retail landlord and the retailer.
One of the biggest mistakes a landlord can make is allowing their in-house leasing people to be afraid of giving up too much with an existing tenant for fear of losing their job that they lose the actual tenant. Rent and terms are extremely important, but while navigating Covid-19, occupancy trumps everything else.
It is a little like dominos. Once too many storefronts turn vacant, it can be hard to stop the momentum. We need to protect the occupancy rates of a project for the current and future health of the project. It is not at all costs. It should be done with a smart, consumer-focused strategy that helps healthy retailers and restaurants buy some time. Until the psychological and physical safety of consumers is achieved, it is in the landlords’ and lenders’ best interest to strategically come alongside retailers and restaurants to help carry the burden during this time in history.