When an owner considers the sale of a commercial property, the process begins not the day a listing goes online, but two or even three years beforehand. A smart owner will assemble a team to develop and execute a plan to prepare and market the property.
In addition to the owner, the leasing agent and property manager are critical to achieve the owner’s goals for a property. An experienced leasing agent can bring important information to the table, including information about local market vacancy rates, competition, tenant prospects and leasing trends.
Leasing is an essential element of selling the property because potential buyers look at more than just base rent and net operating income. Minimizing restrictive and adverse lease provisions in new leases and eliminating them from existing tenant leases should be a key component in the overall leasing strategy.
A leasing agent can improve results by weighing in on the following factors:
Determine tenant mix. Since tenants set the tone for multi-tenant properties, consider if existing businesses support one another. For example, business or medical offices might not be a good fit for a grocery-anchored shopping center. The solution could be to relocate them to a better position for their use in the center or replace them with tenants that improve the overall tenant mix.
Attract best-in-class tenants. Reputation, creditworthiness, and the kinds of customers the tenant attracts should all be considered. Understanding these targeted tenants’ needs and lease structures is essential to determine how to attract them. Depending on the landlord’s flexibility, lease terms can be more generous in terms of rent, tenant improvements, signage, location in the center and renewal and extension options.
Integrate leasing into the sales strategy. Lease extensions for the best tenants add tremendous value to a sale. When approaching tenants, a smart leasing agent starts with questions. Is the space the right size? Is it in the right location? What capital improvements are needed? The answers will tell the owner whether to invest in an early lease renewal as well as identify tenants that could plan to leave or close, allowing the leasing agent to actively pursue replacement tenants before existing leases expire.
Establish realistic market rates and lease structures. A leasing agent studies the market to establish realistic market rates, but the toughest part is figuring out how much to spend on build-out. Alternatively, such incentives as free rent, reduced rent or lower initial base rates with annual escalations that grow the rate back to the market rates over a few years can help tenants succeed. A leasing agent can attract new tenants or negotiate lease extensions by offering TI money. But a smart agent will use that carrot carefully. because experienced buyers recognize when a landlord is buying up the rate.
Savvy owners bring trusted and knowledgeable leasing agents into conversations when the decision is made to sell the property. The ultimate goal of the leasing agent is to produce the best return on investment, whether that comes from re-doing the facade, attracting better tenants or renegotiating a lease so a quality occupant is secured. The leasing agent best understands how terms, rates and property improvements affect the sales price.