Wendy and I recently returned from a trip to Kona on the Big Island and we had a chance to visit a dozen or so retail and mixed use properties during our stay.  Lots of independent shops in the touristy Ali’i Drive areas and national anchored shopping centers as well including Walmart, Safeway, Costco, Longs Drugs, (haven’t seen a Longs since CVS acquired them), and locally owned KTA Super Store Supermarket.  I spoke with a couple of shopkeepers who complained of business being more slow this time of year than usual.  Likely a combination of the still recovering big island economy, lukewarm anticipated tourism growth and elimination of direct flights to Kona from Japan as reported in West Hawaii Today on Tuesday.

Of course the mom & pops are always on my mind in sluggish economies especially in big anchor centers where national anchors have leases with negotiated discounted rental and triple net rates, usually at the expense of the small guys.  Did they have the opportunity to sweeten their own deal with the landlord?  Did they represent themselves in the negotiation?  Were they cajoled by the property owner’s leasing agent or just represented by a friend with a real estate license and little or no commercial lease experience?  Too often well meaning small business owners, whether retailers, office or industrial users think leasing space means personally contacting the property owner or owner’s representative and well, just renting the space.  Here’s why that is often a mistake…

Here in Nevada and in Hawaii, there’s nothing illegal about an agent representing the landlord and tenant in the same transaction as long as it is properly disclosed to both parties.  When a potential tenant reaches out to a landlord’s agent, a dual representation relationship develops.  Inevitably this creates some conflict of interest, (just ask any attorney), as this landlord’s agent is now trying to represent the best interests of both landlord and tenant.  But as a tenant, will you get the best deal if the agent represents the landlord’s interests as well?  For the tenant, unfamiliar with the mechanics of commercial leasing, perhaps ignorant of incentives other landlords are offering in the market, or not recognizing poorly located space in a center, this lack of knowledge and information is so costly many small businesses have trouble sustaining a start-up especially during a downturn and end up with a lease that’s overpriced with hidden expenses and inferior space.  For the landlord, especially one that is actively participating in the operation of their property, they know what incentives are in the marketplace, what actual, not asking market rents are and what space is inferior in their development.  What’s the landlord’s incentive for disclosing these things to a potential tenant?  Zero.  We saw two centers, one in Kailua and another south of town with space that should concern any potential renter.  One, a large corner space with disproportionately small store frontage, the other with small spaces tucked back in little alley ways that looked cute on some architects drawing but is dismal space to lease for lack of visibility and/or foot traffic.  In my experience the landlord would talk up cuteness and cheaper rents to lease these spaces but I guarantee cheap rents wouldn’t be cheap enough.  What to do…

If you plan to open your business in leased space, whether retail, office or industrial, get in touch with a neutral party, licensed agent with commercial leasing experience.  It will cost you nothing as your representative’s fee is paid by the landlord in 99% of all cases.  If you need someone to help you with leasing space whether you’re just starting out or looking to expand or move, contact me through this site and I can put you in touch with someone who can help.

Aloha!

P.S.  My most impressive Mom & Pop business owner we visited on on the Big Island was Umeke’s.  Two locations now for the best Poke on the island.  There newest location on Palani Road is a sit-down restaurant with full bar and a small fish market with the freshest most reasonably priced fish in Kona.

Kona Sunset

Kona Sunset

A Lion In The Tall Grass – Part 2

On February 10, 2010, in Overview, by Admin

In our last post, we discussed the importance of having good, competent representation when negotiating a commercial lease.  To summarize, the person representing you should have good local knowledge and experience with the type of property you’re trying to lease.

Today I want to write about trying to lease space at a property that’s been troubled financially, perhaps a newer project, that has a new owner.  This scenario could apply to any type of property that uses a triple-net lease to “pass-through” certain operating expenses to the tenant, however it is specifically applicable to retail properties.

There a many projects around today that fit the example described above.  Most were developed between 2005 and 2008 when rents were sky high and lenders couldn’t find a project they didn’t like.  Many tenants both national and independent signed leases with over inflated rents.  Then the housing bubble burst, credit dried up, consumers pulled back and landlords buckled.

Today there’s still an allure about these projects seen by prospective tenants because there’s vacancy, they’re newer, (attractive to established tenants in older properties and by start-ups wanting something nice that’s now somewhat affordable).   There may also be the attraction of a national retailer or two left still doing business.

A newer, mostly vacant retail property "For Lease"

Now the Lions.  A new property owner is going to be anxious to put their own touch on the property trying to overcome any stigma left over from the failed ownership.  For instance, the landscaping may have died off or maybe additional signage will be constructed.  Whatever it is, you can bet your umm,  mule these costs will be passed through to each tenant for reimbursement of the landlord.  The unexpected surprise cost to each tenant is often thousands of dollars.

How would a person leasing space know this?  They wouldn’t.  In fact many tenant representing agents wouldn’t give it a thought.  This costly oversight will take almost every new tenant by surprise within the first year of their lease.

Only someone with expertise in managing and leasing specific property types will know this and be able to protect the tenant before the lease is signed.  Even then some agents are indifferent and will pass it off on the attorney who reviewed the lease when the stuff hits the fan.  You have to know and trust your agent or be eaten.

To your prosperous business.  Cheers!

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