You might wonder why someone who focuses on representing tenants is posting leasing advice from the building owner’s perspective. Well, during my 20 year career, I have spent a “fair share” of time on the landlord’s side of the equation and still take on select project leasing assignments for a couple of long-time clients. Also, I believe the best lease transactions involve a high-quality building owner, a real estate-savvy tenant and two highly professional brokers who represent each party.
That being said, here are some of the most common mistakes by landlords that can slow or derail their leasing efforts.
- Signing leases without a strategic plan: A whole-building approach to leasing is critical to achieve the best rates and best tenants.
- Leasing the best space first: This can devalue the rest of the building’s available space — such as leasing half of a floor with a better view or leaving small spaces vacant.
- Failing to align the lease terms with financial objectives: You want to ensure each tenant’s lease terms support the long-term investment objectives for repositioning or disposition.
- Faulty termination clauses that allow tenants easy “outs”: These can leave you, the landlord, with unamortized costs from tenant improvements (TIs), incentives and fees.
- Hiring a broker without the right specialization: Look for someone with experience working with properties of a similar type and location.
- Failing to investigate the tenant’s finances: You should also investigate the tenant’s business plan and revenue stream. Make sure to require a substantial security deposit.
- Allocating capital incorrectly: You don’t want to spend money on things that won’t help lease the building, such as replacing sconces on the exterior of a building. A better use of funds might be replacing dated light lenses in a vacant space to refresh it. Ask the following before spending: “Does my improvement help lease the building more quickly or at a higher rate?”
- Choosing incompatible tenants: Placing a staid law firm next to a bustling sales organization or a come-as-you-are creative firm is bound to create friction.
- Pricing the building incorrectly: Holding out for an extra nickel or dime in pricing may keep the building stuck in vacancy limbo.
- Failing to evaluate the competition: Ruthlessly compare your building’s pros and cons against competitors. Seek the aid of your broker to determine your unique selling points and high-impact improvements.
- Forgetting the small stuff: Prospective tenants can be turned off by the little things. So, keep empty spaces free of debris, lights working and blinds open. Common areas should be clean, parking and signs in good condition, and consider investing in seasonal plants at entrance points.
- Alienating tenant rep brokers: In any major market, most tenants retain a leasing specialist to represent their interests. Direct deals with the tenant are the exception and not the rule. Reluctantly paying leasing commissions, paying late and failing to develop solid business relationships with the tenant brokers will only hinder your leasing effort.
- The biggest mistake? Lacking a story: Your building should have a compelling message that differentiates it from the competition. The building’s story should be tailored to a key tenant driver — such as visibility, tech infrastructure or accessibility. Some landlords develop a theme or foster tenant clustering. The “story” is a creative element of a leasing business plan that many brokers fail to develop. Your broker should collaborate with you to identify and enhance your property’s unique story. Then use that story’s powerful potential to drive tours and contracts.
From the tenant representative’s perspective, the ideal situation is when a client’s building choice is an obvious one. It is only matter of working out acceptable lease terms and a reasonable lease contract with a high-quality landlord.
Coy Davidson is Senior Vice President of Colliers International in Houston. He publishes The Tenant Advisor blog.