THE TENANT PLAYBOOK: Keys to Success

Tenants considering new premises are often overwhelmed by the complexity of the task. In addition, they most often continue to run their operation from their present location, while at the same time planning to move/relocate. Talk about a heavy workload!

As with everything in real estate, DON'T GO IT ALONE! Engage the services of a qualified commercial leasing specialist on Day One. Interview only qualified specialists in your market area and select the one who appears best suited to assist you in finding new premises.

Now that you have engaged your Tenant Representative, what are the key elements of your relocation plan that need to be determined? A typical list would be as follows:

• Lease Commitment Period (5, 10-20 years)
• Locational Parameters (based on your clientele and market priorities)
• Premises Size & Design (sq. ft. range, ground floor/above ground, multi-unit/freestanding)
• Interior Layout (floor plan requirements, staffing size, windows/exterior light)
• Parking Needs (on site, street parking, municipal parking, no parking)
• Signage (facia box, multi-tenant pylon sign, window signage, directory board)
• Accessibility (key in most jurisdictions across North America)
• Networks (fibre cable, high speed internet, satellite)
• Landlord Incentives (rent free period, TI allowance, turn-key/build to suit)
• Availability (to commence both the tenant's work and business operations)
• Options to Expand/First Rights on Adjoining Space

Although not necessarily a conclusive list, this forms a solid basis for the objectives needed to secure new premises. As a tenant, you need to present your requirements in a very clear manner, based on your foreseeable needs. This is a vital part of the Tenant Playbook. It forms the basis of the properties which you consider. It will also ultimately form the basis in your decision making as you create a short list of viable property options and compare them.

Next up from the Tenant Playbook: the most effective approaches in negotiating with the Landlord. As always, we're just a click or call away from discussing the investment opportunities here in Windsor-Essex!

RENT FREE INCENTIVES (RFI) – An Alternative Strategy to TI ALLOWANCES

Landlords will often consider offering a RENT FREE INCENTIVE in order to attract Tenants on vacancies they are looking to lease. An RFI can be offered in addition to a TI ALLOWANCE or in lieu of, depending on the specific deal. However, from a Landlord’s perspective there are certain considerations that you should clearly assess, as you look to build-in a rent free period into any lease deal.

Questions to Consider:

Q: How does the RFI affect your overall cashflow for the property?
A: Cashflow – 2 months not as much a factor, as say a 6 month RFI would be.

Q: How does the RFI affect the net effective rent over the lease term?
A: Net Effective Rent is reduced from the face rate as shown on the lease (do the math).

Q: Does it include the operating cost/ft. of the property or strictly the base rental?
A: If Operating Cost/Ft. forms part of the RFI, it costs the same as if the unit were vacant.

Q: Are the TI costs being invested by the Tenant comparable to the rent free amount?
A: Tenant Investment is an ideal trade-off and helps substantiate the RFI.

Q: Is the Tenant stable and do they offer a Good Covenant?
A: Tenant Stability is a key factor and one which requires a close look.

Q: Does the RFI have to be provided at the front of the lease term?
A: RFI Upfront – not necessarily, and helps reduce the risk if it’s spread out over the term.

Q: Can RFI be conditional upon the Tenant not defaulting and otherwise becoming repayable?
A: RFI Conditional – all terms are negotiable and this ties the RFI to tenant’s performance under the lease agreement.

As with TI allowances, rent free incentives are considered to be a cost of doing business, and when offered in the right circumstances can be an effective inducement. The above Q&A gives you a good basis for assessment and ensures any RFI concessions make good business sense. RFI expectations vary  from the Tenant’s perspective and is really a market call based on your area.

In any real estate deal – a lease in this case – remember you don’t get what you deserve, but what you negotiate. RFI terms are often a key point in any lease negotiation and hopefully this gives you a better perspective as you assess a future deal.

We welcome your comments and stories about RENT FREE INCENTIVES based on your experiences – both Landlord and Broker alike. Just a click/call away from discussing our investment opportunities here in Windsor-Essex!

Property Management Q&A - Necessary? Benefits? Costs? Who Pays?

As you get ready to close on a commercial property, the question of property management needs to be addressed. Assuming you are not looking to manage the property on your own (NOT hands-on), it's time to assess the issue of hiring a property management company.

NECESSARY? - any tenanted property requires some level of active management. Obviously a single tenant would be less involved, than a multi-unit property involving multiple tenants. On a regular basis, matters arise requiring a landlord's response and you must (or someone on your behalf} attend to those issues. Management services can be tailored to suit your and the property's specific needs -- but appropriate oversight is a must.

Benefits? - the major items would include 1) financial management (collection of rent, follow-up on receivables/bill payment. ,monthly statements, operating cost budgets to name a few). Established management companies can provide better rates on insurance and property services, based on bulk purchasing power. They can also be 'on call' after midnight, based on an unforeseen emergency.

Cost? - Will vary market to market and based on property category. It will also most certainly depend on the actual services being provided, and ensure you are making 'apples to apples comparisons' when considering management firms. Typically on commercial properties, it may fall in the range of 3-5% of the property's gross income. But as with everything - 'you get what you pay for' and the cheapest management costs may not be the most appropriate for your needs.

Who Pays? - That all depends on how your lease agreements read. If you are assuming "NET LEASES", ultimately the tenant pays the cost of property management, through the additional rent provided for in the lease. In most cases, this should make the argument for professional management academic. In cases where the leases are "GROSS", any management costs will ultimately be added to the expense side of the property. As a final caveat, make sure you review the lease agreements to understand what the implications are for hiring on a property manager.

As a final note, good management companies can always provide a list of satisfied clients - get in touch with those references and confirm the quality of services being offered. Good property managers generally make for good (happy) tenants, and that generally makes for a GOOD INVESTMENT!

Tell us about your past management experiences. Just a call/click away if you are interested in discussing investment opportunities in Windsor - Essex!

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Mark Lalovich
mark@lalovichrealestate.com
Office: (519) 966-0444
Cell: (519) 259-5434

A Real Estate View on Environmental Assessment

Why? Cost? What if Problems Exist? Remediation?

Although we are not engineers in the environmental industry, we do see "Environmental Assessments" as part of the due diligence process. The above questions are a good place to start and gives you a practical "Real Estate View" with respect to EAs.

WHY - any EA (be it a Phase I, 11, or Ill), will identify either actual or potential property/site environmental issues. Some may be minor in nature, whereas others may be seriously problematic and pose major risks to users of the property. Beyond identifying environmental issues, a proper report should provide a series of recommendations to deal with and correct the problems outlined.

COST - will vary based on the type of report required and the depth of analysis needed. Every jurisdiction will have both national and local firms which specialize in EAs. Best practice is to compare services between 2 or 3 providers and be realistic based on the history of the subject property. Lowest fee is not always the way to go - again, you get what you pay for.

WHAT IF PROBLEMS EXIST - from a transactional standpoint, this is why you have a DUE DILIGENCE REVIEW built in to your offer. Beyond the problem(s) identified, there is going to be a cost to correct. Options may include:

1. terminate the deal
2. request the cost to correct be at the expense of the Seller
3. accept the problem and assume the liability
4. review all details and any proposed resolution with the lender

REMEDIATION - this is the common term for correcting the problem, and applies more in the event of complex matters - ie. contaminated soil,asbestos removal, underground tanks etc. Two key points here:

• ensure the engineer who created the report remains involved through the remediation period
• ensure a final report clearing the matter is obtained upon completion of the work

Again, the lenders need to be on-board with all matters relating to the EA, otherwise your financing could be at stake. Would love to hear about your experiences on EAs - and yes - the good, the bad, and the ugly.

As always, feel free to connect with us on Commercial Properties here in Windsor - Essex!

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Mark Lalovich
mark@lalovichrealestate.com
Office: (519) 966-0444
Cell: (519) 259-5434

Self Due Diligence - Which Real Estate Is For You?

Industry professionals love to promote the fact that investing in income properties is a legitimate way to wealth creation. It can not only provide an income stream, but capital appreciation as property values grow over time. The types and categories can include – residential (both single & multi –family), commercial buildings/strip centers (retail & office), mixed use (commercial & residential), industrial buildings (production & warehouse types), and even land that generates income (agricultural & solar farm).

As you consider the various categories, you also need to assess the type that not only best fits your objectives but best SUITS YOU. Investment property markets are littered with acquisitions which have ‘gone bad’, often times because the investor did not do sufficient SELF DUE DILIGENCE.

Some key questions to consider include:

• Am I more interested in residential or commercial/ industrial properties?
• Locational / neighbourhood criteria?
• Do you intend to be ‘hands on’, or will you require a property manager?
• Can you accept cash flow/return declines in the operation of the property?
• Are you in a position to re-capitalize a property if circumstances change?
• What are the risk factors which you cannot accept?
• How can you best limit any liability?
• What are the market expectations? The read of the current market?
• Is liquidity an issue if you need to sell quickly?
• Type of financing required and initial cash (downpayment) capability?

Any investment comes with its share of risk and income properties are no different. Good preliminary planning - starts with an honest assessment of YOU, your objectives, capabilities, comfort zone and so on. Once that’s figured out, it’s time to move on to the market in a direction that fits best.

Always looking to network with investors and other professionals in the broker community. We’d welcome your comments and feedback. And as always, would be pleased to discuss the opportunities here in Windsor-Essex!

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Mark Lalovich
mark@lalovichrealestate.com
Office: (519) 966-0444
Cell: (519) 259-5434

Windsor's Moving Up Against The Big Boys - New Series

Source: National Post

Great way to kick off our new series, COMMERCIAL PROPERTIES  – WINDSOR FOCUS.  

Real Estate was hit hard during the 2007-2010 period, but since 2010 we have seen major moves across all sectors of our real estate market. 

via National Post

Just to highlight a few key areas –

* Multi family vacancy rates are down below 4% (from 12% back in 2010)
* Industrial lease rates on a per ft. basis (have increased 70-80 % since 2010)
* Industrial building sales on a per ft. basis  (have increased similarly)
* Residential sales activity (both new and resale) are turning over at unprecedented rates
* Commercial Property interest and sales are in a significant growth phase given strong demand
* Out-of-town investment into the Windsor market is at record levels

What is the take away? 

Windsor’s market offers a great upside for investors / developers / landlords and owner-occupants looking to acquire good (aka sound) real estate value.  Cap. rates are more attractive than other major Canadian markets, competitive financing terms are available, a good mix of products exist, and many new developments are either under way or on the horizon. The population is once again growing and the economic issues of 5-6 years ago are now in the rear view mirror.

The Windsor Market is still in the ‘early innings’ and it is really just starting to make its move. Whether you are local or from outside of the area, give us a call and let us put our commercial expertise to work for you in Windsor – Essex.

We love feedback so don't be shy about letting us know your thoughts and where we agree/disagree! Intellectual discussion is always welcome. 

We are rolling out a new BLOG series, COMMERCIAL PROPERTIES – WINDSOR FOCUS, and we look forward to all your comments as we move through the last quarter of 2015. 

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Mark Lalovich
mark@lalovichrealestate.com
Office: (519) 966-0444
Cell: (519) 259-5434