Peter D. Morris comments on the closing of Sears in Canada

Principle Consultant for the Greenstead Consulting Group, Peter D. Morris, comments on the closing of all the Sears stores in Canada in this article in Retail-Insider.com

https://www.retail-insider.com/retail-insider/2017/10/sears-canada?utm_source=Retail+Insider+Newsletter&utm_campaign=bcf3861251-EMAIL_CAMPAIGN_2017_10_11&utm_medium=email&utm_term=0_659c2a0c20-bcf3861251-113728729

 

Peter Morris Speaking at REALTOR® QUEST 2016

Peter D. Morris, the founder of Greenstead Consulting Group has been invited to conduct two leasing training sessions at the upcoming REALTOR® QUEST forum hosted by the Toronto Real Estate Board on May 4 & 5, 2016.


Photo courtesy TREB

Over 8,000 real estate professionals attend REALTOR® QUEST, Canada’s largest REALTOR® Trade Show and Conference. REALTOR® QUEST 2016 will occupy over 280,000 square feet of space at the Toronto Congress Centre, South Building.

CNL Lifestyle Properties, Inc. Engages Us to Reposition Whistler Creekside Village

Creekside Village, Whistler, BC

Creekside Village, Whistler, BC

The owner of Whistler Creekside Village has engaged BC based Greenstead Consulting Group to assist in developing a repositioning and remerchandising plan for the property to better address the needs of both residents and visitors to Whistler.

“The opportunity arose to make significant and, we believe, positive changes to the offering we present at Creekside Village”, said Ryan Bell, the Director of Asset Management for the owner, CNL Lifestyle Properties, Inc. “A number of leases expired and we made the conscious decision to develop a scheme to replace those uses to better compliment our existing tenants such as Creekside Market, BC Liquor, Scotiabank and Starbucks, to name a few.

After an internal planning session, Greenstead Consulting Group was hired to refine a repositioning and merchandising plan for the property.

According to Greenstead founder, Peter Morris, Creekside Village is ideally suited to provide a different experience to the common brand name retailers found elsewhere in Whistler. He suggested that Creekside Village will be seeking tenants that are unique and/or offer something quintessentially Canadian, resulting in a ‘must visit’ reason at Creekside Village.

“The better quality hotel accommodations adjacent the property cater to an affluent, luxury family clientele who appreciate the opportunity to uncover something new and different as compared to the mass chain stores”, said Morris.

Morris stated that the preferred merchandise mix includes a signature restaurant; a salon/spa; unique art and gift gallery; quick service food outlets, with either a healthy food option or a menu of wide appeal; resort or adventure wear and a lounge, craft brew pub, wine bar or speak-easy atmosphere location to cater to those wanting somewhere to go in the evening.

According to the recently produced Whistler Chamber of Commerce Commercial Lease Report that provides a snapshot of current rates and operating costs rents in the Creekside Village area are less than in the Village Square, where they can be as high as $125 per square foot according to the report. Morris believes this is one reason his client will be able to find the right tenants.

“Even with the high rents demanded in Village Square, tenants still have to advertise to attract customers and the combined costs compound the risks of doing business in Whistler. Alternatively, if you locate your ‘must visit’ type of concept in a property with less rent, you can still spend on advertising to attract customers and the overall risk is reduced,” Morris said.

Simple Ways to Improve Operating Returns for Retail Property Owners

Graph  It doesn’t take a business degree to know that to improve operating return at the corporate or property level means revenues must increase, expenses must decrease or a combination of the two. Aside from the obvious question of occupancy, we’ll explore some other aspects to improving returns.

At the company/enterprise level removing waste, eliminating redundancy and cost containment are all common sense ways to add value. As is a serious review of the debt structure and financing options. Another avenue to explore is to examine the company’s sacred cows – policies and processes that have been implemented over time. Some may no longer be needed or the methodology may be outdated. Challenging the status quo may reveal hidden opportunities. For example, I’ve long advocated that the way property management services are delivered to both the owners of property and their tenants is completely outdated and is actually hurting tenant renewal rates and property returns. Moreover, by realigning staff duties in the manner I have suggested, management companies can reduce their overall costs of service delivery by as much as 15%.

The way leases are structured and the mechanics of them can also improve value. In the early 1980’s Cadillac Fairview, a leading mall developer and owner, instituted an across the board HVAC basic charge. It was a sinking fund established to pay for the replacement of roof top units, air handlers, central plant equipment, etc. The concept was drafted into the company’s standard lease form and used for all future new leases. There are many other items in the way a lease is structured that can have a positive impact on returns; such as how renewal options are treated, how the space is used and measured, and how amortization and depreciation costs are handled.

For example, many landlords provide for a recovery of amortization in their leases, but few also specifically note that the landlord should also recover an interest cost on the amortization. When explaining why the landlord should receive an interest component to the amortization, I liken the capitalized (and then amortized expense) to a loan to the common area to the benefit of the tenants. If a tenant pushes back I provide this example.

“Lets assume the landlord will need to replace the roof membrane, the cost of which is, say, $250,000. This is a recoverable expense, but the tenant doesn’t want to be charged with their portion of a $250,000 expense in one year; so the expense is repaid through amortization of, say 10 years. The landlord is out of pocket the initial expense and won’t recover that expense for 10 years. Effectively, the landlord is lending the tenants the $250,000, and just as with any loan the tenants should compensate the landlord for that through interest.”

These are just a few areas of more than a dozen lease refinements I’ve developed for companies I’ve worked with over the years.

One of the biggest lifts in return and value is to change the way lease rates are determined. Many owners and leasing agents for shopping centers still rely on comparable analysis to be the sole determiner of the basic rent. This is a mistake. Rent should be a function of sales – not to be confused with the concept of percentage rent. Using sales as the method for determining base or minimum rent it is possible to create a rent structure that is as much as 35% above comparable rents, based on my personal experience. There is a specific methodology to achieve this. It starts by understanding the market potential in the trade area served and relies on obtaining sales information from each tenant, even if they do not pay percentage rent.

There are a number of opportunities at the property level too. For example, the Greenstead Consulting Group has developed and implemented over 20 different ancillary income streams at the property level. Some produced significant revenues while others did not; but collectively the effect was the same as adding two or three rentable store spaces to the property– without the infrastructure costs.

Another area of additional income from retail properties is through creative densification. The land-mass for retail properties is very large compared to the vertical nature of office buildings. Much of this is dictated by parking ratios mandated in zoning requirements. The typical 5 stalls per thousand square feet of leasable area has been in use for more than 30 years, yet the nature of retail has changed dramatically over the same time. In the 1970’s evening shopping was usually confined to one or two nights a week and virtually no one shopped on Sundays. That parking ratio may have made sense then but does it make sense with the expanded shopping patterns and channels of today?

We convinced a municipal council to adopt a new micro stall designation to accommodate the new ultra small cars, such as the Smart car, and to include designated motorcycle parking as part of the overall parking ratio. Decreasing the average stall size allows for more stalls on the same piece of land. Even with the existing stall ratio, the increase in the number of stalls permits further development on the site. In another densification program increased the site densification that resulted in an $8 Million lift in the property value because the site development could be easily intensified. This improvement came with no additional infrastructure cost, such as a parking structure.

On the expense side of the ledger there are many opportunities to reduce expenses. One that is not widely practiced but that can pay significant dividends is lean maintenance, a concept borrowed from lean manufacturing practices. In lean maintenance there is an understanding that some common maintenance practices have diminished value through the lifecycle of the physical plant. Correcting this is the same as reducing the waste that was inherent in older manufacturing processes.

Repositioning and remodelling can have a positive impact on the revenue and expense of a property. Curb appeal determines customer attraction and what tenants perceive as a desirable location. So we never advocate trimming expenses to the point of harming the impression of the property. This includes capital expenses. However, the timing of the program is critical to obtain the best returns. It is also important to conduct a complete cost benefit analysis and judicious value engineering. Sometimes, just as in theatrical staging, some inexpensive changes can have a dramatic impact on the look and perception of a property.

Improving returns and value is what we do best. Contact us to learn how to transform your investment returns in retail real estate.

There Is No Such Thing As A WIN/WIN Conclusion

Many people believe that a negotiation must arrive at a Win/Win conclusion. The concept of attempting to reach that position is misplaced and can actually hurt the process. Let me explain as it applies to real estate leasing, without meaning to simplify the process in attempting to address this in just a few words.

After the basic financial terms have been agreed the lease negotiation is all about the transfer of the business risk from either the landlord to the occupier or vice versa. One party wants the other to assume some portion – or all – the risk associated with the lease. The negotiation concludes only when both parties have become comfortable with the amount of risk they are willing to assume. This involves compromise and a certain amount of ‘betting’ that the risks assumed don’t play out or outweigh the potential benefits. In short, to reach agreement each side has to give something.

Giving something up isn’t synonymous with a WIN, as both parties to the negotiation start with their ideal position of wanting the other party to assume the risk. In essence, both leave the negotiating table in a position less than their ideal. Hardly a “Win/Win” concept.

However, here is the real “Win/Win” in a lease negotiation. It isn’t the conclusion that should be the “Win/Win” – because it can’t be as we’ve just learned. It is in the negotiating process itself that the two sides should strive for a “Win/Win”.

In our lease training programs for landlords and occupiers, we note that every successful lease negotiation has to have 5 criteria. The first is a positive experience. Both parties will remember the negotiating experience long after they have forgotten the financial fine points of the deal. They will remember the feeling that it was fair, or pleasant, or that they were taken advantage of, bullied or generally negative.

As a case in point, many car dealers have switched to a no-haggle pricing strategy. Why? Because car buyers typically felt mistreated in the price negotiating process and that left such a bad taste in their mouth that it may affect where they buy their next car.

A person who is having a positive negotiating experience will tend to be more open to sharing information and really listening to counter points to a discussion. Conversely, a person who is having a more negative experience may tend to dig in their heals, be closed to offering information for fear it will further erode their position, etc.

The impact will be a longer more adversarial negotiation as well as the potential of the lease only lasting the one term, if it is completed at all.

As a person seeking the best outcome in the lease negotiation, you need to mitigate risk. How you accomplish that through the experience will determine how successful you are.

To learn more about how to create a positive negotiating experience while still controlling the negotiation, or the other four essential criteria needed for a successful lease negotiation, contact me at pdmorris@greensteadcg.com