Hi, Ann. I enjoyed your recent discussion in Dealmakers regarding one-sided leases. I have seen scores of one-sided leases which are doomed for failure in the long term as a result of the greed of ownership, combined with the ignorance of the tenant. I happen to take a different approach which has worked for me for some time, having cut my teeth on the management and leasing of over five million square feet of commercial property for various management companies since 1975. Let me share some of my ideas with you.

The long-term success of a real estate portfolio has little to do with how much rent you can sign up tenants for. It has everything to do with how little vacancy your properties suffer. I won’t go into how much a vacancy costs ownership; everyone who has been in the business and paying attention to the bottom line for over five years understands those numbers.

Presently, my small retail portfolio is 99% leased, with a lease pending for the one vacancy. One center with 15 tenants has been 100% leased for the last four years; four tenants have already renewed this year alone. A "troubled" center I acquired last year in Denver was 80% leased. It is now 98% leased, having signed seven leases in the past ten months. The eighth lease will bring it to 100%. My goal was to be 100% by year-end, which I didn’t meet. However, the center will be 100% by my first anniversary of taking over management and leasing of the center. I do the management and leasing myself from Chicago for reasons I will explain.

The secrets to 100% occupancy? Here are some of mine...

Most importantly, my retail projects are located on "A" intersections, offering not only excellent traffic and visibility but favorable demographics. I’m not interested in secondary intersections or one busy street.

Next, I screen all tenants carefully. Not only the creditworthiness of a tenant, but whether I feel the tenant will be able to afford the rent based upon their type of business. I am interested in RENEWALS and stability, not short-term deals. I’ve seen too many new centers in "trendy" areas charge $25 psf for a store which will do about $100 - $125 psf in sales. How long will that store last? I can’t tell you how many rent rolls I’ve seen with tenants paying huge rents in average locations - my track record for predicting their failure within a couple years is uncanny.

I look at potential acquisitions all the time. I was amazed when the agent of one older center I was interested in at about $100 psf sent the rent roll with tenants paying $18.00 - $20.00 psf, with an asking price of $200.00 psf (including 25% vacancy). Before seeing the rent roll, I had estimated a $12.00 psf asking rent for the vacant units, so I passed on the deal. The space stayed empty for almost two years before the landlord broke it up into smaller spaces, lowered the asking rent to $15.00, and settled on three marginal tenants. What a huge loss of revenue that was for ownership...

Despite my excellent location, I never want to be in a position to be forced to charge the highest rent in the area. In fact, I may be 10 - 20% below comparable centers in the area. I’m leaving money on the table, but keeping the centers full and helping my tenants make money are my two most important jobs.

I learned a long time ago to RESPECT all of my tenants. As a result I do my best to treat everyone fairly, protect them from competition which may hurt their business, resist building outlots which will take away critical visibility (my tenants are paying for that exposure already), work hard to keep expenses down while keeping the property well-maintained, return phone calls a.s.a.p., and when lease renewals come up, keep the rent increases moderate.

I’m very aggressive with my leasing. I take leasing calls until I go to bed at night. I place ads in the dominant local papers until every space is leased. I send leasing info to prospects the same day, and follow up on almost a daily basis with each prospect. As a principal, I can negotiate directly with the tenant (or tenant’s broker), so he is comfortable I can get the deal done without getting approvals. I pay full commissions to all brokers who bring in deals, so brokers are encouraged to send me their prospects. And, I make sure my tenants can afford the asking rent, which will invariably be cheaper than comparable competitive centers.

One more important tool least I forget - I read Dealmakers religiously to see who is opening where. I consider your weekly publication a "continuing education" class for retail leasing. All in all, the above leasing and management philosophies help keep my tenants happy, and my centers full. With that in mind, I continue to look for new acquisitions throughout the midwest, mountain states, and south Florida.

Jay Brown

Jaylon, Inc.

2550 Crawford Avenue, Suite 11

Evanston, IL 60201

email: jay@jaylon.com