Retail Shopping Centres - Observations About Lease Renewals

Retail Shopping Centres

If you are a retail property manager or retail leasing manager you would know the high value benefit that can be obtained through careful negotiation of lease renewals in a shopping centre. The lease renewal is something you would consider carefully. You have to know what the property is doing and where it is headed. The lease renewal should be looked at in balance to the overall property plans and targets.

Obviously the tenant is also quite focused on the retail lease renewal as it is make or break time for their business. They either get a lease renewal and the business continues, or they vacate and have to move the business elsewhere.

Good planning and communication by the property manager leading up to a retail lease renewal is essential to property stability and control. The retail property or leasing manager is the point of balance between the landlord's investment plans, the tenants business, the customers, and the property function.

So when a lease comes up for renewal negotiation there are a number of alternatives:

1. Do not renew and let a vacancy occur. It could be that another plan exists for the property or the local area.
2. Refurbish the premises as part of the discussion for a new lease. Retail property ages faster than office property, so it pays to have an ongoing refurbishment plan in motion.
3. Renovate the common areas adjacent to the tenancy. This helps integrate the property into the local community and optimise sales or visitation
4. Relocate the tenant to a better position in the tenant mix. Sometimes a relocation proposal is good for the tenant and for the property. As part of the relocation, the tenant could be offered enticements such as better rent incentives, larger premises, better premises, or better location.
5. Renew on consistent terms with the existing lease arrangements. If keeping the status quo is preferable in the lease negotiation then that is fine; you just need to relate that to the coming years that the lease will remain active.
6. Negotiate fresh occupancy terms that are in keeping with new plans for the tenancy or the property (or both).
7. Demolish the property and build something else. Changes to the local community may indicate that this is a better plan for the future.
8. Offer the tenant a proposal that involves them improving their offering or shop presentation.

So a lease renewal in a retail property or shopping centre is a great opportunity for change. It allows the landlord to help the tenant with their future plans, whilst optimising the property future. Every lease renewal should be looked at across the entire property balance, not individually. Use the lease renewal to improve the tenant mix and offering to the community. The tenants and the landlord both see ultimate benefit.

 

Building Maintenance - Do's and Don'ts

Building Maintenance

Property Maintenance plays a crucial role in overcoming hassles at homes which otherwise would have an adverse impact on the residents' precious hours. What are the specific areas that need periodical maintenance to ensure a hassle-free lifestyle in an apartment complex? Here are a few tips.

Wall Cracks

Cracks may appear in the wall in initial years of occupation, due to the following reasons as per I.S. Code in the internal and the external plaster, due to moisture changes, Thermal variations, elastic deformation, creep, chemical reaction, foundation movement and settlement of soil, vegetation, and earthquake. Do not panic. The process of cracks may continue for the first couple of years. After that you can simply fill the cracks with primer putty and repaint the walls and watch them stay that way.

Door and Latches

After a period of time, you may find that the doors in your apartment do not shut properly and the latches no longer seem to work perfectly. This happens because of self-weight of the doors combined with temperature fluctuations and also the expansion and contraction of wood causes a shift (usually downward) from the original positions of the doors. Your are advised to wait till the season changes and watch things fall back into place, or if required, you can call a carpenter, who will rectify the problem as a precautionary measure, hinges of doors should be oiled regularly, at least once in three months.

Flooring

The ceramic tile/ vitrified/ granite flooring should be cleaned periodically with detergent diluted liquid. Do not use acids, ever. Corners and skirting should also be cleaned periodically to keep them looking as good as new. To reduce the dust accumulation problem at skirting level, make all skirting flush to the wall.

Damp Patches

In the first monsoon, damp patches and resulting cracks may appear in the walls, due to seepage. This is not a major problem. You are advised to wait for the summer before patching the damp spots, filling the cracks and repainting the walls and the problem will not surface again. It is advisable to repaint the entire building from inside and outside after every three to five years.

Leakage

After a period of time due to regular usage, it is normal that the washers in the taps may get worn out, leading to leaky taps. You can solve this problem by just replacing the washers, even by yourself. If cracks develop in kitchen sink or joints of glazed tiles, leading to seepage, immediately fill the same with materials such as M-Seal White or any other cementing material available in the market. Do not use strong acids to clean bathrooms and toilets, as this will cause leakage and damage to the floor. If the traps below the pipes of the wash basin or bathroom or kitchen sink are choked, get it cleaned immediately by the plumber. Otherwise it will lead to leakages in the joints or dirty water overflowing from the bathroom traps. You can use 'Dranex' or a similar product to clean the blocked area. The leaking water taps should be attended to immediately, to avoid loss of water and damage to the residential unit below. Every apartment owner should clean all spouts and rain water pipes just before the rainy season starts, so that water collection in the balcony and terrace will not take place. Please check all taps are closed before locking your apartment, as water may get flooded in the kitchen and other rooms, spoiling the furniture and the paint finish of the flat below.

Termite Attack

Think of anti-termite treatment as an insurance against termites. No home, however old or new, and no material, whether concrete, wood, brick, or slab is safe from termites. There is no such thing available as termite proof construction. We have taken adequate precautions to avoid termite attacks, by providing the necessary treatment before laying the foundation of each building, but even high quality furniture, fabric, books, documents and plastic insulation, provide a convenient substitute for natural food for termites. Hence, it is advisable to have anti-termite treatment (pest control) done to your furniture, every year.

Elevator

Stuck in an elevator? Don't fret for emergency exit. There is an alarm button inside the lift, which has to be pressed. Once activated, the alarm is heard outside, alerting security personnel.Confirm at what floor level the lift is stuck. If the lift is stuck between two floors because of power failure or any other reason, a trained person has to put off the 3 phase main switch either from the meter room at the ground floor or lift machine room on the 9th floor, and confirm to the others involved in the rescue procedure that the power is switched off. Once the main switch is put off, there is a device called 'brake releaser' which is accessible in the lift machine room on the 9th floor. With this, you can get the lift either up or down to the nearest landing level.Once the lift reaches the nearest landing, the lift door's unlocking device (keys) is available with the security staff to unlock any of the lift doors. For your convenience, all these instructions can be displayed inside the lift machine room. As a precautionary measure, apartment association office bearers should train a responsible person/ security person about the operations.

Choking of Plumbing Lines

*Sewerage / Silage Lines: By throwing non-degradable items (sanitary-napkins, solid waste, etc.) into the plumbing systems, the lines get chocked, due to which the system starts leaking at the joints. Please call the plumber to clear the obstacles in the lines and allow the water to flow smoothly.

*Water Lines: Initially dust in the new C.P. fittings will choke the nozzles in the fittings hence there will not be sufficient pressure in water flowing through these fittings. Please call the plumber, who will open these fittings and clean the washers.

*Overhead Tanks and Sump Tanks: The fine suspended particles present in the water, will settle when the water is stored in tanks, due to which capacity of the tanks will reduce and when the water in the lower portion of tank flows through pipes, your CP fittings will get chocked. Please see that initially the overhead water tanks are cleaned at least once very three months.

How To Invest In Rental Houses

Rental Houses

As long as you have positive cash flow, rental homes are a great long-term way to make money in real estate. It is an inflation adjusted retirement plan, since rent - and so your income - goes up with inflation. The downside? Landlording isn't much fun, and you typically wait a long time for the big pay-off.

Many people confuse making money from rental homes with making money speculating on price appreciation. You can certainly get do both with rental homes. However, this desire to gamble on rising prices leads many to buy rental homes that have more money going out than coming in.

It is hard to argue that you shouldn't do this if you just sold a home for $120,000 that you bought for $90,000 two years ago - even if you had negative cash flow of $3,000 per year. This is risky, however. You could quickly find yourself in trouble if you own several such investments and they don't go up in value.

Another important point is that there is a limit to how many negative-cash-flow homes you can own. At a loss of $3,000 per year, how many can YOU afford? On the other hand, if your rental homes are paying for themselves and even throwing off some real cash flow, you can own any number of them, right. The more the better!

Obviously, then, my number one recommendation is to buy rental homes that will have positive cash flow from the first month you own them. Think about this for a moment. If you bought a home for $90,000 and thirty years later it DROPS in value to $60,000, but meanwhile you paid off the loan and had cash flow the whole time, you're doing great. You have $60,000 cash whenever you want to sell, and better cash flow now that the loan payments are done. That is much more secure than gambling on appreciation while losing money - but you still get any appreciation gains anyhow.

Rental Houses - The How To

Being a landlord and making money with rental homes is a big job. There are many great books that can help you avoid the hardest kind of learning - learning from your own mistakes. I recommend getting educated. In the meantime, here are some common mistakes that investors make with rental homes. Watch out for these.

Mistake : Not accounting for all expenses.

You hear something like this all the time: "The mortgage is $800, and the rent is $900, so my cash flow is $100 per month." You even see real estate books and course that fall prey to this kind of fast and sloppy accounting. Cash flow is what you have (or hope to have) after all your regular expenses, which include taxes, insurance, maintenance, repairs, water bills, utility bills between tenants, garbage collection, advertising costs, and anything else that it costs to have that home.

Mistake : Assuming too much income.

If the rent is $1,000 per month, the rental income for the year will be $12,000, right? Only if you are very lucky! You have to plan on some vacancies. If tenants in the area stay around for a year on average, and it takes a month to clean and re-rent a home, plan on $1,000 less, or $11,000 annual income.

Mistake : Saving money by not repairing things or making necessary safety improvements.

This short term way to increase cash flow is often referred to as slumlording. Long term, it means not just lower rental income for you, but more problem tenants. Consider the math and you'll see the logic of having a nice place. New carpet and repairing a dangerous porch might cost $3,000, but if you roll it into a refinancing (let's say a 7% 30-year loan) it adds just $20 per month to your expenses. Even on a credit card it might cost you only $60 per month. You might be able to get that much more in rent for a nicer place, and you'll have fewer problems.
Mistake : Not doing a background check on prospective tenants.

I once rented to a woman who admitted to doing jail time for driving without insurance. She seemed very honest and up front about it, so I didn't investigate further. I later discovered that she actually had been arrested for writing bad checks - a lot more relevant information for a landlord. She ended up in jail again, and was of course unable to pay rent. I could have gotten a simple criminal background check and avoided the problem. Check out those tenants.
Mistake : Trying to do too much by yourself.

If you want to have just a few rentals and you enjoy fixing toilets and arguing with late-paying renters, you can do everything yourself. However, if you want to be a real estate investor and really make some money, your time is better spent finding and buying new properties than repairing broken windows. How many properties could you handle if you did everything yourself? Hire help when you need it.

Can You Get Cash Flow?

Probably the biggest problem with buying single-family homes is that it can be tough to get positive cash flow. This has become a bigger problem recently, because for years now the prices of homes have been rising faster than rents. What can you do about this?

First of all, I don't recommend the common practice of buying properties that lose money every month, on the assumption that you can make your profit when you sell them in a couple years. This strategy is about to get a lot of investors in trouble soon, because home prices in many areas have stopped rising or even started falling (I'm writing this in December of 2006).

Also, how many negative income streams can your regular paycheck support? This is always a problem with investing in properties with negative cash flow. With positive cash flow, you can own as many as you want.

One way to get that positive cash flow is to invest in mobile homes on land. These often rent for close to what small homes get, but cost less than half as much. Other ways to get positive cash flow involve either finding ways to reduce expenses or increase income, or both. Here are some ways to do that:

1. Lower payments.

If you can't get a lower interest rate from the bank, see if you can get seller financing. Also, amortize the loan over 30 years, not 15.

2. Lower operating costs.

Look for any unnecessary expenses that the property has,but which can be cut. These might include getting a cheaper management company, finding cheaper insurance, and getting the property taxes lowered if the property is over-assessed.

3. Raise rent.

Check area rents to see if an increase is feasible. Make improvements that will enable you to raise the rent more than enough to cover the cost of financing those improvements.

4. Lease it with an option.

You can often collect higher-than-market rent when you lease a home and give the renters an option to buy it.

Buying single-family homes as rentals is one of the easier ways to get started in real estate investing. If you do it only when and where you can get positive cash flow, it is also a very safe way to invest. Another big advantage it has, is that you have two markets for your properties when you are ready to sell them - both investors and regular home buyers.