There was a book written by Jim Collins called Good to Great. I am a huge fan of this book as it talks about how being great, and in this case we are going to be talking about how to be a great retail tenant. Being good is just not cutting it any more, especially in commercial retail real estate. That is the topic of today’s thoughts. Let’s dive right in.
So, I woke up this morning and read an article about Michael Jackson and the judgment about his estate. According to the article, MJ’s estate has earned over $100m dollars since his death on June 25th. (that alone is crazy!) The article goes on to state that Joe Jackson – Micheal’s dad – was purposely left out of the will. Forward, Joe could be stereotyped as a violent father to his children, and has been accused of such in the past, so being left out would not be shocking to most. The thing of it is, that the way you treat people, even children, will always come back to bite you in the tail.
How does this relate to commercial real estate? Well, let’s start with how a retailer may enter into a relationship of this sorts.
As a retail tenant, you are always looking for the best locations, at the best possible terms. This often comes with a win/win relationship with the landlords/owners of the space you are looking to occupy for your business. As in the beginning, even with a letter of intent proposal, you are looking to strike a favorable deal in order for your business to hit the ground running. The last thing you need is a giant nut to crack – high rent. So the negotiations begin. You ask for a lot, given some, but in the end, you are happy with the outcome, and so is your new business partner of sorts – the landlord.
Take a step back for a second, and let’s imagine you are a stubborn old goat that wants your cake and wants to eat it too! (so the saying goes). During the negotiations, you stand your ground and demand the world, and you actually get all that you ask for. Granted the landlord is doing some serious flips and somersaults for you on this deal. Keep that in mind as we continue with this discussion.
So, time goes on, business is good for a couple of three years and you begin to feel the pressure of sales dropping a bit. Not to worry, you are okay because of the way you are running your business and the customer service you have given, for your loyal customers to continue patronizing your establishment. The you hit the wall.
Business has taken a turn for the worst and is going south – perhaps your competitor has opened across the street and is killing it with the grand opening, which in turn kills your business. This is often a retail tenant business scheme. But not to worry, your business tactics take you start cutting miscellaneous costs and some personnel as well. (the personnel is not necessarily miscellaneous, but just not needed right now) You find your family and yourself working as employees inside your place now, and praying for a life raft. Time will only tell what happens next. For some reason, your watch begins to go into hyperdrive, and you feel that you must close you place of business to stop the bleeding of cash outflow, namely “RENT”. This is where we bring it all back.
You shut the doors and walk away. You will see this happen from time to time in commercial real estate.
But wait, there’s more.
Remember when you negotiated a heck of a deal with your retail lease? The landlord was not to happy back then, imagine what those feelings are like now. You default on your retail lease obligations, namely paying rent and other occupancy cost charges. You initiate dialog with the landlord and let them know that you have closed and want to get out of the retail lease obligations. One question: Remember when you were first negotiating this lease and you felt the right to take anything and everything from the landlord? Like the landlord owed that to you? (think about Michael Jackson’s childhood, Michael being the landlord in this analogy).
When your talks start getting into some type of settlement, the landlord now has you by the shorthairs and will hold you and your assets hostage until you fulfill your end of the bargain (lease commitments). The leverage has now shifted to the landlord and you are not going to get any special treatment of any sorts, or any handouts for that matter.
You beg and plead for forgiveness, but yet you get left holding the bag of financial obligations and are now beginning to feel the entire thing crumble beneath your hands.
Moral of the story: Treat people like you want to be treated, especially if they are your landlord!