How to Lease in Today's Market By John-david Franklin, Eric Rubin, Chuck Taylor and Joan Woods T he one constant in retail leasing is that retail is constantly changing—either in the way consumers shop, the places they shop, or how often they shop. Retail leasing strategies must anticipate these trends and adjust to meet evolving demand. Today there is a sense that traditional national retailer expansion is waning to meet an expected slowdown in consumer spending. There is also a sense that some of the big names are going to be replaced with new names in the coming years. In these times, a number of different strategies must be mastered—unique from previous years and calibrated to meet the challenges of today and tomorrow. Prospecting By John-david Franklin Throw away the retailer "short lists" because prospecting is now the standard operating procedure. National tenant relationships are far less relevant than they were a year ago. Today, successful leasing requires relentless prospecting for the next hot concepts and an acute understanding of how retail concepts emerge. We can no longer evaluate deal-strength based on traditional measures. Throw out the balance sheet calculations and instead consider the quality of the concept, the competence of the management and the needs of the community. The first step is to get out of the office and drive around a center's surrounding community and greater region. Find local proprietors, inquire about their businesses and discuss helping them expand. This exercise can also reveal gaps in the local retail landscape. A new 21st century tactic is to use the Internet and mine local blogs and consumer review aggregators such as yelp.com and Yahoo!Local to find which retailers are generating buzz. The Internet is also a hotbed of virtual stores ready to experiment with brick and mortar outlets. Prospecting also involves connecting with leasing counterparts in other areas of the country and even around the world. A hot retail concept in Washington, DC may be ready to enter the Philadelphia market or a new restaurant chain in Miami may be well-suited for an LA expansion. Mining these relationships and alternative sources such as trade publications from other geographic areas are critical to staying ahead of the curve. Although it may be considered a lost art form, prospecting is a time-tested tradition and one that will bear fruit in good times and in bad. Incubation By Eric Rubin Prospecting a new retail concept is only the beginning of the process. The next phase involves becoming their partner—an incubator—putting them at ease about the road ahead. For many entrepreneurs, the build-out costs or the task of designing a new store will be daunting. It is important to walk them through the process including helping the entrepreneur identify experts in design, financing and marketing. When possible, providing in-house expertise in these areas at little or no cost is preferable as it could be the difference in the concept succeeding or not. Constant dialogue and assistance are critical to closing the deal. A landlord must consider these tenants an investment in the entire center's success and not simply a stand-alone deal to increase net operating income. Be prepared to offer shorter term leases, significant tenant allowances and more aggressive rent arrangements. It may be difficult to accept investing so much in a tenant that may not succeed, but these costs are also a potential investment in the next concept. A restaurant build-out today for a concept that only survives two years will still be a good investment when the next concept, with a more proven track record, agrees to a favorable deal because of the preexisting infrastructure. Incubation can also be a more formal relationship. Many developers have successfully taken financial stakes in the prospected retailers and earned substantial returns for their centers and for themselves. Regardless of how the relationship is structured, an incubation approach to leasing is a successful formula for filling vacancies and building long-term value in a property. Back to Basics By Chuck Taylor There are obviously still deals being closed with national credit tenants and it is important to remember that these tenants are solid foundations for any center. In this climate, however, the best deals will go to those who outwork their competitors and take a back-to-basics approach. Research, research, and more research is the due-diligence that major retailers most appreciate. It not only provides a compelling narrative for why their concept will work at your center, but also makes their job easier and shows your commitment. The best research identifies and illustrates the synergy between the retailer's strategy and the potential location. Retailer relationships, while also important, can only get you to a certain point. A measured amount of persistence and follow-up is also required, as is a compelling pitch. Increasingly, the best leasing sales materials are specialized to each center. This individualized approach helps convey the character of the center while also demonstrating the owner's commitment to making it special and successful. A final note—and one that cannot be overlooked—is to understand the reality of the times and recognize that the balance of power shifts when fewer deals are on the table. Negotiations must reflect this reality and patience becomes an even more vital virtue. Specialty Retail By Joan Woods The reputation and credibility of specialty retailing has grown enormously over the past decade. Retail merchandising units (RMUs), kiosks, static displays and vending machines have always brought in meaningful revenue to savvy center owners, but in uncertain times, specialty retail's ability to "backfill" vacancies with short-term tenants becomes an indispensable asset. Moreover, the temporary nature of specialty retailing tenants allows space to be reclaimed when market conditions improve. That is, of course, if these concepts have not already become so successful that they can be converted to substantial, long-term leases. RMU programs are now moving outdoors in greater numbers because of a wave of new lifestyle centers and town center projects. New weather-proofing technologies are enabling the programs to operate outdoors in Northeastern and Midwestern markets once thought too cold. Identifying specialty retailers requires a mix of good judgment and hard work. It is important to attend industry conferences, meet the large players and "pound the pavement" by making cold calls to smaller, regional concepts. A great resource is www.specialtyretail.com. Just like any other prospective tenant, specialty leasing prospects should be evaluated based on the concept's fit with the existing merchandising mix and its proprietor's commitment to success. The speed with which deals can be signed—and terminated—makes specialty retail an ideal strategy for market downturns. The promise of converting some of these concepts into full-fledged members of the tenant roster is an added bonus that creates lasting value not only for the landlords, but for the retailers themselves. John-david Franklin (john-david.franklin@madisonmarquette.com) is SVP of Leasing in our Philadelphia office. Eric Rubin (eric.rubin@madisonretailgroup.com) is a Principal and can be reached in our Washington DC office. Chuck Taylor (chuck.taylor@madisonmarquette.com) is SVP of Leasing in our Ft. Lauderdale office. Joan Woods (joan.woods@madisonmarquette.com) is Specialty Leasing Representative and can be reached in our San Francisco office. P Top 10 Construction Markets John-david Franklin SVP, Leasing John-david is Senior Vice President, Leasing, responsible for leasing the Northeast retail portfolio. He has over 25 years of shopping center experience with extensive knowledge of retail leasing and merchandising for lifestyle centers, regional malls and university campuses. John-david is an active member of ICSC and has been an instructor for both the domestic and International Schools for Professional Development. Eric Rubin Principal, Madison Retail Group Eric is a Principal of Madison Retail Group based in the Washington, DC office and a founding member of Madison Retail Group. He has over 19 years experience in the commercial real estate industry representing both landlords and tenants. Eric's area of specialization in landlord representation is mixed-use projects, urban storefronts, and development sites throughout the Washington, DC region. Chuck Taylor SVP, Leasing Chuck is Senior Vice President, Leasing responsible for leasing the Southeast retail portfolio. He has over 25 years experience in national retail operations and real estate. Chuck earned his Bachelor's in Business Administration from Appalachian State University in Boone, N.C. and is a longtime member of ICSC. Joan Woods Specialty Leasing Representative Joan is responsible for handling Madison Marquette properties such as Anaheim Garden Walk (soon to open) in Anaheim, CA, Bayfair Center in San Leandro, CA and Bay Street, Emeryville, CA and has over 15 years experience within the Specialty Leasing industry, generating over $10 million in revenue. Joan holds a Bachelor of Science in Fashion Merchandising and Marketing from Iowa State University.