Lease Administration

The Importance of Lease Management for Business Continuity
The Importance of Lease Management for Business Continuity 1440 428 ASG

Lease management is critical for your retail business. Effective lease management can ensure that your retail business can withstand the volatility of economic downturns, supply chain disruptions, and unexpected challenges to your operations. Many retailers are unaware of the profound financial impact the right lease management team can have on your business, but a smart business continuity plan should include working with a tenant representation professional and outsourcing lease management to experts.

What Is Lease Management?

Lease management is the practice of ensuring that the terms of the lease are properly met. When a retailer receives an invoice from the landlord, the goal is not to balance to the landlord’s invoice but to ensure that the invoice matches the terms of the agreement, doesn’t overcharge, and doesn’t include costs that should not be included. While often a thankless and behind-the-scenes area of our work, ASG saved $12.6 million for clients last year through our effective lease management.

How Does Lease Management Impact Business Continuity?

Lease management, or lease administration, is crucial in ensuring business continuity by protecting the retailer. A well-constructed lease will guarantee that the retailer continues to have access to essential assets. The lease also reduces operational risk, helping the retailer avoid unexpected and unwarranted expenses. Effective lease management involves several key factors, including regular monitoring and tracking of lease agreements, timely renewal of leases, negotiation of favorable lease terms, and proper documentation and record-keeping. Outsourcing lease management can be beneficial because the lease management team are experts in the industry and have the ability to quickly recognize risk areas, negotiate better terms, and help preserve the tenant-landlord relationship.

Best Practices for Successful Retail Lease Management

Effective lease management is crucial for any organization to maintain healthy relationships with its stakeholders. Contracts serve as the backbone of these relationships, and it is essential to manage them efficiently. A robust lease management system can ensure business continuity during unforeseen disruptions or when physical access to the office is not possible. By streamlining the contract management process, organizations can minimize risks and maximize opportunities for growth and success.

The more comprehensively your lease management practices, the stronger your business continuity planning will be. This should include:

Understanding Lease Terms
The first step in retail lease management is to thoroughly understand the terms of your lease agreement. This includes the length of the lease, rent payments, maintenance responsibilities, and any clauses related to business continuity or termination.Regular monitoring and review of lease agreements

Regular Monitoring and Review of Lease Agreements
Retail leaders without experience in lease negotiations and management may find themselves overpaying, which can add risk to business continuity. It’s critical to monitor the lease, review the agreement, and be proactive about addressing issues that may arise, whether the retailer is being overcharged or not received agreed-upon accommodations.

Proactive Negotiation of Lease Terms
Whether the retailer has an existing lease that is being renewed or they are securing a new location, the lease agreement is an opportunity for mitigating risk to the business based on unexpected events, unanticipated costs, or changes to the space, location, or other tenants. It’s important to negotiate a renewal that aligns with your business goals and objectives including rent payments, lease terms, or other provisions that can help ensure business continuity.

Effective Communication with Landlords
The lease may serve as the backbone to the contract between landlord and tenant, but communication is what allows the relationship to flourish to the benefit of both parties. Maintaining open communication between tenant and landlord is key to ensuring business continuity.

Professional Tenant Representation
A tenant representative is an essential partner in assessing location needs, negotiating lease terms, and facilitating the communication and relationship between tenant and landlord. They are also the people who fight for the retailers they represent when terms are not honored or costs are not being controlled as contracted.

Plan for the Unexpected
It’s essential to have a plan in place for unexpected events that could disrupt your business, such as natural disasters, economic downturns, or changes in consumer behavior. This plan should include contingencies for rent payments, staffing, and inventory management.

Options That Protect the Retailer
Business continuity planning is often a game of what if. And building those what ifs into the lease agreement is essential for retail business continuity. Options for subleasing, sharing space, adjusting the size of the space, and delaying rent payments for certain circumstances are all examples of how the retail lease is essential for comprehensive retail business continuity.

Retail Business Continuity Planning Is Not Complete without Lease Considerations
Retailers and their lease management and tenant rep partners must have a clear understanding of the retail space and resource needs, any cyclical nature of the business, and have clear insight into the risks and liabilities contained within the lease. A lease management system like ASGEdge can be instrumental in not only ensuring retailers implement a strong strategy for choosing locations but for managing every location’s lease in a streamlined and efficient manner.

The Landlord-Tenant Partnership to Save Retail
The Landlord-Tenant Partnership to Save Retail 1440 428 ASG

The loss of specialty retailers, such as Jos. A. Bank, J.Crew, Lord & Taylor, and Pier 1, didn’t just impact the companies themselves. The ripple effect ran through the malls in which they were tenants and indirectly impacted the other mall tenants that relied on their presence as a draw. Many tenants had anchor store requirements that allowed them to renegotiate or even cancel their leases. Unfortunately, landlords are often caught in a tough spot, between tenants who are also trying to survive and must use every leverage point they can, and mortgagers, who require a minimum level of revenue to avoid foreclosure.


Landlords and Tenants Can Work Together to Save Retail

The worst situation for all parties involved would be foreclosure. Landlords and tenants are going to need to find ways to work together. The retail real estate industry must assume a collaborative stand with tenants through these unprecedented times. That doesn’t mean just agreeing to what the tenant wants. Understanding how a tenant makes money and what they can afford to pay is incredibly important. So owners, view your tenants’ requests for assistance as opportunities to strengthen the non-financial aspects of a lease. Reduce co-tenancy requirements, shorten terms, and remove exclusives or other cumbersome items that limit a landlord’s flexibility.


Anchor Stores Need to Change

The downfall and demise of the traditional department store means that anchor stores must change. Given the focus on consumer experience, it makes sense that the anchor stores should be experiential. From hotels and restaurants to gyms and theaters, reimagining retail space is a way forward that can benefit both the landlord and the tenants.

As e-commerce continues to grow, retail investors and tenants are being forced to reconsider what consumers gain from the brick-and-mortar shopping experience. Traditionally, landlord and tenant relationships were ultimately transactional. Today, the sides are teaming up, realizing that together, they can achieve a shopping experience worthy of drawing consumers away from their smart phones and devices. – CBRE


The Future of Mall Space Can Be Exciting and Functional

Elizabeth A. Whitman takes a deep dive into what can be done with retail space in malls that is no longer being taken up by department stores. Temporary options include becoming a vaccination site or converting to warehouse space for last-mile delivery. But long-term solutions are even more exciting in the potential they offer. One mall is transforming its now-empty Sears location into a fitness center with a pool. Another has converted boutique shops into micro-apartments for single tenants. The one common element of all of the reimagined uses of the space is that it recenters the mall as the place where people congregate to live, shop, and have fun – and that’s the key.

We use phrases like ‘omnichannel’ to describe scenarios as though every consumer wants to move seamlessly across everything a retailer, for example, has to offer. However, we have to turn that idea inside out and remember that for consumers it’s all about experience, and always has been. A consumer will choose the experience they want, based on the service or goods they are buying, and then the channel. The businesses that will be rewarded with brand loyalty are those delivering great experiences in stores and online.


Where Do We Go from Here?

Two truths on which we need to remain hyper-focused have come out of this year: One, tenant representation is essential – tenants who had someone capable of navigating, renegotiating, and changing lease terms were more capable of being flexible in meeting their customers’ needs; and two, the adversarial nature of the tenant-landlord relationship needs to transform into a partnership that keeps them all in business. If these things are not achieved, then banks are going to end up owning a lot of empty malls.

Reinventing Retail: The Post Pandemic Strategy
Reinventing Retail: The Post Pandemic Strategy 1440 428 ASG

Has there ever been a more challenging time for retail? Without the business disruption insurance that we lobbied for, we’re seeing more and more retailers forced into bankruptcy. And even as states are in the midst of phased reopenings, the ongoing civil unrest, however justifiable, has made it impossible for some retailers to open as planned. There are more unknowns than knowns – and there’s a lot to unpack. What has become clear, however, is that whatever role you play in retail, the one word you need to remember is flexibility. 


Flexibility is our Mantra for 2020-2021

Retailers, landlords, lenders, and consumers – and all the organizations involved in keeping them up and running – must all embrace flexibility. But what does that really mean?


Retailer Flexibility

Retailers who survive need to throw their old models out the window. Consumers have changed. The economy has changed. We are not going to be able to predict everything that is going to happen (did you ever once think in January that this is where we’d be in June?). 


Location

For a retailer, this means flexibility in your location strategy: pop-ups, regionalization, localization, adapted design, modular design, movable walls to adjust to consumer and operational needs. 


Leases and Lending

This also means flexible negotiations with landlords and lenders, because traditional, long-term, fixed deals are not and cannot be the future. While terms have been adapting over the last two years, even more change is going to be required for new retail players. Flexibility tied to performance and structure will be a mandate from those retailers expanding and moving forward.  


Customer Service and Customer Experience

Flexibility in service to the customer, whether this means curbside delivery OR curbside return – yes, you read it here: curbside return – will be necessary.  Providing delivery options is only one of the simple changes that retailers have to make. The long pole in the tent is a complete overhaul of old processes and procedures as well as systems and devices that both associates and customers use.  Retailers have to pivot their strategies in order to address these new customer expectations.  Rachel Williamson provides the best guidance here:

  • Retailers must start with WHY. It has to be clear to your customers. Many businesses are focused on the WHAT and HOW. WHY is more important and draws customers to your brand.
  • Create WOW experiences. While safety is top of mind (and should be for the time being), it cannot replace genuine customer engagement. Sanitizing, masks, and long lines to enter the store must be met with engaging associates who are making the customer feel glad they chose to shop in-store.  The experience has to be tantalizing and connect the customer to the brand.  The only way this happens is through really thorough training of the store teams.  Shortcuts to training means shortcuts in delivery.  The customers will feel it and may not come back to shop.
  • Communicate to your customers regularly, reminding them about the safety protocols, but more importantly, about the different ways they can connect with your brand.  Now more than ever, the online and offline experiences have to be seamless.
  • Create a compelling reason for customers to come shopping and then continue to create reasons to return. Covid-19 created a supply chain disruption bigger than we have ever seen.  Stores have few fixtures on the selling floor and even fewer products.  Get creative on how to make the stores look and feel full.


Operations

Flexibility also means streamlining your company’s operations. Before COVID, removing ‘friction points’ was the focus. Now, the new processes designed to keep customers safe have created a new set of friction points for both store teams and customers. Every process that can be automated should be.  Examples include labor scheduling, merchandise flow, and performance management, as well as sensor product in the DC or at the manufacturer. Take it off the list of things the stores have to do. The focus in-store must be on delivering customer experiences and exceeding their expectations if brick-and-mortar is to survive.  

To be as nimble as possible, retailers should outsource everything that’s not part of the core business so that they can adjust more readily to changes. The future of retail belongs to the brands and companies willing to adapt to this constant state of flexibility – and there is a lot of market share up for grabs.


Landlord Flexibility

One of the core lessons learned during the pandemic is that force majeure did not save anyone but the landlords. Landlords – and the lenders behind them that often tie their hands – who refuse to renegotiate or provide any kind of flexibility will end up with empty buildings. The landlords who remain under-standing and flexible will be the landlords who win going forward. Retailers must be able to adjust lease terms to their needs. This can no longer be a negotiation to meet landlord demands. Retailers just can’t afford to do it anymore. Gone are the days of a 10-year, fixed-rate lease. Right now, retailers need leases that offer variable rents with more options; flexible terms are the new norm.   

The biggest outgoing is often rent. A number of landlords and tenants have already agreed short-term arrangements, such as rent concessions and deferments to cover the lockdown period. But what happens after lockdown? In a retail landscape where some trading is possible, but not enough to sustain rents at their pre-Covid levels, landlords and tenants will need to collaborate in order for both to survive. 


Store Construction and Design Flexibility

Retailers are going to need to be able to adjust locally and build in more regionalization and differentiation; so, there can be no more one-lease-to-fit-them-all or one size stores. National footprints won’t be normalized. Adding flexibility inside the spaces themselves will require flexibility with the landlord for things like movable walls to adjust backroom sizes and selling floor sizes as the stores or consumers demand, with multiple-size footprints and more showrooming for consumers.  

“This is a retail renaissance not a retail apocalypse,” said Whitney Livingston, COO, Centennial Real Estate. “For anyone to succeed, all parties need to move out of their comfort zones, and compromise and partner. Companies that are willing to innovate and think outside of the box will help the industry reset and thrive post-pandemic.”


Lender Flexibility

We’re spending all day every day in conversations with landlords. Landlords’ hands are sometimes tied as well. But without more flexibility from commercial lenders, we’re headed for a collapse that will make the housing crash of 2008 look like small beans. We’re already in a worse situation than we were then. It’s going to be ugly. 


Final Thoughts on Post-Pandemic Retail Strategies

Consumers may spend less. But even if they spend more, their spending is likely to be different. It will take time to collect data and develop trends, and until then, you’ll need to be able to quickly pivot.

The way forward in 2020 and 2021 is going to require innovation, technology, and data.

Data will be crucial. To get some real perspective on how little retailers know and how crucial data will be for future decisions, read this deep dive, from Retail Dive, on the uncertainty retailers face. From managing cash flow to determining a reopening strategy to making the tough decisions about locations in the coming 6-18 months, you will need analytics more than ever. 

“Retailers need to understand that their response to dynamic customer behavior starts and ends with data. We already have an endless supply of data but using it intelligently to make decisions on where and how to invest, and what the customer needs and values, is where we’ve seen traditional retailers struggle.” – Andy Halliwell, Senior director, retail, Publicis Sapient

The future is unknown. But we can begin to build new models now.

Outsourcing Retail Strategy and Lease Administration
Outsourcing Retail Strategy and Lease Administration 1440 428 ASG

There are 10,000 Boomers retiring every day, and they are taking an enormous amount of institutional knowledge with them. This has been most noticeable in the healthcare and insurance industries, but in the next decade, we’re going to feel it in every industry. 


The Generational Divide

Because Boomers have worked longer and are retiring later, Gen X and Millennial employees, in many cases, have not had the opportunity to rise through the ranks as quickly. As Boomers now begin to disappear at an alarming rate, they are leaving behind very inexperienced replacements who have had much less time and opportunity to enter leadership positions.  Consequently, these replacements have limited high-level work experience, creating a giant skills gap. And as these succeeding generations aren’t having kids quickly enough to create future replacements, the gap and skills shortage will continue to widen.


What does this have to do with retail?

Retailers often benefit from younger generations working in their stores. Digitally native brands inherently understand what traditional brick -and-mortar brands often fail to realize: The brand is the brand, regardless of how or where the shopper engages with the brand.  While operations and other aspects are feeling the pinch on the front end of the talent pool – on the corporate side of retail – I’m seeing this painful loss of institutional knowledge on a regular basis in lease administration – and it is a costly and painful deficit. 


Lease Administration Is a Negotiation Game that Requires Expertise and Finesse

As experienced lease administrators retire and take with them their considerable understanding of leases, settlement negotiations, and relationship building, their younger replacements simply are not armed with the information and knowledge needed to properly defend contracts and protect their companies. For example, in one instance affecting a national retail brand, the lease administrator retired. When the new administrator started, he immediately invested in a new system that included a lot of promised bells and whistles. They spent a ton of money on it – and promptly missed a kickout, costing them over $300,000. When we audited the system after taking over, 82% of their expiration dates were wrong.


The Case for Outsourcing Lease Administration

It’s not just the constant back and forth with ASC 842 updates or even lease negotiation; at the end of the day, outsourcing lease administration ensures that you have the best experts handling the second-largest expense item for many retailers. Relying on experts can help transform a game-changing expense item into a hidden profit center. ASG saved its clients $5 million last year.

ASG manages leases effectively, ultimately serving as a profit center for many of our clients. An investment made with us results in measurable savings – without the headache of arguing over every dollar saved, because we don’t charge an additional contingency fee on the recoveries we generate.  You keep every dollar. For one client last year, that amounted to $1.1 million.  We will do the heavy lifting for your implementation of ASC 842 reporting capability on our lease management platform, many times at no additional cost over the base service fee, saving you thousands in accounting consulting fees and headaches. Your experienced lease administration executives are going to retire. Now is the time to outsource that function to a highly skilled and effective organization who lives and breathes leases.

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