Shopping Center Investing 101: Master Lease Structures & Tenant Mix Strategies for Maximum Returns

  📍 Hey everybody. Joseph Gozlan with Eureka Business Group, your retail navigator for the Dallas Fort Worth market. And today we’re taking a deep look into two very important factors when investing in shopping centers.

The first one is tenant mix. The second one is your lease structures. let’s get into it. So we’ll start with tenant mix. Why is it so important? And what do we look for when we’re dealing with a new tenant asking to come into our shopping center?

You ask any landlord across the country, what do you want? What kind of tenant do you want in your shopping center? Their immediate answer would be, I want a national tenant. I want a national brand. And that’s great. Don’t get me wrong.

National tenants and national brands bring thousands of people to your shopping centers and they are critical for your success, but they’re not everything. You want to create character. You want to create something more than just another one of those retail strips that everybody can go to and everybody see everywhere.

How does that work? So we’re looking at a mix of about 60 to 70 % of your national retail. And we’re looking at 30 to 40 % of your local small business owners. Why is it so important?

One of the hottest trends in 2025 in retail. is experiential retail. People want to experience more than a transaction. The one thing that national retailers are expert at is getting your stuff and getting out, getting your food at McDonald’s at two minutes or three minutes out the door. It’s getting your cup of coffee from Dunkin Donuts as you walk through. And here’s a donut, by the way. Thank you so much for coming. It’s all about speed. It’s about efficiency. It’s about the same experience. Every time you get to the store, that’s what they build their brand on. But people want more these days.

They don’t want just the transaction. They want the experience and most national retailers are not going to be able to provide that. That’s why you augment those with the local business owners, the ones that bring more to the table, the ones that are engaged, the community, the one that knows most of their clients by name and have that repeat business.

You want those in your shopping centers as well. So your shopping center will have a well rounded experience for the consumers. So they keep coming back to your shopping centers and the more they come back to your shopping center, the more traffic in your shopping center, the more your shopping center seems attractive

to the next business owner that wants to come to your shopping center and be a tenant.

So how are we evaluating a tenant? Is it gonna be good for a shopping center or not? It’s not just about credit scores. It’s not just about a balance sheet, it’s about more than that. So what are we looking for? So this is what we do for our clients

when we manage their shopping center or we help them lease a space in their shopping center. The first thing we’re looking at is what is the business model? What’s going on there? Do they have a business plan? Are they a first time business owner or do they have already multiple locations and this would be an expansion?

Are they shrinking down from a 5, 000 square foot space and they’re looking at our 2, 000 square foot space? We’re looking at these factors to understand who this tenant is going to be and what’s driving them into our shopping centers. Why did they come and ask us to be a tenant in the shopping center?  We also want to what their track record is. How long have they been in business? Are they doing that as a new venture? Maybe they’ve been in business for 30 years, but this is the first time they’re doing a donut shop or the first time they’re doing a vape shop or whatever it is. So we’re trying to figure out if they have a track record in the business they’re asking to put in our shopping center. Another thing we’re looking at is their financial strength. What’s behind the person that’s behind the business. Because in most cases, when you have a small business owner, we’re going to ask for a personal guarantee.

So we want to know who’s behind

Remember what I said a few minutes ago. I said we want businesses that create an experience. We want businesses that engage with the community and create that relationship. So are they doing that? Is that part of their plans? What is their engagement model? That’s going to drive more people.

That’s going to make people feel more connected to our shopping center. And that’s really what we’re trying to evaluate. We’re also looking at industry trends. Where, where is their industry going? Is it a dining industry? Is it a developing industry? Is it a stable industry?

This is important to understand because we’re looking at three to five year leases, sometimes even more. So we’re trying to figure out if there is enough depth and enough longevity in the industry to support what their business plan is.

I’m pretty sure that two years, three years before they went bankrupt, go back and check. I’m pretty sure blockbuster signed the renewal two years, three years before they went completely bankrupt. So understanding the industry is also part of what we’re trying to understand when we’re valuing the tenant.

The last thing we’re looking is how is that tenant and how will their customer interact and integrate within our shopping center as a whole? Do we have synergy between their customers and our other tenants in the shopping center? So if we have a bunch of restaurants and we’re bringing a dessert place, awesome, there is a synergy.

Are we bringing an ethnic grocery store into a shopping center that resides in a neighborhood that is heavily skewed toward that demographic? The last thing and the worst thing you can do is bring in competition. If you already have a pizza place, you don’t want to bring another one. If you have a liquor store, you don’t want to bring another one. Competing customers, competing tenants within the same shopping centers is most of the time not a good idea.

Now, I’m not saying don’t have a sandwich shop and a pizza place because they’re both food. That’s not the case. But two pizza places, two subway places, It’s not a good idea. The competition is going to kill both tenants at the end of it. And you’re going to be the one ending up with the vacancy.

And yes, in case you were wondering, as part of being a commercial broker that specializes in retail, we have to really understand business, we have to understand industry, we have to learn how to read business plans, so we can try to help the landlord understand is it the right tenant for them or not.

The other side of what we’re looking at is what we’re not looking for. What are the red flags? Here are some red flags I learned to identify over the years. Here’s an obvious one, a seasonal business with no plan for off season. Think ice cream store in December in Minnesota.

Another red flag for us is high employee turnover. Yes, some businesses naturally have a high turnover. But if it’s more than natural, if it’s constant, if every time you walk into that store, there’s somebody else over there, that’s a red flag. Another big red flag is being late on rent constantly. We’re not talking about a one off here and there. We’re talking about every single month, your property manager has to go find them to get the rent. That doesn’t work. Why? It means either they’re struggling financially, or it means that they’re very disorganized with their cash flow planning.

Either way, not good business practices. Now, how do I figure it out if it’s just somebody that is coming in and asking to be a tenant? If they’re already an established business owner, they had a place somewhere else, go talk to their previous landlord. It’s okay to ask for a referral to that landlord and go vet them as a tenant.

If there were a great tenant, he will tell you if there were a horrible tenant, sometimes they will tell you sometimes they won’t, but we’ll try to get as much information as we can before we let somebody into our shopping center. If they are a brand new business owner, that means that’s going to be their first place.

They’re just opening the business. They never had another business before. Then we’re asking for a business plan. Let’s see if you’ve accounted for everything. If you plan for everything, you would be shocked how many people are going into a shopping center and asking for what’s the rent and what is it gonna cost me to put my business over here.

But they have no business plan. They have no financial information. They haven’t even figured out how much sales they’re going to have to have and how much profit margins they have in order to just pay rent. Not even talking about making a living.

So definitely follow up on that and take a look at that. One last red flag. We’re going to discuss today. And I mentioned that in the previous video before is poor communication during the negotiation on the lease. If it’s hard to get a hold of them, hard to get answer, they nitpick on every little thing that is not really important.

That is a red flag. If it’s hard to get them into the place, it’s going to be hard to live with them when they’re already busy running a business in your shopping center.

Now let’s make a switch and talk about the other very important item we’re talking about today and that is your lease structures. This is one of the most critical things in a shopping center success for the long run. We’re also looking at this very, very critically when we’re considering buying a shopping center.

The first thing we’re going to ask in due diligence is show me the leases. Don’t tell me the terms. Don’t give me the rent roll. Show me the actual legal contract lease that the tenant is signed and that we’re Binded for as we buy that shopping center. You will hear the term triple net leases or sometimes you’ll see that written as n and n net net net triple net leases. What does that mean? Triple net leases means that the tenant as part of their lease is going to be obligated to reimburse the landlord for the prorated share that their store has in the shopping center for the landlord expenses for triple net.

What is the triple ends for? The first one is insurance. The second is property taxes. The third is common area maintenance. Which means if I have a shopping center that is 10, 000 square feet and it’s divided across five tenants, they each have equal 2000 square feet and they each going to pay a fifth of my property taxes, a fifth of my insurance, my property insurance and a fifth of the common aerial maintenance.

What is common area? Common area is the sidewalks, the parking lot, the exterior lightings, the waste management, trash removal, and so on. So that is why TripleNet is very strong for a landlord as a structure for the lease because we tell our clients very simple. You can spell TripleNet, T T R.

Transfer the risk. We are transferring the risk of increases in all of our costs over to the tenant, which make my lease and my investment a lot more secure. Let me give you a real world example.

I met a shopping center owner not so long ago. His expenses went up 40 % over the last five years, 40 % between insurance and taxes and the cost of materials COVID was part of it as well. So he got a huge increases , in expenses, but unfortunately for him, he had gross leases. Gross leases means that the landlord is responsible for covering all those expenses and his leases only had 10 % increases at renewal.

So that means every three to five years, he gets 10 percent increase. That made the profit loss, profit erosion over there, non recoverable, until he changes that lease structure.

Obviously you kind of got the idea of we highly recommend triple net leases as the structure for your leases. But here’s a few pro tips about what to do in your leases, regardless if it’s triple net or not. Pro tip number one for structuring your leases in your shopping center is to stagger your leases.

If all your leases are three year leases and all of them start in August of 2025 and end in August of 2028. You have renewals all happening at the same time. You have a high risk if one or two of them are moving. Now we have higher vacancy. You have a high risk of the fact that you’re not seeing rent increases or not.

Try to stagger your leases. Sometimes you don’t have to make it an even number of years. So instead of having a three year lease, you can have a 38 month or a 40 month lease. That helps you shift a little bit the end date from being parallel with another tenant.

We’re trying to make sure that we are staggering our leases, preferably have a different year for every tenant, if you can afford it. And if you have more than five, seven tenants, then you’ll have them stretch one at the beginning of the year, one of the middle, one of the end of the year. So you’re not constantly chasing your renewals and you’re not risking of high vacancy at the same time. Pro tip number two for shopping center leases is to build annual rent increases into your lease. And again, it doesn’t matter if it’s a triple net lease or it’s a gross lease or it’s a modified gross. Whatever structure you have in your leases,

I would try to make sure that I have annual increases built into the lease. Because inflation doesn’t wait until the end of your lease. Inflation happens every year and you will have to handle that. You will have to handle your cash flow.

You will have to deal with your bank during the refinance regardless of what the date of your leases are. So if you have rent increases built annually, your property value grows continuously year over year, and that’s great for you, a little variation of that one, if you can also attach that annual increase to the CPI, so you’re hedged from the bottom of at least CPI, I can at least catch up to inflation.

CPI stands for consumer price index, then that’s the best structure we can find. Annual increases attached from the bottom to the CPI. So you’ll get the greater of CPI or the annual percentage that you put in the lease. That’s the best we can recommend right now. Another pro tip about structuring your leases is adding percentage rent into your lease.

What is percentage rent? Percentage rent is when the landlord gets a percent of the total revenue the store is generating at the shopping center.

This is more common in large shopping malls. But every market is different. Every industry is different. So if you can get away with adding a percent rent into your leases, do it. It’s added income. It’s added opportunity for you to increase your property value.

Last pro tip about structuring your leases in a shopping center is to cross default locations. What does that mean? If I have a business owner or a national retail brand that is a tenant in more than one locations that I own as a shopping center owner, then I want to make sure that if they default over here, they are in default over here.

The last thing you want is this awkward relationship with a tenant that is struggling in one of your locations and not paying rent

while they’re doing great and paying rent on your other location. It’s awkward, it’s weird, and you have no leverage. But if you put cross location default, Then you have leverage on that tenant. If they’re struggling over here, they still have to pay from their successful location. Otherwise they will not be in either one of those locations.

Retail and shopping center investments are evolving and really understanding those two factors of retail mix and having great lease structures is not only critical for your cash flow today. It’s also about building value for the longterm.

That’s it for today. Please share your thoughts in the comments below. If you have a struggling center, if you have a weird structure that we’ve never heard of or we should learn about, absolutely leave a comment below and we’ll be happy to read and respond if we can help. If you need help with your shopping center anywhere in the DFW market, Feel free to reach out at Eureka Business Group.

We really believe in adding value. We’re not transactional So if we can help just by having a quick conversation, we’ll be happy to do that. Do me a favor one last thing Please click the subscribe button and hit that bell for notification Because that helps us a lot That will make sure that you see the next video in this series that we’re still planning on doing in the next few days.

I’m Joseph Gozlan with Eureka Business Group, your retail navigator for the Dallas Fort Worth market. If there’s anything we can help, shoot us a message, give us a call.