Why Your Shopping Center’s Leases Are Costing You Millions

 Your leases can cost you millions of dollars worth of value in your shopping center. Stay tuned to know why.

Hey everybody, Joseph Gozlan with Eureka Business Group. And today we’re talking about how shopping center owners are losing millions of dollars, leaving money on the table just by not paying attention to their leases. Beth Azor is one of the greatest people in commercial real estate leasing. And she says the most important document in the shopping center owner’s life is the lease.

The leases you have in place, Make or break your shopping center. Let’s see why and let’s talk about the details. One of the most common things we see with shopping centers owners that don’t pay attention to leases is that their leases are outdated. A lot of them operating out of paper form instead of digitizing everything.

There’s no set system to track when leases are due, when renewals are coming up, when leases are expiring. Where are the increments in leases? I’ve seen shopping center owners that had annual increases in rent, but they’ve never applied them into the system that charges the tenant. So the tenant keeps paying the old lease without realizing the rate went up and the shopping center owner is not making that money.

Another thing we see is shopping center owners that work with a certain format of these, but they never update that. So if their contract is not up to date, they can put themselves at a risky point and exposure because they’re not realizing that their contract is outdated. Another thing we see with outdated contract is that they use old escalations.

They use escalations that are fixed fee that are just tiny little changes because 10 years ago, it was common to do 50 cents increase per square foot. But in the last 10 years, the economy went a little bit crazy over COVID and now rents are about 20, 30, 40 percent more than they were 10 years ago. And if you only increased by 50 percent and your base rent was 20, you’re not moving.

So that’s really important to kind of figure out what you do. One last critical thing we always see in contracts that have not been paid attention to is the usage restrictions. They’re not in place or they’re not strong enough or tight enough, which limits the landlord ability to put legitimate non competing businesses in the shopping center, just because they didn’t pay attention to this clause.

So what do we do at Eureka Business Group to help a shopping center maximize their profitability from their shopping center? Well, the very first thing we do is we do a full lease audit. We have a checklist of over 39 points that we review every lease and make sure we digitize and we enter every piece of that data, every checkpoint in that list.

Into a digitized system. That allows us to track, to prepare for renewals before renewal. We do a market survey to make sure we know what the market survey is in the market. We know which tenant has renewal options, who doesn’t, if they have terms in their renewals, and so on.

So the first thing we do is, uh, fully soughted and digitizing the system. The second thing we come in is we create a strategic plan on how we’re going to maximize efficiency. We’re having conversations with the landlord. We are having conversation with the tenants themselves. Sometimes the tenant is aware of what’s in their lease and a lot of the time we found tenants that have no idea That their lease expired four years ago that they’re up for renewal in three months That their lease has a rent bump that is scheduled every year or in the next renewal They have no idea.

They signed the lease three, four or five years ago and they forgot about it. So having conversations with the tenant is also very important. We also look at what value does the shopping center deliver to the tenant. We got to make sure that we put that as part of package that we’re considering when we’re talking about leases.

If all we do is take money and we don’t give anything Then we’re going to have a lot of resistance from the tenant about renewals We’re going to have a lot of resistance from the tents about rent increases. We got to make sure that we deliver value In return for that rent, these are business owners and they understand value for their dollars.

So we’re going to work with the landlords and with the tenants to make sure that we maximize profitability and efficiency. But at the same time, the tenant feel they get enough, if not more value than what they pay for. One more thing we do when we manage a shopping center for an owner is we make sure that annually and consistently we do the reconciliation of the cam charges or the triple net.

Unfortunately, in the world we live in right now, insurances go up every year, property taxes go up every year, and our expenses go up every year, whether it’s labor, material, vendors, and so on. So we got to make sure that the reconciliation happens consistently every year at the same time, and the letters go out to the tenants telling them this is what we’re going to do.

Sometimes we have good surprises. We’ve had opportunities where we protested the tax, And we got a reduction in tax. That means everybody got to benefit from that. And we passed on that savings to our tenants and they were happy about it. So, again, it goes back to giving more value to a tenant. So, like I said, annually, we’re going to review all the expenses from the previous year.

We’re going to adjust the camp charges. We’re going to adjust the triple net charges. And make sure that our landlords don’t absorb all that cost for no reason. The last thing we do at Eureka Business Group is we put those leases and all the information we gathered into a calendar, into a system that tells us ahead of time when we need to get ready for the next renewal, when we’re going to need to have the conversation with the landlord, when we’re going to need to have the conversation with the tenant.

So there’s no surprises. There’s no drop balls. There is no, Oh, I forgot to renew the lease, or I forgot there’s a rent bump. So just to recap, you’re leaving a lot of money on the table. You could lose millions of dollars worth of value to your shopping center. If you don’t pay attention to your leases.

And if you don’t pay the right attention to your leases. So if you’re a shopping center in the DFW area and you need help with managing your leases, with managing your shopping centers, give us a shout out at Eureka Business Group. We leave all of our contact information at the bottom of this, uh, video, and we’ll look forward to the next video.