How creative retail leasing assures steady income stream in multi-family buildings

By Georgia Malone
President,
Georgia Malone & Co.

While the media often glorifies the "hot" neighborhoods in the New York residential market, there are the untold stories of multi-family buildings on the fringes of Manhattan and in the outer-boroughs beset by economic problems and hard-to-collect rents. In spite of these difficulties, some owners have been able to more than survive even in these hard times by making good retail use of the space usually located on the ground floor of their buildings.

As retail representatives for both owners and tenants, we have come across numerous cases where a building owner has kept their income stream in a healthy state through aggressive yet carefully planned-out retail leasing.

To be successful it is important to understand that retail leasing in multi-family buildings requires a discipline that differs markedly from what one would do in a central business or commercial district.

Retail leasing in multi-family buildings calls for balanced sensitivities to the needs of not only the tenant, but to the landlord, residents and community at large. It means a strong effort to understand what type of enterprise will work both financially and politically in a particular situation, a problem involving a great deal of analysis, patience, as well as the skilled execution of an experienced retail leasing broker.

As leasing agents for a multifamily building in Harlem, our firm is working closely with all parties in an effort to create the best retail tenancy. The landlord has stipulated no restaurants, dry cleaning or laundry which they believe would intrude on the ten-ants' environment. The residents and community say a grocery or liquor store would also be inappropriate, but favor a vital service center such as doctors' offices, a day care center or perhaps a children's dance school.

Requirements vary depending on the buildings and the community. On Manhattan's Upper West Side we've just done two renewals for a fast food and grocery store and a new lease on a luncheonette.

In Far Rockaway, Queens, we've leased medical offices and in Coney Island, Brooklyn, a pe-diatric center is paying full market rent. Producing such tenants, rather than just accepting rent from the highest bidder, is a challenge but in the long run it is the right way to go for community stability as well as real estate profit.

When approaching multifamily retail leasing this way, it is rare that the leasing professional is presented with a clear situation in which to perform. Often it is the opposite. The multifamily building or complex will be situated in a fringe neighborhood in Manhattan or an outerborough, a neighborhood that is undergoing a commercial and residential revival. Many of these buildings are Section 8 Federally subsidized or tightly rent regulated. Residential tenant rates are below market and often in arrears, suggesting all the more the need for secure yet compatible retail tenants to make up the deficit.

Our firm has faced such challenges in neighborhoods on the Upper West Side of Manhattan, Jamaica and Far Rockaway and Coney Island. In each case we never take anything for granted. We carefully study the buildings, photographing all of the retail sites, and spend hours interviewing landlords, tenants, community leaders and prospective retail tenants. We make sure that everything the tenant wants is conveyed to the landlord. One of our clients, a large REFT owner, in fact calls its on site manager, "a community manager."

Sometimes retail premises presented to us are vacant, sometimes they are occupied. In the latter case, we carefully check out existing retail leases to determine if they are valid, if rent is being paid regularly, and if the rent is sufficiently in line with what the market is asking. We also need to determine if the current retail tenant is compatible with what the landlord, resident and community are seeking.

Once we have a clear understanding of the situation, we go out and seek candidates to fill out the retail tenant mix we believe is the most desirable.

We convey our requirements by word of mouth in the community, through our professional contacts, by erecting signs on the buildings, and by posting ads in web based multiple listing systems such as CoStar and LoopNet.

Our work does not stop even when the perfect, credit-worthy candidate comes through our door Our work does not stop even when the perfect, credit-worthy candidate comes through our door with a signed lease and a check.

In Jamaica, Queens, for example, we had an understanding with a wonderful community daycare center that everyone loved and that had the wherewithal to be an excellent tenant. Regardless, we had to help the landlord prepare for dozens of vital inspections from the Department of Health, Police, Fire Department, children's agencies and other officials who had to sign off on the occupancy.

In spite of all the hard work and challenges, we find that a carefully planned and creative approach to retail leasing can be the difference between success and failure to the owner of residential buildings, whether that owner be a single operator, a large institution or REIT, or a developer or owner with a multi building portfolio.

The approach must be studied and analytical and the retail broker or agent involved must place landlord and community desires on a par with or above the need to quickly fill the space.

"We go out and seek candidates to fill out the retail tenant mix we believe is the most desirable."

Copyright Real Estate Weekly, November 26, 2003