Retail Traffic

EXPERT ANALYSIS: The power of creativity

In retail real estate, the term “value creation” is often used to describe a number of cross-functional operating strategies used to increase the value of an asset beyond its acquisition basis or development valuation. These strategies include time-sensitive leasing, innovative tenant mix scenarios, creative transactional structures, and “credit-driven” underwriting.

With respect to a public real estate company, “value creation” typically describes the process of incrementally increasing a property's annual revenue to increase its Net Operating Income (NOI), while maintaining fixed costs. This process will generally increase the public company's Funds From Operations (FFO), which is the primary measure of profitability for REIT portfolios.

Lifeline of the investment

The value creation executive team is the lifeline of the return on the investment process. The management of a large-scale leasing effort requires the effective management and deployment of company resources and human capital.

There is one key operating procedure that will maximize occupancy levels, revenue, NOI and FFO, as well as transform a “Commodity Grade Asset” into an “Investment Grade Asset.” It is to fully exploit the time and talent of your leasing professionals, and to create an environment that accommodates your corporate objectives — whether a large volume of leasing production, the pre-leasing of a new development, or leasing to a new mix of tenants.

Here are basic guidelines, critical for companies to employ when large-scale leasing production is the objective. It is essential for senior management to create a transactional platform in order to measure and evaluate a leasing professional's production.

Each leasing professional must be proactive in developing a stable of recurring relationships with national chains, regional shops, mom-and-pop operations and emerging concepts. These relationships should be evaluated on a quarterly basis for the number of transactions and tenants they have originated, exclusive of tenant representation brokers.

Leasing guidelines

Successful high volume leasing is a highly competitive endeavor. It is important to hire and train leasing professionals with an aggressive and informed approach. Senior management can train deal-savvy individuals; however, you must first attract candidates who are adept at developing and closing transactions. They should also be given the necessary internal support to expediently procure, underwrite, process and close lease hold transactions.

Over time, organizations develop their own corporate leasing culture, which should be described to a prospective leasing candidate to assess the likelihood of success within that culture. A change in corporate culture and protocol can have either a dramatically positive or equally negative effect on the leasing team's success and ultimately the organization's profitability.


Teamwork is an integral component, and disciplined and defined operating procedures must be a constant. Consider the cross-functional interaction between leasing, construction, asset management, property management, accounting and senior management.

Effective and symbiotic teamwork is critical and it must be evaluated, continually refined and rewarded.

Developing leasing momentum is one of the integral elements of establishing a successful sales cycle. As with most opportunities, timing is everything.


Timing either makes or kills successful lease transactions. While anchor tenant leases can consume a considerable amount of time, leasing professional's should work on a 90-sales cycle.

Internally underwrite and process transactions as expediently as possible. Eliminating layers of bureaucracy not only saves time and money but also reduces cross-functional stress. It is harmful to a public real estate company to have leases tied up in internal review processes. This guideline can enable any real estate organization to achieve greater FFO or revenue objectives.

For example

If you are a shareholder of a retail REIT that completes 1.5 million sq. ft. of new leases per year and the company has 35 million shares outstanding of common stock, if the leasing and other cross-functional groups can effect the rental commencement date of each executed lease by three weeks, you would increase earnings by $0.50 per share without increasing overhead.

In this example, there is only one variable to achieving a greater measure of success. By maintaining a precise and timely leasing platform, you will allow your leasing professionals to use company time more effectively, thereby affecting revenue growth.

Time and templates

An example of effective company time is through the development of template leases on a retailer-by-retailer basis. Templates save time and allow the deal making team to expedite rental commencement dates as well as reduce administrative expenses and legal fees.

Know your market and your competitor's history, rental rates, vacancies, lease rollover dates and, most of all, each competitor's weaknesses.

If a leasing professional does enough homework, he will find a competitor's weakness and an opportunity to exploit it to his or her portfolio's advantage.

Smart thinking

Think like an owner. Make each leasing, pricing and credit decision as if you own the property. You will make better decisions.

To think like an owner is to aggressively market those premises that are up for renewal (without options) up to 18 months in advance. This practice will keep the pipeline full and minimize downtime in rental income upon releasing.

It will enable each landlord to obtain the most favorable opportunity for significant rental rate increases from existing tenants.

Retailer thinking

Think like a retailer. Be a retailer. Know and understand retailing. I recommend each leasing professional should work in a retail store for two weeks. At The Home Depot, members of senior management have worked in a Home Depot retail store. Need I say more?

Know your tenants and develop valid relationships. Leasing is a relationship business and professionals should be in front of retailers across the board (national, regional and mom and pops).

Portfolio review

A winning-edge business practice is conducting a portfolio review on a retailer-by-retailer basis no matter how small or large the portfolio owners. A significant number of “value creation” opportunities can be determined by creative brainstorming with retail decision makers. Retailers value this type of a marketing program as well.

A great way to foster these relationships is to keep updated files on all retailers' most recent prototypical drawings. A retailer will appreciate a landlord who is able to assist them in achieving this important retail objective. A large number of retailers change prototypical drawings on an annual basis. Every time there is a significant expansion or contraction in the square footage of the prototype, it may provide an opportunity to help the retailer as well as to create shareholder value.

Lease Aggressively

Be a deal junkie. Network with retailers, city officials, other landlords, key brokers, franchise groups and professional colleagues. Provide market knowledge and service.

Develop a unique selling proposition. Your “someplace” is better for a specific retailer than their “somewhere.” Always remember that it is okay if you have a challenged asset. Find that “someone” who is located in a more challenged property, assess your competitive advantages, underwrite their credit and relocate them.

Another often-overlooked guideline is professionalism. Leasing professionals must focus on operating in a professional manner at all times. Regardless of an individual's talent, education, intellect or relationships, the single fact that someone takes the time and has the thoughtfulness to exhibit a high degree of professionalism will enable that person to achieve extraordinary achievements in this industry.


Terrence Tallen is president and CEO of Retail Enterprise Group, a Los Angeles-based retail real estate investment, brokerage and advisory firm.

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