How to create value by finding the right tenants

by Ben Ridgwell, Director – Asset Management
T: 020 7544 2176 or E: bridgwell@nbrealestate.co.uk

In difficult financial climate, it is more important than ever for investors to attract and retain the right tenants in order to maintain income and avoid the risk of empty rates.

The outlook for 2009 is uncertain. To be successful, investors are advised to develop a greater understanding of their tenants – and that relies on speaking with the top decision makers and asking the right questions.

Getting to know you?
As companies are forced to cut their headcount, business leaders are changing on a regular basis, and that means it is crucial for all investors to stay close to their tenants. If a tenant has several reasons to vacate their current premises, they may decide their only option is to move. Not too much of an issue in a buoyant market perhaps, but today, good tenants are hard to find. Moreover, with the abolition of business rate relief on empty properties with a rateable value exceeding £15,000, the last thing a landlord wants right now is a vacant property.

The consultative landlord
The key word is 'certainty': tenants want to be sure their landlord supports their business and landlords want to be confident about their income stream. However, certainty requires both parties to put their cards on the table to establish the middle ground – that win-win situation – and this requires mutual trust.

An effective way for a landlord to develop trust is to demonstrate how they can add value to a tenant's business. Using structured conversations, a good landlord can act as a consultant; adding value to the traditional landlord/tenant relationship and supporting business decisions. 

Guiding principles of communication
Of course, framing such discussions is an important – and sometimes elusive – skill. To help landlords structure their conversations with tenants, NB Real Estate has devised the following 'Seven Golden Rules' of communication:

1. Make meetings personal - face to face is always best.
2. Show an interest and understand your tenant's business.
3. Engage tenants in ideas as you develop them; they may have better ones. Certainly, they can help you avoid wasting valuable time and money.
4. Remember that no single individual will be responsible for the property decision. You need to be confident that your message is reaching and influencing all key decision makers: the Managing Director/Chairman, the Financial Director, HR, IT and Facilities, and Sales & Marketing.
5. Make proposals comprehensive, but not over complicated. When they hit the boardroom table for sign-off, their incentives, costs, timetable and benefits should be crystal clear to your tenant.
6. If you want a tenant to stay, view them as a new customer. Think about how to sell them the benefits of extending their occupation and consider the changes that would be needed to bring in a new customer. Investigate their alternatives – and never undersell if they are already in the position that’s best for them.
7. Any proposal has to work for both parties, so make this clear from the outset in order to avoid wasting anyone’s time.

Using these fundamental rules, investors can engage their tenants in conversations that show they are thinking about their business. But of course, once both parties have put their cards on the table, the challenge is to use this information to identify opportunities that can maximise asset value, whilst ensuring the tenant benefits as well.

Value enhancing options
NB Real Estate has a wealth of experience in helping landlords to build tenant loyalty. The team combines this experience with professional expertise and strategic thinking to identify the most effective value enhancing initiatives.

Every situation is unique, but there is a common goal: to secure income and reduce the risk profile. The NB Real Estate team will perform a thorough assessment and formulate a strategy to appropriately meet a client's specific needs and objectives. For example, a landlord may be able to assist a tenant by providing short-term liquidity to ease cash flow, or they may opt to re-gear the lease to better align it with the tenant's business plan.

If their lease is due to expire, a tenant might be considering whether they can afford to stay in the property. Perhaps they need to downsize their operations? By staying aware of a tenant's plans, landlords may be able to offer a lower rent to match their reduced need for floor space and let the available office or parking space to another tenant without ever facing the fear of a completely empty space.

In other cases, landlords may be in a position to offer tenants a short-term lease to see if they can make the property a success before committing to a full-term lease. The tenant gets to try before they buy, while the landlord avoids empty rate liabilities, and if appropriate, service charge liabilities.

The landlord-tenant intermediary: NB Real Estate
NB Real Estate recognises the value that both landlords and tenants can bring, and how to capitalise on this to benefit both parties.

And now the team at NB Real Estate would like to help you. To discuss how we can assist you in driving the relationship with your tenants to maximise the value of your investment, please contact me, Ben Ridgwell, Director – Asset Management, by calling 020 7544 2176 or by emailing bridgwell@nbrealestate.co.uk. I look forward to hearing from you.