Securing a commercial lease -- office, retail or industrial space -- is a complicated process that requires much time and effort. As a business owner, there are several different types of property owners you may encounter in your initial search and even during your occupancy, ranging from small individual owners to multi-billion dollar REITs.
Working efficiently with each kind of owner requires a basic understanding of their preferences and priorities. Here, we’ll highlight a few key characteristics of each group:
1. Mom and Pops.
Mom and Pops are owners with smaller portfolios who obtained property as a primary investment. They are not as formal in business practices as other types of owners. Often personally vested in their space, they favor tenants who will treat their space well.
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- Usually straightforward and easy to deal with
- Great for those who desire a close landlord/tenant relationship
- May be flexible on terms for the right tenant
- Best fit for smaller businesses with simple needs
- Communicate with a personable and warm manner
- Highlight what makes you a good tenant
- Convey your willingness to take ownership of the space
- Share creative ideas on how your business can indirectly benefit them
2. Family investors.
Unlike Mom and Pops, family investors are "real estate families" who have amassed a sizable portfolio over tens or even hundreds of years. The tenant/owner relationship may not be as intimate but nonetheless, family owners are still materially involved in the leasing and management of their properties.
- Still operate with a personal touch and often handle leasing in house
- Generally cash flow driven; prefer stable tenants over the highest possible rent
- Have intimate knowledge of every building in their portfolio
- Tend to have long term tenants that they have accommodated over many lease periods
- Best fit for small to mid-size businesses who are looking for a landlord that is willing to build space and accommodate their short-term growth needs
- Check out other buildings within their portfolio to get a better sense of what they have to offer
- Be warm and personable because it’s not only the bottom line that drives these owners
- Clearly communicate your needs and limitations; they will do the best they can to accommodate
- Be prepared to put down a significant security deposit if you don’t have strong financials
3. Management companies.
While technically not an owner, management companies act on behalf of the owners that hire them. For the purposes of leasing and day-to-day property management, they are the de facto owners. Management companies typically have access to a large portfolio of properties with a wide variety of options to fit any business needs.
- Very knowledgeable and can accommodate a wide range of needs
- Allocated budgets for building improvements and capex
- Offer standardized and less flexible lease terms, especially for smaller tenants
- Best fit for businesses that have established credit, as these owners often have specific requirements and operating rules
- Expect to sign a 5+ year lease
- If you are a high profile tenant who’s well recognized or generating a lot of buzz, use this to your advantage, as these landlords like having notable tenants in their roster
4. Real estate developers.
As the name suggests, real estate developers develop and acquire office, residential, hotel, retail and mixed-use properties. The properties they construct are typically Class A buildings designed by award winning architectural firms and feature some of the best amenities offered by any landlord.
- Extremely well maintained common areas and large lobbies with strong security
- Looking capitalize on the quality of their buildings and generate the highest rents in order to maximize property value
- Often limited to major markets such as NYC, SF, LA, Chicago and Houston
- Usually more than willing to build space for long term tenants or provide a significant tenant improvement allowance
- Best fit for companies looking for premium space
- Plan well in advance as deals can take a long time to close
- Ask for specific details and changes to the space that will help your business
- Use time as a negotiating factor; many new buildings need to secure tenants even before new buildings are completed
5. Institutional investors (funds and REITs).
Institutional investors are money managers who invest in various asset classes, including commercial real estate. Of these investors, REITs (real estate investment trusts) invest solely in real estate properties but most funds will also invest in it as part of a diversified portfolio.
- Most assets are Class B+ to Class A buildings that generate strong cash flows for investors
- Driven by occupancy rates and margins, not personal preference
- You likely won’t deal directly with these owners unless there’s a major dispute, you’re an anchor tenant and/or a large tenant improvement (TI) allowance is involved, but if you do, make sure you cross all your t’s and dot all your i’s. These are not your typical landlords so make sure all of the right paperwork and documentation is in order.