Leasing Commercial Real Estate in 2020, Part II

September 2, 2020 Designer

Neil Johnson:

Well, good morning from Geneva, Illinois and West suburban Chicago and welcome to the August Leasing Council Call. As always, we’re grateful to Julian Banuelos from SVN Corporate, he’s running the backstage component and he can jump in if anyone has any technical issues. The call is being recorded, so you can listen later or pass it on to others in your office. Our goal with all of the council calls is to use the [inaudible 00:00:37] culture of collaboration to share best practice, strengthen the resources of the company and improve our services to our clients.

Neil Johnson:

We’re hoping this call has some good open discussions, so feel free to jump in with questions or comments, if you wish. In order to make that process work, please use your computer or phone. Julian has muted us but you can unmute either if you’re on the computer by hitting the little red [inaudible 00:01:08] on or star six, if you’re on your phone. That way, we can control background actions like dogs and babies and sirens, et cetera.

Neil Johnson:

Leasing… Oh. Yeah, here’s just a review of the product councils. Leasing is one of 18 product councils or specialty practice areas listed on the SVN Corporate website. Be sure to join any others that you’re regular part of in your practice or otherwise, just you. Because leasing process platforms a little bit. We’re an asset types, we send out invitations to office, retail, industrial, medical office and property management. Within the leasing council, we have over 130 members advisors signed up. If you have not yet joined, please do.

Neil Johnson:

The product council pages can be accessed through the SVN dashboard, go to my[inaudible 00:02:22].com and then in the collaboration center, click on the leasing icon. That way, you’ll receive our leasing related communication. If you have something you’d like to share with others between calls, you can send an email to leasing@svn.com and that will go out to everyone who has signed up and also automatically appear as a post on the leasing council communication hub. At any point, feel free to contact Walt Arnold or me. We are the council co-chairs, if you have any leasing related questions.

Neil Johnson:

This call is intended to be an open dialogue, so please do jump in. We all benefit by the extra participation. Focus of this call is a little more discussion about the unique challenges and opportunities related to doing leasing of commercial real estate in this upside down era of 2020. One initial request, I really would like to have this call be a politics free zone, as much as possible. The COVID-19 pandemic is just one of the big headlines that’s made this year as unique and challenging. 2020 has left its imprint on many parts of our lives and leasing commercial real estate is certainly no exception.

Neil Johnson:

For our call this month, I wanted to feature a variety of lease deals that had happened or didn’t happen because of the craziness of 2020 and several advisors, including Walt and me, are going to share some examples from the trenches. Here is our line up. There’ll be a chance for you to share your own lease deals, if there’s an interesting or informative story and you’d be willing to share it. So Walt, why don’t you get us started? Here’s your Rio Rancho deal.

Walt Arnold:

Thanks, Neil. Can you hear me? Can you hear me?

Neil Johnson:

Yes.

Speaker 4:

Yes, we can hear you.

Walt Arnold:

All right, thank you. Thanks. One of the things I wanted to talk about today was just something I think is a trend we’re going to start to see in the market. I have two stories from Albuquerque and both of them are around call center space. This is a building in Rio Rancho, New Mexico, 7,001 Zenith. This tenant last year signed a 15 year lease and they just announced that they are vacating this space and everybody’s going to go work from home. Now, this space is for sublease, again, 75,000 square feet. What’s happening is, these tenants that have signed these long-term leases all of a sudden are saying, “We don’t want the space.” So now it’s going to be a sublease.

Walt Arnold:

I think one of the things, one of the trends, opportunities in the market that we might start to see and which we haven’t seen a lot of for a while, it’s probably a lot more sublease space, especially maybe in the office market, particularly, as tenants decide that they don’t need all their space and they start to downsize and start to use parts of their space and not all of it. This is one building. I think it’s… The next one, Neil, if you go to the next one? Can you go to the next slide? Thank you.

Walt Arnold:

This is a deal that I was involved with few years ago. It’s a Prime Therapeutics. They occupied 25,000 square feet. Again, it was a call center and they have just announced that they are vacating this space, 25,000 square feet and they still have three years remaining on the lease and it is for sublease. I think, more than anything, what we’re seeing in COVID is the way people are starting to use their space and how that’s going to differentiate and change office spaces, particularly, in the future.

Walt Arnold:

As we go forward, I think there’s opportunities, not only to work with landlords on this but also tenants that are vacating spaces. I think we’ll be presenting listing opportunities more to tenants, especially with the larger spaces, especially call center or large amounts of dense space for people. I think it’s just a trend to watch. I think you should be aware of it and I’m sure other people have other stories. But that’s what I want to bring to the call today, Neil. I appreciate it.

Neil Johnson:

Yeah. Well, thanks, Walt. Any one have questions for Walt with regard to those? All right. Otherwise-

Speaker 4:

How does the market look for people that are interested in that space? Are you getting any bites? Have they been listed yet?

Walt Arnold:

These just literally came on the market this week. I haven’t had any… There hasn’t been a lot of activity yet but these are two prime spots. But I think we’ll see more of it as time goes on.

Speaker 4:

Thank you.

Neil Johnson:

I’ve actually heard some of the same transition happen at mall spaces, large anchor, vacant spaces being used for that type of thing. As well as e-commerce distribution. All right. Deena’s up next. Unless Deena, you’d be more comfortable going last. Unmute. Deena, are you there?

Deena Zimmerman:

Yep, I’m here. Yep. Can you guys hear me now?

Neil Johnson:

Yup.

Deena Zimmerman:

Yup. Sorry. I was laughing. I’m a Zimmerman, so I’m always at the end. Thanks for putting me at the beginning. Good morning, everybody. Walt, that was a great story and a great case study and I appreciate you sharing that. Because that’s the thing. There are a lot of positives happening right now and I know I genuinely run, for those who know me, sunshine and rainbows and on the positive side. I think, well, that’s a good thing. I’m also realistic. Unfortunately, we are seeing, on the retail side, a lot of closures, permanent closures now. The recent statistic and this promise, I’m going to turn this positive, that I read at the beginning of August was thus far since March.

Deena Zimmerman:

Now, I’m using Chicago as an example. In Chicago and then the surrounding suburbs, an average of 44, an estimated, excuse me, 4,400 businesses closed either temporarily or permanently. The way things are tracking out looks like, likely at least 2,400 of them, will not open their doors again. We do look at some of this big-box retail. You look at Pure Wine, you look at J.C. Penney, two really good examples of retailers who are struggling long before the pandemic. I always say they were on life support, so to speak and the pandemic pulled the plug.

Deena Zimmerman:

But that being said, you look at a whole other crop of retailers of even, we’re talking office users. There’s a lot of groups out there who are… I would make the argument, because of the pandemic, look at grocery, look at convenience, even I work a lot in the cannabis space, we can’t find space fast enough for those types of users now. A lot of the retail spaces that I’m listing right now, releasing them are actually doing deals faster than I thought we would be doing deals right now, primarily either in that grocer, liquor, convenience sector and a lot of medical office as well, grouping up now retail space. So just to give you some broad strokes of where we’re at with retail.

Deena Zimmerman:

But when Neil had reached out, the success story I wanted to share is actually with a tenant of mine at the cooking school. Well, she started as a cooking school and I helped her seven years ago. Right before the pandemic, we were actually working on negotiating our first renewal option. Very exciting, she’d come from New York, this was seven years ago that we started working together and that it’s always fun to see your clients succeed. The pandemic hits, guess what? Nobody wants to go to cooking classes and for the foreseeable future, that social called the social table, that social aspect has now gone away.

Deena Zimmerman:

In the interim, late last year, I helped her open a small grocer convenience, very high end, things like European bodega type concept, right before Thanksgiving. Not a great time for her to open. She was using a lot, she had hired a butcher. A lot of the products that she was selling them this grocery store was, she’s also using, for the cooking school, doing a lot of catering, what have you, had a few hiccups. Because the neighborhood needed to get to know her. She opened late due to permitting issues in the City of Chicago, no big surprise there. However, when the pandemic hit, she can’t keep product on the shelf fast enough.

Deena Zimmerman:

The best part of all of this, everybody wants to support local. So the neighborhood really came together and she can provide products because she locally sources all of her products. She can provide them faster than our local Juul, Mariano’s or even Whole Foods. Anyway, doing very well. We started talking about plans for her to expand, once we came out of this pandemic. Same conversation we’re having with her filing bankruptcy on this other cooking school, okay? Let’s talk about yin and yang.

Deena Zimmerman:

All of a sudden, a bar with black iron and outdoor patio seating, which of course is the golden child right now in the food factor, came available right across the street from her. This was back in April. She called me, she goes, “Am I crazy?” I wanted to do a restaurant aspect to feed off of the cook… Excuse me, to feed off of the convenience store but I didn’t want to do that for another 18 months. But all of a sudden, this came available, it’s across the street. I could own this entire corner of Lincoln Square. Arguably one of the very best corners, in my opinion, in Chicago, in this neighborhood and right across the street from a park. That when things get back to ‘normal,’ whatever that looks like, nonstop children all the time and there’s a real need in this neighborhood for brunch.

Deena Zimmerman:

We thought, you know what? Let’s at least pursue this because the worst that’s going to happen is nothing. But at least, we put out what is comfortable for us right now in terms of rent and understanding, what if we do go backwards? What if we do shut down again? Anyway, long story short, we went to lease, we’re almost finishing that up this week. This is the first deal I’ve done next to an office deal I did for the tenant rep side, where we spent two weeks just negotiating COVID language successfully. Both parties came together and here, the same day, she’s filing bankruptcy for her cooking school. She’s expanding across the street, her concept, into a bar and restaurant. I think the key for this deal was, understanding where her strengths were, pivoting in a way that was comfortable and successful for her.

Deena Zimmerman:

I will tell you, for those who are doing restaurant deals, we baked in a ridiculous amount of free rent. By the time she opens… We started the deal also with a very significantly lower rent. The landlord, basically, is not going to make any money for the first two years. But we did a 10 year deal and on the back end, he will have a return on his investment as well. This really reminds me of the tenant rep deals I was doing back during the recession. Especially in 10 and 11, where we were doing long-term deals, 10 to 15 year deals around the front end, it was a little bit more tenant friendly. On the back end, with higher bumps and increases once a tenant has proven to be successful. And really, especially with restaurants, it’s that first 18 months and it was just getting really creative with deals. If anybody have any questions or even wants to see some of the language we use, the contingency language regarding government mandated shutdown, shoot me an email. I’m happy to share that with you.

Neil Johnson:

Thanks, Deena. Any questions initially for Deena? That whole area of sweet language to address COVID type issues, government shutdowns of health related issues are going to be, I think, a persistent element moving forward. We did just get a lease to [inaudible 00:15:41] and the tenant suggested or request that that language be in their lease. The landlord didn’t have anything, I reached out to or I threw out an all call to leasing@svn.com and got a couple of good responses and we actually use some of the language that folks sent me. So, thank you. I can’t remember who sent me the language but we were able to use that in the lease, so our system works. All right. Out to Florida, Ali, good morning.

Ali Mustaq:

Hi, good morning, everyone. Well, thank you for the opportunity for allowing me to present today. I want to discuss, as a case study, Park Square Plaza located on East Colonial near UCF of Orlando. This development had several challenges. [inaudible 00:16:34] discussed three portions of this at the perfect time. First started off with Aussie Grill. Aussie Grill is Outback Steakhouse Bloomin’ Brands. They were expanding into the market with their new concept. They currently have three locations that they were able to open. They were looking for expansions to rock Florida. Ours was one on the out parcel that we had vacant.

Ali Mustaq:

We were going to do a two tenant building with a drafter for that. LOI was agreed on, some minor changes came in, we sent the LOI and then COVID hit. On March 9th till March 17th, I had no communication with them and they’d left and dropped out of the market altogether. As a follow-up, I’ve discussed it several times with them and they’re still not ready to be back up. I think it’s a great concept. I think they should and hopefully in the future, start to expand again until we can get probably sometime, I would say, second quarter or mid next year, most likely.

Ali Mustaq:

The second point I want to discuss is the, soon to be vacated 24 Hour Fitness, that was who our area use. As you know, 24 Fitness filed bankruptcy, they had this location closed. They reopened, then they closed back up again. I believe at the present time, they’re still close. We’re waiting to see if we’re going to do a restructure, a lease restructure. If not, I already have two backups, two strong backups, possibly three backups of leasing to fill in that space really quick. On the good note, on the adjacent photo that you see, there’s a new student housing project. The good news on that is we had a hotel parcel, a little strip of land. We just recently sold it as of yesterday.

Ali Mustaq:

So the landlord would at least offset some of their burn, if they’re experiencing by offsetting it with the closing of their land transaction. The Inline space is still available for leasing and that’s on that side of town. I did want to reference, there is a new development I’m doing. It’s Publix in Davenport, Florida referred to as Champions Crossing. That project is moving without any hiccups. We’ve only had a delay for opening reschedule. We are set to open in the fall of 2021. Tenant space has been very strong waiting for some of the leases to come back. We’ve passed the LOI to the lease stage, so in the next 60 days, we’ll have several leases on the Inline and a few on the Outparcels done. I hope to have that project successfully completed on or before opening of the Publix. If you have any questions, feel free to reach out to me for Orlando, for any market or data information. Thank you.

Neil Johnson:

Thanks so much, Ali. All right. The next step is Mary in Phoenix. Good morning, Mary.

Mary Nollenberger:

Good morning, Neil and thank you so much for the opportunity. My team and I have been tracking… I’m going to open with this information that we’ve gathered from tracking about 12 of the REIT quarterly earnings calls. We’re seeing a strong trend that, the rates are speaking out about rent collections and we found most interesting that they’re saying, out of the lessons that they learned during the recession, like Deena said, are being implemented now to be used as strategies. One of the REIT CEOs was quoted as saying, “It’s not as much about what we buy as what we do with what we buy.”

Mary Nollenberger:

Our Phoenix Market has proven to be set apart in that. He was quoting that, their purchases and their centers are open air in the Dallas and other cities in Texas markets and Arizona, which has contributed significantly their success in that. Arizona has a lot of incoming businesses and with that comes housing. So we’re looking at opportunity here that presents itself because of those factors. My story has to do with a client of mine that recently purchased, what would be a category that would be unforeseen as being a place that you would lean towards instead of against, but it was a CrossFit business.

Mary Nollenberger:

The reason that he looked at this fitness opportunity is that the person owning the business was coming to the end of his term and was moving out of the state for his wife’s job opportunity, which was taking her away from Arizona. He had been a client of that CrossFit location and did not want to see that community be split apart by closures. So he stepped up, talked to the current owner, was able to purchase the business, the assets, the equipment at a fraction, obviously, of the costs that it would have been pre COVID. We negotiated a very favorable lease term with rent reduction, a lot of front-ended time to ramp up their business and give them a runway for success.

Mary Nollenberger:

He has now been able to make an application through the Arizona Department of Health to open early, which was just approved two days ago. They will successfully be opening the business. A couple of other examples of opportunity for me have been people that have specifically left corporate job either through furlough or layoff or situations where they saw themselves vulnerable in their career at the disposal of a corporate entity. So, like during the recession decided to start a business of their own and to be in a position where they would no longer be vulnerable to someone else controlling their destiny or their future.

Mary Nollenberger:

So they’ve engaged in purchasing a franchise opportunity, one for a quick serve restaurant taking over existing restaurant space. Another was a situation where, I have an attorney that’s opening a business that specifically does wills and trusts formation. They’re looking at situations where they’ll be in a better control of their future destiny, won’t be subject to layoffs or any kind of control of their future career through another person but feel empowered to be able to create a different future than they would have had in a corporate position.

Neil Johnson:

That’s a good insight. Thank you, Mary. Any other comments or questions for her? Yeah, that entrepreneurial thing has been pretty much my whole adult life. As the economy has cycled, while you might have to scramble a little bit at least you don’t have somebody on the outside making those decisions for you. I support that. Right. Back to Florida. Good morning, Les.

Les Byron:

Good morning, Neil. Thanks very much. In Florida, South Florida, I do warehouses, industrial packing plants, production plans. Who in the past year or actually in past six months, eight months has gone on a cruise, went to Rome, really went out of the country? Again, the cruise ship businesses is dead down here. What people are doing, they’re improving their houses. The Pool and Patio companies down here, had never been busier, Home Depot and Lowe’s stocks way up. So people are taking care of their houses. This was a lease done by a company called [Curlewis 00:25:33]. They’re a Netherlands based window treatment company, blinds, draperies, anything fabric for your home and apartments, condos, windows.

Les Byron:

They do the interior design, they make them. Anyway, we did a typical thing. We were out with them last year. They wanted to be in September, October of this year. End of last week, we located a place, had a place picked out in October. It’s hard negotiating the deal and sure enough, COVID hit and then the thing fell apart. The landlord though knew that this company had good credit. Atlanta kept coming back to us, reducing the price, reducing advertisement, really begging us to come take the space and it worked. They did the deal, was signed in March for almost 50,000 square feet, 32 foot clear height building. This is in Miami, this is a former golf course has been converted to industrial.

Les Byron:

It’s Panattoni, Panattoni owns and develops this. After Atlanta came back to us and met our terms, it went pretty quickly. But it’s funny how it switched though. In the beginning, it was all, landlord, landlord. Within the COVID now, it’s all tenant, tenant. Now that we’ve come back and we’re in August coming in September of 2020, we’re seeing the shift again. We’re seeing that this is going to be here for a while and landlords and tenants have to work together. The key is nothing’s being built right now for, build the suits or any office buildings, any fancy restaurants, any retail’s not being built, everything’s being concentrated is really industrial.

Les Byron:

Industrial is a flight to safety. People feel safe on industrial, the REITs are buying everything in the world here land wise. They’re converting golf courses, retail’s being converted to industrial. Industrial is a big, big thing down in South Florida. So we’re happy to have these done, we’re glad it happened. Really it was because the South Florida housing market is still high, very high. Anything under 300,000 bucks sells in a week. Because of that, people need supplies for the house, people need improvements for the house. People are spending a lot of money in their homes. This just goes to the fact, this was a housing improvement company and they needed the space.

Neil Johnson:

That’s been a strong sector. Now, Les, you have this on a closing slide recently, right?

Les Byron:

Correct.

Neil Johnson:

Can you just mirror what the total lease failure was?

Les Byron:

Sure. Three and a half million, worked at about $8 per square foot, triple net. They expenses here about 350, so it’s $11, 50 cents per square foot is what the space is costing. It was a seven year deal and they have some really high end improvements in there. Of the other 41,000 square feet, they’re going to put in about 8,000 square feet of office space, very high end stuff. Again, they’re from France, so they want their cake and eat it too.

Neil Johnson:

All right. I asked that specifically as a plug for the whole leasing council in our world. Certainly, on average, the deals are smaller than a lot of the sales but there are opportunities to make some really strong commissions in the leasing world. It’s all driven by size and length of term and that sort of thing.

Les Byron:

Share vestry. If it’s a minimum of a million dollars, you can put it on the slide.

Neil Johnson:

Right. Hope to see more of those.

Les Byron:

Cool. Thanks guys and ladies.

Neil Johnson:

All right. Well, I have a couple to share. This location is just like a block from our office in downtown Geneva, Illinois. We’re an hour west of Chicago. It’s one of the oldest buildings in town. It’s from the mid 1800s, 1850s and is a retail space converted to office. About four or five years ago, I put in an association management company. They just wanted to be… They don’t need the visibility at all but they really wanted to be in the downtown. The core of their services and their business is meeting planning. So you can imagine that they took it in the shins.

Neil Johnson:

Like a lot of businesses, by March, once a lot of or most meetings started canceling, the association businesses driven by conferences and conventions. So they notified their landlord who is our client that they weren’t going to be able to fulfill their lease. We put it on the market and by good fortune, about a week later, we’re able to secure a financial planner, a financial advisor who wanted to open an office in this market. There was no gap in the lease term for this client. It’s a beautiful space. It’s got a lot of original finishes, hardwood floors. The brick is exposed. It’s very loft like field, 10 ceilings high, 12 foot ceilings in that. It’s a fun deal and it was nice to be able to deliver something for our client.

Neil Johnson:

This next one is in St. Charles and it is in a condo building. Was a large… Well, it’s a 35,000 square foot building which was occupied entirely by Arthur Anderson before they collapsed back in 2001, 2002 and that these are condos. The space that the prospect called on or that we found for them was just 3,200 square feet. They told me they were looking for three to 4,000 square feet. But lots of offices, lots of private offices and it was specifically a COVID related thing. This guy wanted his staff to be in private offices. We ended up expanding into the adjacent space, so they ended up taking 6,200 square feet. We negotiated a 10 year lease for them and there were a lot of these hard wall cubicles in the space, they’re beautiful. What they’re going to do with those is, put plexiglass up to the ceiling surrounding and it really lends itself to it. It’s a pretty easy transition.

Neil Johnson:

They ended up with 19 private offices in the 6,000 square feet and then about a dozen or so of these hard wall cubicles which they’re going to surround with plexiglass. It really allows for a lot of that separation. That’s going to make it a little more comfortable for people to return to the office environment. One of the transitions we’re hearing quite a bit about and it’s music to my ears being out in the burbs is that, many companies are looking at suburban locations, especially the one story buildings where they have their own entrances.

Neil Johnson:

Because a lot of the office based organizations both for profit not-for-profit, their staff don’t want to ride the train. I think we just heard that ridership on the Local Metro is down 90% from a year ago. Then once you get downtown and you’re in a 20 to 50 story building, there’s elevators, so suburban office starts looking pretty good. All right, next up… I think this, well, I don’t remember where I got this. I will send this out or the details of it out as an email blast to leasing@svn.com. But here’s a list of 10 retailers that have not been paying rent.

Neil Johnson:

It has changed from month to month. This particular group is paying 35% or less of their rent as of July. The article, it’s really like a slide show, has more details. But Justice is closing a third of their 2,800 stores, Lane Bryant, 150 stores are going to close. I don’t think they’ve been paying any rent. Most of these are now paying something. They may not have been paying anything in April and May but June and July, it starts picking up. Regal Cinemas have been paying 13% of their rent. Victoria’s Secret’s going to be closing 250 stores in the U.S. and Canada. They’re up to 13% of their rent. So, you know what the impact is on landlords when you’re hearing these numbers.

Neil Johnson:

AMC Theaters is closing 100 cinemas, that’s a sixth of their location. They’re just been paying 14%. I think Ali mentioned 24 Hour Fitness in presentation. Gap, Foot Locker. Foot Locker is up to 36% of their rent being paid in July and Bath & Body Works. There’s many more but these were 10 that were singled out at the extreme of not paying rent. Then, the group… On the positive side, 10 retailers that have been, Sportsman’s Warehouse, they’re at a 100% rent payment, Sprouts, which I think is mostly out west. I know there’s one in the Denver Market. They have 350 locations, they’re at 100%. Habit Burger, Deena’s familiar with them, I’m sure they’re a young brand. J.C. Penney… It doesn’t mean things are going well for these folks. They’ve just been keeping their rent commitments.

Neil Johnson:

Many of them have actually already filed for bankruptcy and may be required to pay. Century 21 is a department store chain, Century theaters, Wingstop, Taco Bell. Big Lots, which is a big chain, they have 1400 stores in 47 states and finally, Stein Mart. Stein Mart’s on that list as the victim. They are closed in all 279 of their stores but they’ve been paying their rent. Anyway, we’re obviously moving into uncharted territory for the future. But business continues in every sector. Les mentioned, industrial is particularly strong but there’s opportunities for resourceful advisors in every side either with new vacancies or leasing sales. All right, can open it up. Or anybody else, either that would like to share a story from their own experience, either deals that did or didn’t happen, listing opportunities, feel free to unmute yourself if you’ve got something you’d like to share.

Courtney:

Hey, this is Courtney down in the Dallas-Fort worth area-

Neil Johnson:

Good morning, Courtney.

Courtney:

Good morning. I submitted a question in the chat box asking why the golf courses are going down in Florida. I thought that was interesting to see that they’re building industrial warehouse space on golf courses. Because I know in Dallas, it’s been really busier than ever at the golf courses and I would have thought maybe in Florida it’d be the same. But maybe it’s just that specific market. I don’t know if-

Les Byron:

It’s the millennials, Courtney, the millennials. I’m serious. They don’t play golf-

Courtney:

Really?

Les Byron:

It takes five hours to play around a golf down here and then winter time and these guys are skateboarding or they’re doing their BMX biking, they’re surfing. It’s kind of sad because I grew up playing golf. But yeah. Then the price of golf is going down because there’s so much competition down here, the beaches, the entertainment down here, so much entertainment. Then these home builders are building… They’re giving these old golf families big money for their property. They would take two or three years to rezone it and they’re building homes on it or they’re building on industrial. But really, it’s sad. But the whole… In Orlando North, there’s more golf courses. But South Florida, West Palm Beach down, yeah, there’s those millennials that they don’t want to play golf.

Courtney:

Interesting.

Les Byron:

Yeah.

Courtney:

Thank you for that. Then I had one other thing. I don’t really do a ton of retail and I had something come up where I am representing a hair salon that I actually have been going to for years, they needed to find another location. I found them a space, it’s about 1400 square feet. I think they’re asking like, 33 or $34 a foot plus nets which I think the nets fall about $13 a foot. They’re thinking they’ll probably do a five year lease. What would be an appropriate TI amount to ask for in retail in the market that we’re seeing right now? Does anybody have any insight? I just was curious since I’m not usually working in that particular product type.

Neil Johnson:

That varies tremendously both from market to market, as well as landlord to landlord. It’s one of the biggest variables. I would reach out to somebody active in your market even if they’re not SVN, pull a number of people. But ultimately, it’s up to the landlord and what they’re willing to do to secure that tenant. Does anybody else have insights to offer on that?

Mary Nollenberger:

Courtney, a lot of it also has to do with the current state of the space that you’re looking at. If it’s turnkey ready to go, I am just taking a day spot to market two that was actually at the end of a lease term and it’s fully, fully built out. If you feel as though you need to do TI changes, especially if it has to do with water which is a really expensive thing deal with, then we’re finding in our market at least that if a space is second generation and it’s built out with ADA compliant restrooms and it’s pretty equipped, that we can expect somewhere between seven and $10 a square foot, maybe up to 15, depending upon the landlord. But the strength of your tenants’ financials and their history in the business and what their resume looks like, how appealing they’re going to be to a landlord is going to give you strength for that tenant improvement allowance ask.

Neil Johnson:

Where are you located?

Mary Nollenberger:

It’s Mary, Phoenix.

Neil Johnson:

Oh, okay. There you go.

Courtney:

Yeah. The space they’re looking at, it was a former team mobile space that they [crosstalk 00:42:06] and they’ve actually… It’s a perfect space because it’s got a pure bar next to it, a juice bar and several other types of tenants that are in the wellness kind of market. So yeah. I mean, it’s pretty much ready to go. It’s mainly plumbing that would need to be moved and then they would want to build out a wall. But everything else, I mean, the flooring, the walls, everything looks pretty good. I’ll keep that in mind. Thanks Mary.

Mary Nollenberger:

Courtney, you’re also going to want to look at your HVAC load factor. Because typically, in salons where they create heat, need to have a good engineering component to the HVAC to counter the heat that’s created with dryers and things like that. Look at your hair electrical. You are definitely going to need plumbing infrastructure for shampoo bowls and things like that. So taking a pure retail use and converting it to salon space, you are going to want to have a more generous TI allowance than if you were bringing in another straightforward retailer.

Courtney:

Perfect. Thank you, Mary.

Mary Nollenberger:

You bet.

Neil Johnson:

Anybody else?

Tiffany Luongo:

This is Tiffany, I’m in Florida. I’m generally a buyer’s rep but I do a lot of office leasing and so forth. But one thing that we’ve been… If there is any TI to be done or anything to be built, we’ve even been putting force majeure including pandemic language in the LOI because it has delayed permitting and contracting. We’ve made sure that in anything we offer that those delays also delay our timeline.

Neil Johnson:

That’s a great point. Thank you.

Tim Herbert:

This is Tim Herbert from Jacksonville, Florida. I’m just going to throw in for a salon. You also want to look at the electrical panel, a joint needs to be upgraded. You plugged a bunch of blow dryers and it will blow circuits. So that’s a consideration going from straight retail to salon as well. And it’s expensive.

Les Byron:

Salon is actually a good example of something that is like restaurant space. Second generation restaurant space is always in demand. Because of all the expenses of the items that have been mentioned, salon space second generation will almost always have some demands. It’s a little easier to argue in favor of the tenant giving landlord participation on that, something that’s absolutely unique. Sometimes that infrastructure all has to be removed for the next tenant. Then it’s a little tougher sell to get strong TI dollars.

Neil Johnson:

All right. Anybody else? Deal stories, questions, you’ve got? Good group on the call. I’m really grateful for the discussion.

Walt Arnold:

Neil, it’s Walter Arnold. I just wanted to say that, these kinds of times and just like in 2008 and RTC days, there’s always opportunities to just be on the lookout for opportunities in your market. You can see a lot of things that are… A lot of negativity out there but there’s also, for brokers, this is when people really need our services. Just think about that and there will be a lot of opportunities in the market.

Neil Johnson:

Couldn’t agree more, Walt. Well, thanks again to everyone-

Courtney:

Neil, I have one more thing. This is Courtney. I figured since we had a little extra time. I know that you mentioned that there is a trend in people moving more towards the suburbs and having outdoor entry spaces which we’ve seen a lot of. In fact, my father, he has two investment properties that are exactly that and we’re almost at full occupancy for both office spaces which is great. But I was just curious if anyone’s seeing new trends of migration outside of the city. I know in the DFW area, we’re seeing developments happening further and further out from the main metro areas and I know we’re definitely a hotspot for migration. But I was just curious if people are seeing that and then it’s so, commercially, what types of commercial businesses are following those trends as people start to expand outwards? If we’re seeing certain retailers or certain developers going after the commercial markets and those areas.

Walt Arnold:

What was the question? I mean, what’s the basis?

Courtney:

Yeah. My question is, which retailers and commercial developers are starting to follow the trends of migration outside of the main metropolitan areas? For example, in Fort Worth, there is a development that my parents and I were looking at moving to called Walsh. It was formerly a ranch that is now being turned into a development that’s going to have eight elementary schools. It has, I think, 50,000 plus people that are expected to be in that area. I was just curious, if these types of communities, if other people are seeing these popping up in their market. If so, if they’re seeing commercial following and if they are seeing that trend, which types of commercial investors are going after that market to follow it?

Tiffany Luongo:

I can tell you one thing from Southwest Florida and this is on the West Coast, is that, we’re already the country. We’re seeing tons and tons of people move here from more congested areas. So we don’t necessarily have the suburbs versus the city because we’re not really a city. I mean, to give you an example, when our homes in Southwest Florida sold 100 homes just in May, sight unseen, from people moving from New York, New Jersey, Chicago, all these places, I mean, it’s pretty amazing down here.

Neil Johnson:

Courtney, with regard to the commercial component following residential growth, there’s some… This trend has been going on for suburban development for decades and it’s just a specialized version of it. I think you’ll see some of the predictable daily needs support. The grocery stores, hair salons, coffee shops, that kind of thing that drives traffic. And then, the more conventional retailers and convenience retailers, they’ll start following that. You’ll usually see hardware stores and the lumberyards and that sort of thing following too… Just a thought. But it’s a lifecycle, it takes while. They need the rooftops first, is a rule.

Courtney:

Yeah. Thank you. I think it was just mainly, I was curious if there was any particular, I guess, first mover type commercial businesses that tend to go in there and those types make most sense, I agree. I just didn’t know if there were any particular names to try to target to get people to move quickly into that commercial type environment once they get more information about it.

Neil Johnson:

Yeah. I think if you look at parallel communities and look at what brands are there, that’s often the best indicator of what will move into these other communities. It’s often a very regional kind of thing.

Courtney:

Thank you.

Neil Johnson:

All right everybody. Well, I’m going to let you get back to your day. Thank you for taking time on this call. Feel free to reach out to Walt or me at any point with regard to leasing questions. If we got the answer, we’ll try to point you in the right direction. Have a good rest of your day, stay healthy, hope you have a profitable rest of the year.

Courtney:

Thank you both.

Julian Banuelos:

Thanks, Neil.

Neil Johnson:

Thanks, Julian.