John Schupp often calls on the East Coast real estate rep for a large office-supplies retailer. Actually, the rep retired years ago, and Schupp—senior VP, development/project management for Atlanta-based Jones Lang LaSalle Retail (JLL)—enjoys keeping up with his old friend and soliciting his advice on issues related to Schupp’s work with the office retailer. “I always call him first,” Schupp said. “We chat about what he’s doing, and he suggests ideas to help work through leasing issues.”
“Maintaining relationships with retailers is more important than ever today for developers,” added John Bemis, executive VP and director of leasing for JLL. “It’s easy to have positive relationships when times are good. But relationships really count when the economic waters get choppy like they are now.”
Developers need to know if retailers are satisfied with their stores and leases. They need to know how sales are going and whether or not a retailer is contemplating changes in store-opening strategies. They want to know about it first. They don’t want to read about it in the trades—especially if the news is bad.
Relationships with retailers enable developers to track that information. Then again, forging relationships requires a special organization or a specially qualified leasing account manager.
Stanbery Development in Columbus, Ohio, for example, brought in a former retailer as a partner. Ray Brunt—Stanbery doesn’t use titles—handles retailer relations and leasing for the company. Brunt worked for Gap for 20 years. He managed stores for 10 years and then moved into Gap’s corporate real estate department. He knows how retailers think because he’s a retailer.
JLL and Developers Diversified Realty of Beachwood, Ohio, have taken the organizational tack, setting up national account programs that build and solidify relationships through annual portfolio reviews and consistent, regular communications.
One of them: Coming from Gap’s corporate real estate department, Stanbery’s Ray Brunt understands retailers’ issues. He knows what makes one location work better than another. And he knows many retailers personally—he came to Stanbery with built-in relationships.
During the 1990s, Brunt said, Gap rewrote the book on specialty leasing. “We were the 800-lb. gorilla, and we developed a number of ways to push back on landlords,” he said.
According to Brunt, Gap’s corporate real estate department formulated many of the clauses found in today’s retail leases. Take the co-tenancy clauses, for example. Gap would adopt the position that it wanted to be with, say, eight particular retailers in a new center. The lease would require the developer to sign, for example, four retailers from that list for Gap to go forward.
Gap pressed for other rights. The chain wanted the right to opt out if the developer didn’t lease a certain percentage of space. It wanted the right to terminate a lease, with reasonable notice and payback, if the store failed to reach a certain sales threshold. Finally, Gap wanted a say over its location in the project.
Following Gap’s lead, Brunt said, retailers have figured out where they can push and pull during negotiations. Brunt uses that knowledge to do his own pushing and pulling. “Some tenants may accept a higher percentage of leased space in return for two instead of four co-tenants,” he said. “We do small projects, and we might not be able to satisfy eight of 12 co-tenant requirements. But we could agree to raise the amount of square footage leased at opening.”
Organizational relationships: Of course, only a limited number of former corporate real estate executives from wildly successful specialty chains are moving to the developer’s side of the business.
So most developers manage relationships through a national-accounts program of one kind or another. Among the first developers to set up such a program, Developers Diversified assigns about five of the company’s largest and most aggressive retail tenants to each of 45 leasing people. They manage Developers Diversified’s relationships with retailers, focusing on needs, business plans, leasing and other issues.
“Before we started the program, we duplicated meetings, failed to follow up on details and shared information poorly inside the company,” said Robin Walker-Gibbons, executive VP of leasing and one of the founders of the Developers Diversified national-accounts system. “Now the national-account people coordinate everything.”
Account managers conduct portfolio reviews at the offices of each of their retail tenants twice a year. “This is a huge part of the leasing manager’s responsibility,” continued Walker-Gibbons. “What they learn helps us get out in front on issues.”
For instance, Developers Diversified’s national-accounts system detected the slowdown in store openings last year before the trade press got wind of it. “Our relationship program enabled us to learn about their programs early and make sure that we won’t be the one to get pushed back,” said Walker-Gibbons.
Another example: The national-accounts system picks up signals as soon as retailers get serious about a new-store prototype that might change square-footage requirements. According to Walker-Gibbons, an account manager, discovering such a change quickly sets about planning—with the retailer—what will happen to the older stores that will soon be too big or too small.
Getting to “no” you: “We do portfolio reviews about existing stores and also about development plans,” said JLL’s Schupp. “We want to gain our tenants’ trust so that they will feel comfortable talking to us about where their company is heading and where their new markets will be. Then if we see an opportunity that fits someone’s strategy, we can make a deal happen.”
JLL also wants to be comfortable enough to warn a retailer off. “It’s possible to build a much deeper relationship by advising a retailer not to do something,” said Bemis. “If you know in your heart that a deal is wrong and you advise against it—when it would benefit you to make the deal—that will solidify your relationship like nothing else.”