The Value of a Tenant During a Sale

Receiving an offer or pending renewal can seem exciting for any owner. However, when it comes to selling the shopping center, not all deals are created equal. In fact, it can affect the valuation process. For an owner, a vacancy can be a negative on the one-hand, and a value-add opportunity for a buyer on the other-hand: owners and buyers may have different visions and goals. Through our expertise in navigating such situations, our Shopping Center Advisers’ team provides solutions to our clients.

During the marketing and due diligence process, our team develops a strategy to position the property to various buyers. We offer a comprehensive national platform specializing in the disposition of multi-tenant and grocery-anchored shopping centers. As such, we understand the ins-and-outs of shopping centers including how to handle vacancies and pending leases during the underwriting and valuation stages. Then we craft a three-step marketing approach based on the valuation and ideal buyer pools to best position the property for a sale. Additionally, we understand that a shopping center is fluid and may undergo changes during this process. Before signing on the dotted line, however, it is important to understand the value of the lease and its effect on the center.

Lease Terms

An institutional owner may like long-term leases, for instance, or be willing to provide Tenant Improvement (TI) allowances in exchange for higher per square foot rents. Another owner may prefer shorter-term leases or provide free rent instead of TIs. When a vacancy is positioned to prospective buyers, we can leave it up to them to create a vision for the space and center with the idea of negotiating their own deal. We don’t want to rain on the leasing professional parades either. Rather, in our article How Leasing Agents Can Create Value in the Sales Process, we describe how teaming-up with leasing experts can “drive value to the overall transaction.” It becomes a win-win for all parties involved.

Fair Market Rent

During the sale phase, tenants may be entering into their option notification period and desire to negotiate the Fair Market Rent. Prospective buyers are underwriting to specific market rents as part of their valuation and offer. If negotiations begin to take place this could impact a buyer’s future negotiation power and ultimately, their sales price. Part of our team’s diligence is to review the lease terms before going to market. We’ll be able to spot potentially overlooked items and advise accordingly.

Team Management

We can often be an extension of your management team. Many clients have different departments for leasing, asset management, and dispositions. While the leasing team is off and running trying to get spaces leased, the disposition team is focused on the transaction and sale. We act as a bridge across your internal departments to help align visions and goals. In our recent article Why You Need a Transaction Manager Role, we detail how our team provides a “unique promise” of facilitating “clear and direct communication.”

While revenue growth is important to any shopping center owner, the number one goal during the sale process is the actual sale. More specifically, maximizing value along with securing the right buyer. If you are not sure how a prospective lease may impact your property’s value, contact us and we’ll be happy to provide our in-depth insights.

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