P22 blog blog

Three tips: How to get lease management right and improve business performance

11 August 2021, by Rob Campbell

TwentyTwo’s Rob Campbell shares his three key tips to getting commercial property management right… 

In-house/out-house: Why does it matter?

For businesses with a single site or handful of sites, managing the lease or ownership responsibilities largely in-house can make sense – as long as there’s some specific property experience within the business or available from an external provider. 

For businesses with larger portfolios (10+ sites), the volume of activity and often complexity increases exponentially requiring either a dedicated in-house property team or more structured, external support.

In either case, you need to consider how effective your current arrangement is. Do you have the right level of skills and resourcing in the business? What systems and processes do you have in place to ensure you are planning and executing property-related decisions well? What opportunities are you missing? What risks are you exposing your business to? What additional costs are you paying for?

While you may be successful running your business (organisation/trust/not-for-profit venture), managing a portfolio of commercial property comes with specific challenges. And while you can make some of it up as you go, nothing beats experience.

The key ingredients for success: My experience and perspective 

I’ve been managing a diverse range of portfolios (either in-house or externally) for the best part of 25 years. This includes large businesses like HP, Bridgestone and Fletcher Building (with a wide range of property types and geographical spread) to smaller outsourced clients who only need support from time to time. This experience shows there are some key pointers to keep in mind if you want to ensure the property decisions you make truly support your business and don’t become a barrier for growth and change, or worst still, create unplanned risks and liabilities. 

Most businesses generally lease their properties as having money tied up in bricks and mortar is often not the best use of capital that could be deployed into core business. If you’re in this category, there are some key things to focus on. I think of them as the key ingredients for success.

Tip #1: Protect the tenure of the individual properties

Context: Lease tenure (ie. plenty of remaining lease term and ideally multiple rights of renewal) provide businesses with certainty and flexibility. In many cases, the physical location/presence is critical in the success of the business, especially retail or specialist manufacturing sites, for example. 

Questions: Do you have any lease expiry dates approaching? Do you have renewal options or are you at risk of needing to relocate? 

Risks: What are the risks and consequences of having to find alternative premises/property? How difficult will it be to find a suitable alternative? How much lead time is needed? Will the rental costs be similar or unaffordable? How will you fund the one-off capital costs to relocate and establish the new site (fitout, ITC etc)? What level of business disruption can you tolerate? 

Solutions:

  1. Hold reliable data on the key lease events such as lease expiry dates and renewal notice periods
  2. Have an automated process to alert you of these impending critical events to ensure you have ample lead time well before any decisions are made
  3. Continue to develop a forward-looking “plan” of what leases/sites you want to retain, which ones need replacing and where opportunities exist for refurbishment or additional sites
  4. Use this plan to help make informed decisions, well before the critical dates
  5. If you decide to stay or relocate, “stand up” a specific project to consider all the issues in play and undertake appropriate due diligence:
    • What is happening in the wider market?
    • What changes are needed to the current premises/site?
    • How do we create commercial leverage?

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Tip #2: Start planning early enough to maximise your commercial advantage

Context: Getting the best commercial outcome requires a carefully-developed plan well in advance of sitting down at the “negotiation table”. Creating commercial tension relies on having time, being clear on your minimum requirements, having multiple options in play and judiciously sharing information with the “market” to maintain control of the process.

Questions: Are you about to embark on finding new premises? Are you underway with a search process? Are you in the middle of negotiations with your current landlord or a new party? 

Risks: How do you know you’re getting the best commercial outcome? How do you measure the commercial outcome – understanding that it is more than the rent paid per square metre (rent, opex, incentive, landlord works contribution, fitout/capex costs)? How are you sure you are not unwittingly committing to inherent lease risks and contingent liabilities? Who do you trust in the process that has your interests at heart?

Solutions:

  1. Ideally, you will have developed a forward-looking “plan” of what leases/sites you want to retain, which ones need replacing and where opportunities exist for refurbishment or additional sites. This is a key tool for any business with a network of property (owned or leased)
  2. Use this plan to help make informed decisions well before the critical dates
  3. If you decide to stay or relocate, “stand up” a specific project to consider all the issues in play and undertake appropriate due diligence:
    • What is happening in the wider market?
    • What are our minimum requirements?
    • What changes are needed to the current premises/site?
    • How many realistic options do we have?
    • How do we ensure we cover all options, not just those the leasing agents tell us about?
    • How do we keep the current landlord and market “guessing” what our next move is?
    • What does a good deal look like?
  4. Create a structured process to seek alternative options from the market and evaluate these options on an objective basis, against financial and non-financial criteria, linked to the minimum requirements needed for the business (previously established)
  5. Keep at least two options alive and progress negotiations and further due diligence with each
  6. Obtain exclusivity periods for each to ensure you are not competing against others
  7. Lead the negotiation process with the shortlisted parties, using a commercial term sheet to hone the key commercial terms before getting legal support with drafting documentation
  8. Complete thorough technical due diligence on all options to fully understand the building/premise’s condition and risks, with expert technical support RC Outsourcing Blog Example2

Tip #3: Focus in getting the brief right

Context: Spending time on getting the brief right before engaging with the market is often considered an unnecessary step. How hard can it be? In many cases, clients want to rely on some high-level assumptions (location, space, timing etc) and then decide on the finer points at a later stage when they have real options to consider. In our experience, it is much better to spend more time planning.

Questions: Do you fully understand what your business needs in the future? How will the business change and, as a result, how will the premises/property you occupy need to change? Equally, have you considered how your business could use the property decisions/choices it makes to better support your business outcomes, be it brand awareness, revenue growth or staff retention? 

Risks: Are you starting a market search process to find new or alternative premises/property (to own or to lease)? Are you clear on what you are looking for? Are you clear on how this decision will support your business? Are you clear on how you will make an informed and objective investment decision? Are you at risk of making a decision on “gut feel” alone? What opportunities are you missing?

Solutions:

  1. Develop a robust Premises/Property Brief
  2. Spend time considering how your business will change and what will help support success
  3. Consider location in three parts (particularly in larger metropolitan locations):
    • What is the best location from a network perspective (proximity/adjacency to clients, markets, suppliers, industry or whatever other influences are important)?
    • What is the best location from an awareness perspective (which may not be important for some businesses who may want a more covert solution)?
    • What specific amenities are important in informing your choice (car parking, public transport, retail convenience, rail corridor etc)?
  4. Develop a comprehensive “space budget” to define how much land, building area, parking or other features you need based on your future assessment of the business needs, as this will help challenge your thinking and define your requirements more accurately
  5. Consider the quality, functionality and amenity needed for any buildings/facilities to be purchased or leased to ensure these match your business, health and safety and BCP needs
  6. Consider your business case parameters including annual cost, one-off capital costs and whole of life costs to ensure you have clear guidance on an acceptable commercial package
  7. Consider your timing requirements and develop contingency solutions in the event of changes or delays

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PORTFOLIO22 – What makes it different?

PORTFOLIO22 is TwentyTwo’s solution for tackling lease administration/property management for organisations with multiple commercial property sites, albeit retail, office, factory 

We take a more “business-centric” approach. It's not just about the lease and lease end dates. While they’re still critical, it's about what the portfolio is designed to achieve and how it can help your business succeed. 

There are obviously always events that you have to react to (we’re expert trouble shooters and independent negotiators). But the way we bring expertise to the table is in building a partnership. 

We're not just selling widgets. Our aim is to help clients understand how each individual property and network of properties can benefit the business over time. To help you understand if they’re maximising on the opportunities. Are the properties doing all they can do to serve your business? 

Then, as we're trying to help you grow your business or increase the velocity of your expansion or roll out – or perhaps scale back – then the more we understand about what drives your business, the better we can deliver a service tailored to what you need.

We’re not just another property management provider. Our service can be a much deeper experience and one that will actually help your business to thrive. 

FIND OUT MORE

 

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About the author

Aucklander, born in Glasgow. Biker. Photographer. Home renovation addict. Whisky.

As TwentyTwo's Auckland business leader, Rob is known for his innovation, obsessive customer service and for delivering complex property solutions. He provides occupiers with advice on premises procurement, major transactions, projects, and strategy to ensure their properties align with business direction. He has served in a variety of roles which have involved managing large commercial property portfolios, acquiring new sites, delivering projects, and managing the corporate real estate. Rob builds internal support, gets to the real issues, and reaches practical recommendations to support business decisions.

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