Category Archives: Retail

Commercial Leasing: Hidden Tenant Costs That Tenants Shouldn’t Pay

When leasing commercial real estate space of any type, there are many ways for landlords to hide extra costs from tenants that tenants are usually not aware of.

Two of the most common ways to hide such costs are related to the tenant’s share of operating expenses (or NNN or CAM) and measuring the building.  Retail tenants in particular have to be extra careful here as they have high exposure related to NNN expenses because they pay a direct share of NNN expenses and not just increases over a base year such as is common in office and many industrial leases.

If tenants aren’t careful to use a broker that understands the operating expense share, this cost to the tenant can be quite large during the lease term.  Many times this costs starts out low and then later on in the lease gets quite high.  It is best, in my opinion, to negotiate an overall annual cap and also have a list of expense exclusions that aren’t reasonable for a landlord to include as part of the tenant’s share.

An example of unreasonable tenant expenses would be for earthquake insurance.  Earthquake insurance usually has a deductible of 20% of the entire property value and is an expensive type of insurance to begin with.  It would be a shock for a tenant to receive a bill for their share of a deductible that reaches into the millions, but this is exactly what happens in the real world after an earthquake hits.  There are many more expenses like this that should not reasonably be part of the tenant’s share.  Some more common examples include: Common area ADA upgrades, capital expense replacements and renovations, insurance deductibles in excess of $20,000 for any particular policy, including new  expenses in future years that weren’t part of the original base year (for office leases) , and adding costs that aren’t really necessary like artwork, etc.

Measuring the building is another area where landlords can pad the numbers that will result in a higher rent to the tenant without a tenant even knowing it’s happening and  this happens most commonly in office buildings.

Landlords can and usually do include the tenant’s share of the common areas as part of the tenant’s rent.  This is called a common area load factor and increases the actual or usable square footage of the premises (and therefore the rent) leased by anywhere from 5-20% and sometimes more.  Some of the common areas are legit and some aren’t.

I recently found one industrial landlord adding 5% to their usable square footage numbers just because they had an exterior overhang on the building even though it was not enclosed space.  Another office landlord blended two methods of measuring a building and used the average overall load of the building for the first and second floors but the actual load of the building for the third floor because the load numbers were higher this way.  When I discovered each landlord doing these things they both reduced their numbers so my client was able to save rent in the percentage that the load was reduced.  This makes sense because a tenant pays rent on the usable square footage plus the common area load (called “rentable square feet).  So, if the load gets reduced –so does a tenant’s rent.

Do any of you have stories like this to tell of landlords padding their numbers?  Unsure of whether or not something you’ve experienced falls into this territory? Comment and share your stories below!

Are you concerned that you might be unaware of some of the same things happening to you?

Feel free to contact me for help on these matters at 805-217-0791 or david@djmcre.com

HOW LANDLORDS CHEAT TENANTS WHEN MEASURING THEIR LEASED SPACE

When was the last time you measured your leased space before signing or even renewing your lease to make sure that the square footage is correct?  You probably never have.  The landlord usually tells you what the square footage is and you accept it without taking this important step as obvious as it seems.  You should always measure the usable square footage of your leased space before you sign or renew your lease.  Measuring the common areas of a building is not usually practical though as it’s more expensive, complicated and time consuming to do this.

As a tenant leasing space, you usually pay on rentable square footage (RSF) but only actually use what is inside your space.  This inside space is called usable square footage (USF).  The RSF usually contains something called a load for the common areas.  This load is your share of the common areas such as restrooms, corridors, stairways, etc.  Most loads in office buildings are between 15-20% of the USF and if they exceed this number the building can start to become pretty inefficient.  Retail and industrial users should not have a load at all or a small one at best unless for some reason they have substantial common areas which aren’t the norm for these types of buildings.

I can’t tell you how many times I have found that the landlord has unreasonably padded the square footage number especially for the tenant’s share of the common areas.  Items like roof overhangs, penthouses, elevator shafts, etc. have been included.  Once I discover the padded numbers, I am able to get a reduction from the landlord on either the square footage and/or rent.  Buildings are valued on square footage so the more square footage the higher the rent and the higher the value of the building.  This means that the landlords usually want to maximize the square footage anytime they can.

BOMA 2010 is the current architectural standard for measuring buildings that landlords like to use but it contains optional items that can be added to the common areas like roof overhangs that many times should not reasonably be added.

It is not always easy to figure out how a landlord has cheated or creatively measured their building and your space.  Landlords usually hate to disclose this information.  But you should always push the landlord for full disclosure on this issue and require them to send you their measurement calculations.  Even then, you need to have someone with experience in this matter review this information to verify that it has been done correctly.

Hiring a broker with experience in measuring buildings can help.  It always pays to have your own broker represent you; especially one that is knowledgeable in this area and in other areas related to landlord profit centers that most brokers aren’t aware of or simply don’t have experience with like operating expense reconciliations and invoices.  Hiring the right broker and taking the time to figure out whether your square footage is correct or not will usually be worth it and you will save money.

WESTLAKE PROMENADE RESTAURANT UPDATE FOR PREVIOUS MACARONI GRILL LOCATION

Here is latest update as of March 31, 2015:

The previous Macaroni Grill location at the Westlake Promenade at the corner of Thousand Oaks and Westlake Boulevards is being split into two different spaces.

One space will be smaller and for a nonfood tenant (Sophora, a cosmetic/hair retailer) and that lease has already been completed and construction is underway.

The remaining approximately 4,200 square foot is being marketed as a restaurant space but there is not pending deal for this space so it’s yet to be seen what it will become.

Restaurant News for Agoura Hills and Westlake

Westlake Village: The Old Plug Nickel location (now a wine tasting bar called Cuvee Terrace) in WLV is being sold and leased to one of my clients that has a couple of very high end successful Italian restaurants in other cities.

The vacant space in the same center as Lure Seafood just past The Counter location has signed a lease for a New Zealand Pacific Rim type restaurant called Aroha that is one of my clients.  In the old 90210 Pho location in this center to the left of The Counter, a new restaurant called Kaze which somehow fuzes Japanese and Italian foods together signed a lease.

In Agoura Hills, Vincitori Italian (owns Spumoni in NP also and replaced China Star here)  just opened up recently in the Agoura Hills City Mall where the Agoura’s Famous Deli is and there will also be a new Kosher Israeli restaurant opening in the next couple of months just to the left of this Deli.  I am involved in both of these deals.

Padri’s will be opening up a high end Mexican restaurant in the Whizzins Center where Latigo Kid used to be in the next couple of months.  Latigo relocated to the old Alamo location in the Vons anchored center at Kanan and Thousand Oaks Blvd. in Agoura Hills.

Calabasas: The old Red Robins in Calabasas is being leased by the Agoura Famous Deli owner and it’s yet to been seen what it will become.

Westlake Village: The Gelsons/Sprouts/Vons center in WLV (all owned by one owner) is performing a 25-million dollar renovation and is going to not only remodel but also build new buildings in some of the parking areas as well as try to connect all 3 different plazas into one.  New restaurants/food uses coming here are:  Leilas (rumor only, not confirmed), Mendocino Farms, Pitfire Artisan Pizza, Le pain Quotidien, Pressed Juicery and Firefly.   And here is what the new plaza will look like with a list of current and new tenants:   http://s.lnimg.com/attachments/52094D72-3578-4790-A932-A1142E78AB9C.pdf.

Besides me representing Tifa Chocolate and Gelato for a potential second location at the new Target center in WLV called The Shoppes at Westlake, here is what else is going on at this center:

Target is under construction with a July 25, 2014, grand opening date and they own their land.  The goal is to get all other Tenants open on or around this date, with the exception of buildings B and E, which will be later phases delivered in September.

Here is a website link that will show you a site plan for each building so you can see where each tenant is going in this new center.

Building J – In N Out

Building G

  • Suite A:  Hook Burger
  • Suite B:  Negotiating with several food users
  • Suite C:  In Leases with a sit-down seafood restaurant
  • Suite D:  In Leases with a dessert tenant

Building F

  • Suite A:  In Leases with a sub sandwich tenant
  • Suite B:  Greens Up!
  • Suite C:  Olio E Limone Ristorante
  • Suite D:  Olio E Limone Pizzeria & Enoteca

Building C

  • Suite G:  Los Agaves
  • Suite F:  All Tressed Up (blow dry bar, also offers make-up application)
  • Suite E:  In Leases with a wireless tenant
  • Suite D:  Endless Beauty (high end beauty supply)
  • Suite B & C:  Salon suites tenant (haircut and color services)
  • Suite A:  BCBC Nail Salon

Building D

  • Suite A:  Negotiating with sushi concept
  • Suite B:  Negotiating with women’s apparel
  • Suite C:  Negotiating with a jewelry store
  • Suite D:  Negotiating with a home goods boutique
  • Suite E & F: In leases with a men’s clothing store and children’s concept, but may relocate both users to accommodate a microbrewery we are negotiating with
  • Suite G:  Jeannine’s Marketplace

Building B (this is a second phase of the project, which will be delivered in September)

  • Suite H: Tilly’s
  • Suites A, B and a portion of C: Medical Use

Building E (this is a second phase of the project, which will be delivered in September)

  • We have a lease out for signature with a 1,000 SF user, however.  Will have several food and retail tenants.