The Other Side

In General, Retail Thoughts on June 16, 2010 at 9:40 pm

I was in NYC earlier this week with Alex and Neil debriefing re: our first 5+ months of CityRetail.  It was a valuable exercise to step back a bit and take a look at the business.  One issue we briefly discussed is the following:

Does it make sense to add Tenant Representation work to the list of services CityRetail offers – i.e., we have been working on the landowner side to find retailers; what about working on the tenant side to find deals? This is a question that I’ve been thinking a lot about of late.  Here’s the threshold issue: we want to work with small, local owner-operated businesses but is it worth the brain damage of taking on a client, running around the city, providing advisory services, etc. for the potential of placing it in retail space that we (i) don’t have an ownership interest in and/or (ii) isn’t owned by a landlord that we have an ongoing relationship with. Being a broker on the retailer side is about finding the best possible space at the best possible price in the best possible location given the Tenant’s priorities and preferences. This takes patience and diligence and, if done properly, draws on multiple disciplines.  It’s work that I think we could do and do well but it’s work that takes time and, as with any small business, time is something that has to be allocated carefully and thoughtfully during the start-up phase. (read more)

Interestingly, we are in fact close to completing our first deal as a tenant rep (a sort of CityRetail experiment) and it has indeed taken a lot of time – from understanding the business model of our client to identifying viable opportunities to packaging the deal in a way to that will be valued by a Landlord.  It’s often harder to drive the deal from the tenant side because it is more of a bid than an ask.  When we’re working on a Landlord’s behalf we have clear directives re: deal terms, preferences in use and desired tenants.  We can target the exact operator the LL most wants.  On the Tenant side the process is flipped but add in competition (multiple tenants looking at same space) and a moving target (we don’t know exactly what the LL is looking for and there are often a lot of games played and posturing by LL brokers).

The most profitable brokers that work with tenants have clients that want to open multiple units.  Accordingly, there’s one due diligence stage with the opportunity to close many deals.  For better or worse, the tenants CityRetail most values and enjoys working with are those that are more likely than not only looking for one, maybe two, additional locations.  We work best with involved and committed entrepreneurs that typically do not have the bandwidth, capital or systems in place (or desire) to open multiple units.  It’s these retailers that often have the most flexible business plans, can survive downswings in the market and engage most actively in the community.  No doubt there’s an important place and value add to neighborhoods in connection with national and regional chains but dealing with such retailers certainly isn’t our forte – admittedly – and there are A LOT of brokers chasing these tenants, understandably. I do not want CityRetail to be just another retail brokerage chasing the big deals and the big businesses.

In light of the above, the issue of Tenant representation is not so simple for CityRetail and needless to say Neil, Alex and I did not come out of our meeting with a clear vision or strategy on this point. Some tell me it’s an obviously next step for the business but I’m not so sure.  Regardless, my gut tells me that we can find a way of making Tenant Representation work on terms that we are comfortable with.  For now though, it’s clear to me that we can make the most impact and grow the business faster, more responsibly and most efficiently by focusing on representing and advising landlords that have retail clustered in areas that we have superlative market knowledge of and said landowners are willing to make a long-term commitment to making a vibrant urban place.  This has been our approach in Kendall.  I’ll be spending the next couple months taking a pretty academic look at how/if we can make Tenant Rep work, as it would be a lot of fun and is a great opportunity to work hands-on with entrepreneurs. For now though, you can, as always, find us in and around Kendall Square – still much work to be done.

  1. […] of my favorite posts from last year was “The Other Side,” wherein I wrote about the topic of (and challenges with) working for tenants versus […]

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