Hey Retail Investors….Did You Get Your Letter Yet?

by Jeremy Cyrier, CCIM on February 20, 2009

You walk to the mailbox. Inside is a letter from one of your tenants. Expecting a check? You tear it open, skim it, get that sinking feeling, and then re-read it line by line to see if what it says is really true…

Saturday night, I bumped into a well recognized entrepreneur (let’s call him John) who’s achieved tremendous success in the retail industry. I’d seen him on television, been to his stores, furnished my office and home with his products and admired his marketing and advertising acumen as well as the experience his company created for its customers. He’s been successful in competing in price, service, and providing an experience that brings people back again and again. In fact, my partner told me that his wife walks the stores with her friends just for fun.

John and I wound up striking up a conversation. He asked me about the commercial real estate market, what was going on, and how anything is really being priced these days. He added that he had just put in a bid on a $10M building that he believed he could now buy for 30 cents on the dollar. “Crazy.” He said.

John asked, “Why the gap in pricing and what’s going on out there?”

There’s a lot to it.” I said and went on to explain. We discussed the market conditions, John’s competitors, and how to value assets in such an uncertain economic environment.

Then the letter conversation began.

I told him that a client had recently called us asking for advice. Subway had sent him a letter. It said they’re either going to close the location or pay 25% less rent. Then there was a fellow CCIM who recently sent a broadcast email to our CCIM network looking for help with her client who owned a free-standing Starbucks location in Texas who had received a letter from Starbucks stating that he had 2 options. Agree to lower the rent by 25% or they would close the location.

John topped it off by adding that one of his largest competitors in the area, Sleepy’s, was up to something similar. He heard that they sent a letter to 600 property owners telling them they were going to start paying 25% less across the board on their leases. Imagine the results…. See more on this topic here.

What a shame.

What about you? Have you received any letters? If so, from whom?

And if you were facing either vacancy or receiving 25% less rent, what would you do?

About the Author:Jeremy Cyrier, CCIM is a principal with MANSARD Commercial Properties and member of the CCIM Institute faculty. He offers advisory services and brokerage expertise to commercial real estate owners and tenants. You may reach Jeremy at Jeremy@Mansardcre.com.

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