3 Innovative Ways to Solve Vacancy at Your Property
Vacancy is one of the biggest challenges in the operation of commercial real estate.
After all, vacant space is not generating income and therefore not helping a property to perform well or deliver NOI.
Vacancy has been a particular challenge lately because of the pandemic. With continued uncertainty surrounding the post-COVID environment, many leasing markets are not on track to fully recover until 2025. This presses the question: How can we solve the problem of vacancy, now?
Fortunately, there are good solutions available. As a national real estate investment and tenancy company with more than $45 million in transactional volume to date, Alpha Lease Management knows how to help property stakeholders minimize the impact of vacant space and keep their assets performing well.
1. View tenancy as an investment.
Often, CRE stakeholders need to spend a little money in order to reap larger benefits. Investing wisely in tenancy is a great example of this.
One way to invest in tenancy is by partnering with an experienced investment and tenancy firm like Alpha Lease Management. This allows owners and property managers to work with tenured professionals who will either occupy each vacant space or sublease and manage it – always with an eye toward long-term objectives that serve the property’s best interest.
For example, our new Tenancy on Demand program allows us to become a tenant-partner with CRE owners and operators in nearly any vacant or underperforming space, spanning all property types. Landlords pay an agreed-upon fee and are in return guaranteed a stable long-term tenant with the expertise to operate the space and add deep value.
Investing in tenancy with this type of partnership also takes the risk out of each space, as our firm uses it for our own needs/ventures or subleases it. In either case, we guarantee the long-term lease. The benefit of this structure is an immediate increase in NOI, delivering flexibility to the owner or investor to recapitalize, reposition, or otherwise reinvest in the asset.
2. Activate common areas, parking areas, and rooftops.
Commercial real estate features many spaces that are not traditionally considered leasable. Nonetheless, these spaces – including common areas, parking areas, and rooftops – can be activated to present creative leasing opportunities that generate income for owners. What’s more, these improvements can be done at little risk to property stakeholders.
For example, Alpha Lease offers a CPR lease that is structured as a net lease, giving owners the ability to deepen property value while increasing NOI. Rather than assuming the expense and risks of these changes, stakeholders transfer the risk and management to us, and we provide capital investment for these upgrades.
Through this lease structure, we focus on monetizing common areas while maintaining property aesthetics through interactive digital signage, innovative vending, micro-events, traffic analytics, and hosted meetings, among others. Also, without affecting existing tenants, our firm monetizes parking areas through electric vehicle charging, vehicle storage, food-truck rodeos, pop-up events, solar canopies, and more. And, to monetize rooftops, we install solar and arrange for agreements such as small 5G cell tower leases, outdoor advertising, naming rights, and even vertical wind turbines to add cash flow to an asset.
Activating these spaces via our CPR leases deepens property value while diminishing owner/operators’ risk and offsetting vacancy costs in a building’s traditional leased space.
3. Explore a Master Lease
One concern in trying to solve vacancy is that owners may quickly scramble to fill that space – and end up with a less-than-creditworthy tenant. Perhaps this tenant doesn’t pay their rent on time (or at all), and the landlord may have to wait months or longer before replacing them with a better tenant. Now, a small problem has snowballed into a bigger one.
A better solution is to become a passive investor by setting up a master lease with a firm like ours, which then assumes the task of making that vacant space perform. Alpha Lease’s clients, for example, benefit from our ability to customize a master lease with terms and rates that are negotiable based on the ideal outcome for the property. We determine this outcome through a fintech analysis using our 16,000 data-point TALGO algorithm, which calculates the risk of leasing a property.
Another benefit to setting up a master lease with us is that primary lease terms can reach 30 years – and often include annual increases. Also, in most cases, existing leases become subordinate to the master lease, which allows property owners to collect steady increases while we await periodic increases from other tenants. This structure allows active investors to become passive while providing all investors with speed, transparency, and ease.
Vacancy is a scary word for most property stakeholders – and it’s even more troublesome in our current pandemic environment. Luckily, there are some innovative solutions to solving vacancy now. By viewing tenancy as an investment; activating common areas, parking areas, and rooftops; and exploring master leases, property owners and operators can decrease vacancy, increase income, and improve an asset’s performance immediately and for the long term.
