ICSC European Retail Property School

Making the Deal: Salesmanship and Structuring Special Deals

10.07.2014 Berlin - Germany

Klaus Striebich ECE Projektmanagement GmbH & Co.KG Managing Director Leasing Mail: klaus.striebich@ece.com

LEASING

• What is „leasing“ ?

• What is the target of „leasing“ ?

LEASING

• Leasing is ... „selling“ (do you know what to sell ?)

• Leasing is ... creating income for the investor • Leasing is ... understanding the customer (all 3 of

them)

• Leasing is ... handling of supply and demand

„Future Trends In Leasing“

“main problems“ of Retailing :

1. Knowledge , what the shoppers want.

(offer/assortment)

2. Delivery , at the right time. (availability)

3. Demand creating (no longer ´just distributing´).

(mise-en-scene)

„What is a „shopping pleasure“ ?“

Shopping = satisfaction of wishes and desires

„What is a „shopping pleasure“ ?“

How will we shop tomorrow ?

What´s doing well in future retail ?

… from till now/past to future … * products feelings

* goods informations

* Spend money spend time

* fixed location/spot fixed demand

„real values“

„ value of goods“

What are the retail challenges ?

What are the retail challenges ?

* Bricks & clicks

* fragile consumer behaviour

* Lifestyle changes - mobile communication - globalisation

What are the retail challenges ?

* multi-sensoral environments (light, taste, smell,…) * e-commerce = multi-channel-shopping e-tailing = cross-channel-shopping

(pickup-station, flash shopping, …)

Customer- Orientation

Verticalisation Systematisation

Retailer

Loser

Outperfomer (Emotion+System)

System-Freak

High

High low

low

Retail 2020

… the phenomenon :

… the phenomenon :

„ ... this is not the way shopping-center should look like …“

„… something´s missing !“

I. SALESMANSHIP

A. Understanding the Deal B. Deal Presentation

A. Understanding the deal

1. Define the project 2. Define the prospect 3. Elements of the deal

1. Define the Project

a. Define the Catchment Area i. Economic / demographic study

b. Centre Definition i. Type, Size , Positioning, Merchandise Mix

c. Financial Definition i. Rent Roll / Estimated Rental Value (ERV) ii. Allowance Budget, Extras

d. Timeline i. Initial Date / Duration / Store opening / After Sale follow up

2. Define the Prospect

a. Who do you want ? i. Type / Experience / Size

b. Where are they located ? i. Canvassing / Visit other markets

c. What business do they operate ? i. High End / - Fashion / - Design / - Footfall

d. Why would they want to be there ?

3. Elements of the Deal

a. Working with a business plan b. Making Centre Forecast / Rent Roll c. Financial Parameters

i. Rent / Indexation / Extra-Incentives ii. Construction / Allowances

d. Buisness Parameters i. Competition ii. Terms

e. Merchandising Parameters i. Permitted Use / Quality ii. Display – Visual Merchandise / Fit-Out Approval

B. Deal presentation

1. How to sell a. Opportunity vs. Space / Creating Demand

2. Whom to sell to a. Global, national, regional chain, local businesses b. First time retailers – start-ups / established vs. New

relationship 3. Sales Presentation

a. To tenant representative b. Real estate committee c. Landlord representative / asset management / board

4. Triggering Shop-Fit Allowances a. Situations / Future Plans / determing Limits

II. CLOSING THE DEAL

A. Fact Sheets / Head of Terms B. Responsibilities

1. Legal Terms (attorney – sales person) a. who talks to whom b. Should attorney close

C. Techniques 1. Negotiating / Execution

D. Win-Win 1. Dealbreakers (for the landlord or the retailer) 2. Dealmakers (for the landlord or the retailer)

examples : Floorplan – Tenant Mix Handout brochure Center Head Of Terms Rent Roll ...

Rent Roll A summary listing of all spaces in a Shopping Center, vacant

as well as occupied for quick reference and full disclosure. Information listed here includes tenants names by Retail category, size of each store, fixed minimum annual rent, the term of each lease (including commencement and expiration dates, the annual percentage rent breakpoint for each tenant, and the percentage rent rates as well as other informations.

Ideas for closing sales deals

Timing / Patience : Time is your real „competitor“. Dealmakers : transparency, reliability, directness Dealbreakers : no good preparation, time pressure, no

understanding, ...

Ideas for closing sales deals

„Alternatives“ / „competitive situations“ : Dealmakers : creating alternative ideas, ... Dealbreakers : „blackmailing“,

III. CASE STUDIES

1. Moving Existing Tenants / Leasing Optimization 2. Replacement of weak Tenants 3. Introduction of New Tenants 4. Applied Principles 5. Revenue Optimization 6. Space Optimization – (less storage, dividing store,…)

7. Rent Optimization – (rent models, step up/down, optimistic vs. pessimistic, …)

Construction

Leasing

Center Management

Finance

Architecture

Development

Leasing

Das Bild kann zurzeit nicht angezeigt werden.

Increasing competitive

pressure

EXTREMELY VOLATILE

TENANT MARKET „smart shopping“

Intensive network between

the tenants

No more “Coca Cola”

formulas

Higher requirements

of the investors

Due to the market requirements, the pressure on the LS activities increases

The most significant number in leasing …

•… is the turnover, the sales.

Function/Role of a Leasing Manager

…TEAMPLAYER

Leasing as marketing department

• Creation of leasing concepts (branch and tenant mix) • (Re-)Leasing to new tenants • Restructurings / Optimization • Working out lease and economic calculations • Tenant acquisition • Continuous adjustment of the branch and tenant mix • etc.

Function/Role of a Leasing Manager

“Leasing is Marketing!”

Marketing concept =

Leasing concept on the basis of an optimal branch and tenant mix

Principle of the leasing strategy is … : “Optimum target of Leasing”

the correct area for

the correct branch with

the correct tenant at

the correct location of the center under

the correct conditions.

Basics / principles:

“The right mixture of branches and tenants … = right number, with the right size, the right level, and the right assortment of well-known (large/anchor) tenants, qualified specialised shops, from supra-regional franchisers and successful retailers from the region.”

The product that is marketed is

• the shop

• the site

• the concept

• the turnover opportunity

Steps of the leasing of new buildings • Site and competition analysis • Center area concept – first-time leasing • Branch mix and distinction of assortments • Determination of tenants by priorities • Active leasing – leasing rate • Permanent control of the lease calculation • Development of leasing alternatives • Planning meetings/consultation of the tenant till opening

Function/Role of a Leasing Manager

Leasing during project implementation

1. New location idea

2. Development phase

3. Creation of building rights

4. Awarding / beginning of construction

5. Implementation phase

6. Opening

7. Operation

8. Optimisation / restructuring / extensions

Leasing during project implementation Development phase

( 1 ) What is the present market situation?

( 2 ) Are there new (market) development tendencies?

( 3 ) Who would be partner (in 3 years)? …

Leasing during project implementation

Creation of building rights

Are there restrictions?

- max. sqm retail sales area

- restrictions in terms of assortment

- other requirements (external entries, fire protection…) …

Leasing during project implementation Awarding / beginning of construction

( 1 ) Are there connections relevant for the awarding?

( 2 ) Are higher restrictions to be expected? …

Leasing during project implementation Implementation phase

( 1 ) Leasing according to (planning concept)

( 2 ) Modifications

( 3 ) Alterations of concept

Leasing during project implementation Opening

( 1 ) Can all tenants open?

( 2 ) Do we want all tenants to start?

( 3 ) Will all shops be open on the opening day? …

Leasing during project implementation Operation

( 1 ) What is the development of turnover in

- the first days, weeks, months?

( 2 ) Have expectations been met?

( 3 ) What can be improved? …

Leasing during project implementation Optimisation / restructuring / extensions

( 1 ) What can be improved?

( 2 ) How can the mixture of branches be further optimised?

( 3 ) Are there potentials for extension? …

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Principle of Leasing :

Convince by performance !

„The only way to build trust

in a brand is a face !“

- location, location, location -

High street

Example : Braunschweig

Anchor tenants

Anchor tenants Highly frequented zone

Targeted shoppers

typical structure of a shopping-center

… the use of the mall

Architecture - urban development

Architecture - Function

Exterior design

Lighting- and colour-concepts

facade I materials

Fascination

Interior design -atmosphere

Interior design - details

Interior design - secondary rooms

„The most important product of each economic system – the consumer“ Werner Mitsch

„Who are the customers of a shopping-center ?“

Customer 1

Shopping- Center

€ 50 Mio € 1 Mio € 40 invests leases spends

Customer 2

Customer 3

Actual trends ... in Shopping-Center Leasing :

Higher (Shops-) Variety.

(Shop-)Size matters.

Branches / verticalisation.

Crossborderwise expansion.

Strategical Partnerships.

Market changes are getting faster.

Actual trends : „this is what retail has to take care of it ... „ : Internationalisation.

Specialisation (Focussing on Product- and peergroup)

Retail-Brand vs. Supplier-Brand E-Commerce and Teleshopping (Multi-Channeling)

Informationstechnologies (Internet, RFID, …)

Actual Trends : „in Shopping-Center-Leasing“ :

1. „Basic Principles“ ... are imprtant yesterday, today and tomorrow

2. „Circulation of success“ : - Shopper is coming (again), - and is generating better sales, - Tenants are gaining better results,, - and is able to pay better rents. - Investor/landlord is reinvesting – makes it more attractive ...

- „Center is doing well and better !“

Course of lease contract negotiations

1. First contact 2. Informative talks 3. Follow-up action 4. Negotiation on definite area 5. Contract negotiation 6. Conclusion of offer for lease contract 7. Alterations 8. Signature

Time required : 3 – 24 months

Determination of a branch-specific capability :

Determination of rent Analysis of market situation - comparison of locations - market prices (e.g. pedestrian area, centre locations,...)

Determination of rents per „capacity“ ! - branches - variables for calculation - area required - layouts - turnovers...

Consequences for “Shopping-Center-managers” :

• Adaptability to : •Speed in retailing (uniqueness ...) •New demands (sizes, shape, location ...)

•New Trends/assortment

• Creating of : •„offer structures“ •„additional benefits“ for retailers •„Event-quality“ (Architecture, Branchmix, niveau, ...)

• Having always the „customers“ (people) in focus !