April 7, 2022
Joe Fairless
5 MIN TO READ

How to Get a National Tenant in a Retail Shopping Center

Deep in the heart of Texas, Alan Schnur is a true residential and commercial real estate leader. A forward thinker and a success many times over, Alan owns warehouses, medical complexes, office buildings, thousands of housing units, and retail shopping centers featuring major national brands.

Now based in Houston, Alan started out on Wall Street, and he’s been involved in commodities markets for more than two decades. Early in his career, he started purchasing single-family houses. As time went on, he kept diversifying his real estate holdings.

It may surprise you that Alan continues to seek out shopping centers to buy. With the rise of online shopping, brick-and-mortar stores have acquired a bad rap among many entrepreneurs. Even so, Alan remains a strong champion of old-fashioned retail.

 

The Benefits of National Tenants

Alan feels the poor reputation of physical retail doesn’t reflect reality. Yes, he avoids purchasing indoor shopping malls, which are definitely struggling. At the same time, he sees strong potential in shopping centers.

A shopping center, of course, is a plaza with a group of shops, each with its own outdoor entrance.

Alan believes that you can purchase a shopping center, attract a major national tenant such as McDonald’s or Krispy Kreme as an anchor, and then enjoy robust profits.

In fact, Alan asserts that his national tenants — brands like Starbucks, Burger King, and T.J. Maxx — are basically recession-proof. After all, they’ve survived bad economic times, and they’re financially well-positioned for whatever lies ahead.

Therefore, such a company can protect an entire shopping center during a downturn in the economy.

In addition, these major tenants tend to operate large stores. For instance, an average T.J. Maxx measures between 25,000 and 45,000 square feet, perhaps 20% of a shopping center’s total area.

Thus, with such an establishment, you’d need fewer tenants to fill up your other available spaces.

How could you attract a major national tenant, though? Let’s look at Alan’s two primary strategies for doing so.

 

1. The Ideal Location

As with all commercial real estate, location is of the utmost importance for a retail shopping center. When you want to buy one of these properties, try to find a location that fits the following description:

  • It’s in the center of a town with a dense population.
  • At least 30,000 vehicles — maybe as many as 80,000 — pass by every day.
  • There are hard corners nearby, where people must make left and right turns.
  • There’s a signalized stoplight close by. That way, instead of zooming by, motorists will have to stop. They’ll look around, and they’ll spot your center.

On top of all that, it’s crucial to match your location to the right brand.

For instance, consider the population of the town where your shopping center is located, and try to find a national tenant that’s popular with those demographics. In particular, the average household income can be an important statistic here.

 

2. The Right Leasing Broker

When you’re ready to look for a retail shopping center, a leasing broker is a key connection. Outstanding brokers have strong relationships with many national retail brands.

A good broker can help you attract an outstanding national tenant. This professional can also work out the terms of a five-year or 10-year lease with that company. In exchange, that person will earn a percentage of the lease; brokers typically take 3% to 6%.

Incidentally, Alan’s T.J. Maxx store — which happens to be one of the company’s best-performing shops — has an ongoing five-year lease. T.J. Maxx may renew it at any time.

To find a great leasing broker, try to attend all of the retail industry networking events you can. Also, be sure to join the International Council of Shopping Centers (ICSC). Founded in 1957 and based in New York City, the ICSC is the world’s top association of retailers.

Alan likewise depends on software from CoStar Group, a commercial real estate information company. The CoStar program provides a great deal of information about leasing brokers. For instance, you could use it to find a list of the top five leasing agents in any given region.

Moreover, don’t forget to ask other retailers you know who their leasing agents are.

 

A Booming and Enduring Business

Here’s a more general piece of advice: Alan believes that people who own shopping centers — or any other type of commercial real estate — should stay open-minded. They ought to remain coachable throughout their careers.

For sure, there are all kinds of tips you can gather from people you encounter: your leasing broker, your tenants, your colleagues, your employees, your competitors, and so forth.

Plus, when you’re preparing to buy a shopping center, it helps to be optimistic. Fortunately, there’s good reason for optimism. Alan insists these centers are more lucrative than housing units.

After all, with apartments, the building’s owner must pay for the maintenance. But, with a retail shopping center, the tenants pay for expenses like replacing cracked windows and broken air conditioners.

In fact, with Class C housing, Alan keeps approximately 20%–40% of the money he collects from tenants. On the other hand, with each retail shopping center he owns, he keeps about 90%–95%. It’s a staggering statistic. And it just goes to show why shopping centers remain so attractive to brilliant businesspeople like Alan Schnur.

 

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

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