Creativity yields productivity

I apologize for the lag time in posts.  You see, I spent the last few days in Houston, Texas visiting family and pursuing opportunities.  Time will tell, how successful my trip actually was.  

As this posts gets more and more exposure, questions are starting to arise.  Such as, what is the overall cost to generate non-traditional revenue.  Man hours?  Administrative costs?  Liability insurance costs?  As with starting any business, there are going to costs associated with beginning a department or redirecting time efforts from a core business any individual was hired to do.  I will tell you, the first deal I negotiated cost my company approximately $1,500 in logistics, administration and maintenance.  Eventually, we were able to turn our red ink into black, but it did take some time first.

Therefore, I wanted to address any skepticism there may be about pursuing ancillary revenue.  Any new deal that you would consider, needs to address your costs.  In order for any revenue to fall to the bottom-line, it needs to address the time, effort, logistics, etc...needed to bring anything to fruition.  To handle this potential situation, I suggest assessing an administrative fee to your deals.  You funnel this money directly to your costs or consider another profit center.  Public companies, show these fees as another revenue stream as smaller ones will address the costs.  The method of handling the situation is irrelevant as long as you aren't losing money in the end.  

Pursuing ancillary revenue can be time consuming.  It is best to know how to handle the situation before addressing it.  Therefore, make sure the "tenant" bears as many of the costs as possible to increase your programs profitability.

Temporary Tenants

Temporary Tenants in real estate have been around since the beginning of time.  Just watch an episode of "Bizarre Foods" when Andrew Zimmern visits any east Asian or European country.  The concept is nothing new and has been practiced and successful for thousands of years.  Therefore, when I recently read an article about the impact of temporary tenants on real estate appraisals, I was shocked to learn how narrow-focused real estate professionals actually are on the overall subject.  Read the link below....

http://valustar.net/wordpress/2008/10/19/the-regional-mall-temporary-tenant/

Overall, a landlord that contracts with a temporary prospect believes in marketing and entrepreneurship.  Remember, at one time, EVERY store started as a temporary concept.  One objective of the temporary tenant industry is to diversify and upgrade the retail landscape.  While the article above seems to believe that the size of a tenant makes them credit-worthy.  I can ask 1,000 temporary tenants and retail entrepreneurs if they think the size of their store matters.  In most cases, the larger the space equals higher expenses.  Temp tenants just want to move product and grow sales.  They can operate from a cart at shopping centers or shallow store fronts.  In most cases, lease terms are more favorable for start-ups because of the inherent risk they are taking.  A new, unknown product / retailer must compete against the national clutter that exists in every shopping center.  

I will agree that most landlords that do lease to temp tenants, don't consider their tenants merchandising, marketing and / or promotional plans to drive traffic to the store.  If a temporary tenant is serious about their business, this will be a major consideration before going into business. 

Temporary tenants are necessary in retailing today.   They keep well established retailers focused on their customers and bring fresh and innovative products to market.  In most cases, a successful temporary tenant program can add millions to an appraisal.  Mr. Simpson, I applaud you for addressing the issue that temp tenants need to be focused on merchandising and marketing.  However, without them, the regional shopping center would be 100 times worse than it is today.

Real Estate Internet Marketing 2.0

The social network spectrum is rapidly changing the way everyone markets products, services, properties, events, etc...  Twitter, Facebook, MySpace, FaceFriend, etc... are exploding their membership bases exponentially.  How many real estate properties are marketing themselves on the internet effectively are few and far between.  

Having a website is essential for sure.  But its what you do with the site to make it exciting, embracing, unique is the most important issue.  While creating an informative website was good 10 years ago, it merely gets lost in the polluted landscape of the internet today.  To break through the clutter, you must use creative ways to drive traffic to your site.  

Many advertisers are focusing their efforts on using the power of social media in their overall marketing mix.  Commercial properties can use these powerful sources as potential revenue streams.  You can create promotions through the media outlets.  The major sports leagues are pursuing these options as ways to interact with their fan bases in innovative ways.  Malls, office buildings and other properties can use these networks to market themselves as well as their tenants.  While driving traffic through a social media outlet, properties can interact with a larger audience of consumers, shoppers or potential tenants unlike ever before.  

These "properties" within your existing website will be used as portals to access your property. Many innovative marketers are using these sites to communicate to customers unlike before.   I look forward to seeing more and more properties promoting themselves more effectively.  

Look to the sun to grow your bottom line

The use of solar power is not a new concept.  The use of solar power within commercial real estate is not a new concept.  However, the concept you can turn solar power into a revenue source is new.  Murray Shor, of Shopping Center Digest just blogged about the impact of leasing / development of the "Green" movement.

http://shoppingcenterdigestblog.blog.com/4629750/  

Major developers are listed in the article who all are pursuing these resources to green their buildings but the main reason is the fact they profit from it.

The Green movement has / will provide many significant revenue streams for developers and real estate owners as they begin to pursue these initiatives.  The main opportunity will be for owners to enter the energy business within their portfolio and re-sell the energy to their tenants.  

While geography will play a role into who can and will be able to take advantage of this option, the energy that can be stored and used to power buildings, malls and home... is significant.  In some cases, the revenue that will be generated is in the millions.  While a considerable investment will be necessary to purchase the infrastructure, the savings and revenue potential can justify the expense in just a few years.  Aside from the good PR that can come from you pursuits, why wouldn't you invest in the "greening" of your buildings?  Therefore, let the green movement put a little more green to your bottom lines.

Mother Nature can blow some cash your way.

The greening of commercial real estate continues to gain momentum.  Conservation of energy and saving money on energy expenses is top of mind for real estate executives.  A relatively new method of renewable energy wind power.  

The development of wind turbines to provide electricity for municipalities, homes and buildings is becoming more and more popular as utility expenses continue to rise.  Any property can install (at their cost) a wind turbine on their property in the hopes of reducing all or a portion of the power currently used.  I read an article from the Cleveland Plain Dealer a week or so ago about a property close to Lake Erie is considering a wind turbine for the property.

http://blog.cleveland.com/metro/2009/03/sheffield_lake_plan_wind_turbi.html

Consider the billions of dollars that can be saved on energy costs by investing in renewable energy.  The set-up costs will be high but the savings justify the expense.  The savings can be turned into a profit center if structured correctly.  Coastal, mountain and flat locations need to consider the benefits of installing wind turbines at their properties.   The benefits are clear.

Signs, Signs, everywhere signs!!

In today's ever cluttered advertising marketplace, advertisers and marketing agencies are spending millions of dollars a year producing and placing signs wherever someone will let them.  The real estate industry is no different.  Signage definitely has a place in commercial real estate as it still remains the most cost effective and easiest way to market your property, vacant space or service to the masses.  

However, property owners and managers need to consider what potential revenue can be generated from additional signage.  One example, is pylon, directional or monument signage.  Most leases have no or limited signage language included in the documents.  Therefore, if tenants, vendors or third-party agencies want to market themselves on your property, you can assess a fee.  Your fee should be considered based on the following details.  

1. Visibility of the sign

2. Liability risk associated with placing the sign

3. Potential incremental sales associated with placing the sign

4. Loss of business to existing tenants on your property.

5. Design of sign intended to be placed.

Based on these factors, you can assess a fee of your choosing.  Demand will also be a determining factor on your fees.  If sign is easily seen by many people on a busy thoroughfare, your fee can be higher.  Leasing signage space is a major revenue stream to real estate owners.  In some cases, signage fees can be equal or in excess of those generated by traditional tenants.  Consult your tenants to see if they need additional signage on the property.  Consult a local advertising company to see if they would / can consider your property for advertising.  

Prior to investing any money into the endeavor, you will need to review your existing leases to determine if this opportunity is restricted in any way.  Traditional advertising may be restricted but advertising your tenants or vendors won't.   Depending on the location, tenant advertising can generate between $200 - $500/month.  It all depends on the demand.

Good luck and get to know a good sign company!!!!

Enforce your leases!!

Every property owner wants to maintain a positive relationship with their tenants.  However, many property owners and managers are risking severe consequences by allowing tenants to take advantage of them.  Don't get me wrong.  The property functions much better when tenants and landlords get along.  However, that relationship can break very quickly, when the landlord is exposed to unintentional risk when a tenant conducts business that falls outside of their lease.

Leases are in place to protect tenants and landlords from conducting risky or perhaps dangerous business practices while operating at your property.  Therefore, if a tenant or neighboring property owner is considering pursuing something that falls outside of the lease language or easement agreement, assess a value, draft an agreement. obtain an insurance waiver and collect a fee.

While many landlords are turning these opportunities into profit centers, they started as a means to protect themselves from over ambitious tenants.  For example, consider during the holidays when many retailers receive an increase in merchandise.  Many of them, don't have space within their stores to store the extra product.  Also, very few leases provide for additional storage outside of the tenant's four walls.  In big box shopping centers, retailers have placed ugly, potentially harmful storage containers behind stores as a means to accommodate the increase in product.  These containers can provide harm to store employees, damage to your common areas where they are placed and third party vendors.  These containers are not included the lease and therefore can be a huge liability risk to landlords.  Some tenants place over 20 of these containers on your common area.  When they are removed, who is left to clean up the message and make repairs....THE LANDLORD.

Tenants are also coming out of their stores to conduct events and place additional signage.  I believe landlords should give their tenants every opportunity to succeed.  However, it shouldn't come at the expense of the landlord.  If something were to happen to a store employee, landlord employee, third party vendor, shopper etc... as a result of the tenant's unapproved activities, the landlord would be the one answering questions on the activity, not the tenant.  

My advice to all is monitor your tenants activities a little more closely.  Enforce your leases to the dotted and "i" and crossed "t".  You can make some money on these instances but the money you can save from lawsuits, attorney fees and any other legal strife that could come from unapproved tenant activity is countless. 

What lies beneath?

The insane gas / oil price frenzy that occurred during the summer of 2008 put several things in perspective for me.  First, we as a nation are way too reliant on foreign resources.  Second, we as a nation love a train wreck and bad news.

Throughout the United States, Oil and Gas companies are testing new technologies and drilling methods to extract the trillions of dollars worth of oil, coal and natural gas that resides nearly 1 -2 miles below the earth's surface.  Many of you know of the Barnett Shale located in Texas and the Gulf Coast.  Many property owners are realizing early retirement because they capitalized on resources that are below the surface of the land they own.  Those on the eastern half of the country are beginning to recognize the benefits of the Marcellus Shale.  This "play" (as the drillers will tell you) has enough natural gas to heat the United States for about 15 years.  The exploration of these resources are in their infancy.  If you Google "Marcellus Shale", hundreds of posts, groups and blogs will show up in the search.

While gas companies prefer to drill undeveloped land, drilling for gas on developed land is not uncommon.  There are several active gas wells on commercial property in northeast Ohio alone.  Oil and Gas leasing is a relative unknown in the commercial real estate world, which is why negotiations should be handled by a qualified attorney.  However, the benefits of the resources below the surface can equate to millions in found revenue from royalty shares or gas savings from the free gas offered by the company.  In some cases, the land owner can get into the gas business by reselling their free gas to their tenants at a discount to what their utility company would charge.

My suggestion to landowners of commercial property is to ask around.  My guess is that your neighbor has been approached before about leasing the Oil and Gas resources below the surface.  In the great words of Sarah Palin  "Drill baby Drill".  While I'm not a registered republican, exploring the resources below our surface is something all property owners should consider.

Behold the power of the advertiser

Ever since I was a freshman in high school, I had driving interest in the world of marketing and advertising.  I always thought that our varsity sports teams could be sponsored or have their venues bring in advertising dollars to supplement what was available for each team.  I would have sold our basketball gym to (at the time) Royal Chevrolet if the Ohio High School Athletic Association would have allowed it.  There was a need for non-traditional revenue and a partner willing to spend it with us.

The basic principal of advertising is to expose your product or service to a group of consumers in hopes of generating incremental sales of that product or service.  The example, listed above describes this summarized definition.  Royal Chevrolet wanted to sell more cars in the city of Aurora, Ohio.  Aurora High School was the epicenter of consumer activity for approximately 400 students and 2,000 parents, grand-parents, siblings and extended family members in the city.  It was a perfect match as the demographic of the high school matched that of Royal Chevrolet.

Every commercial property attracts people inside, in view of, around it, etc...  Therefore, every property has some intrinsic marketing value.  Windows, sidewalks, landscaping, parking lots / structure all have value as they are seen by millions of people each year. Creative advertising mediums are gaining momentum as advertisers look to get their message out to the masses in the most effective way possible.  In a retail setting, consumers have made a conscious decision to spend money to buy something.  Advertisers would love to impact a consumer at the point of purchase.  Downtown office buildings are visible by millions of people each year that drive, walk or ride their way to work.  They have marketing value inside and out.  Industrial properties are no different as they also hold a value.  

Commercial Real Estate pros need to determine what value their property holds.  There is a deal out there, you just need to find it.  If a small high school in Aurora, OH can attract marketing interest, nothing is out of reach.

One owners trash is another's treasure

Managing a waste program at any commercial property can be time consuming and frustrating.  Deciding on which trash hauler to use, frequency of hauls, compactor or no compactor, etc... is an issue that plagues every owner, property manager and investor of any commercial property at anytime throughout the year.  

While the issue may be a pain for some, it can be a revenue source for many.  Depending on the type, size and lease requirements that any property has, there is a potential to make significant ancillary revenue from your tenants garbage.  Many large international developers work with local, regional and global waste management companies to take over the trash hauling at the property level.  Not only does this save time and aggravation of the property manager but the waste hauler will share revenue to the property as a pad rental fee.  

Depending on the size and nature of the property this pad rental can range from a few hundred dollars a year to six-figure fees in some cases.  There are many waste haulers that are willing to implement a program such as this.  While this may cause the property owner and manager to incur an investment up front, the return can be significant.  

While your commercial property dumpsters may be a continuous source of frustration, there may be some cash to consider before signing sending out that next invoice to your tenants.  Take a look into your smelly, dingy, 2-ton crystal ball located at the rear of your property.  What do you see?  Trash or treasure?

Why pursue ancillary revenue?

In an economic climate such as America is experiencing now, commercial real estate executives are concerned on their bottom lines.  As they should be, every single day of their working career.  Everyone should.  If you're not, why are you in business in the first place?

I was exposed to the idea of ancillary revenue in commercial real estate at the beginning of my career.   I was looking for ways to not only justify a newly created position but methods to drive additional income at the property level.  While I was "raised" within the retail real estate segment, there are several different ways you can generate additional revenue at an industrial warehouse, office building, residential dwelling and a shopping center.  

There are millions of dollars of untapped, non-traditional revenue that are attainable across the world.  As long as you have an open-mind and a thirst for profitable properties, all members of the commercial real estate community should take advantage of lucrative potential available.  

Revenue sources are available in a number categories.  Among them are:

Telecommunications

Advertising / Media

Marketing / Promotions

Energy

Communications

Financial Services

Consulting

Retailing

While American real estate continues to struggle in a climate that doesn't favor it, we all need to pursue whatever methods are at our disposal to generate as much revenue as possible to make up for our losses and bring our properties back to profitability.

Take a walk away from your desks today and look at your properties.  What do you see?  I bet there's cash out there.  You just have to find it.