When the COVID-19 pandemic struck in the spring of 2020, more than 200 of the 800 tenants of properties owned by Nicola Wealth’s real estate funds requested rent deferrals. Their employees were barred by public health orders from coming in to work. In many cases, the companies’ own revenue streams were interrupted, and they had to cut costs to survive.
“I’ve never worked harder in my life,” recalls Sveto Zvijerac, Director of Leasing. “Those were really some gut-wrenching conversations with tenants.” The real estate team set up a deferment committee to assess the requests and separate those tenants that really needed rent relief from those better positioned to pay up. The committee ended up granting deferments to 120 tenants, virtually all were able to stay and once all was said and done, 99% of the deferred rent was recovered.
“If it were just us versus them, we wouldn’t have had that success,” Zvijerac says. The episode says a lot about Nicola Wealth’s approach to leasing and how it contributes to the growth, returns and stability of the real estate portfolio.
It may seem like a formality, but leasing is critical to the funds’ success. “Without tenants in the buildings, leasing the space, the funds don’t work. The returns aren’t there,” he says. “We operate in an incredibly competitive environment. We have external brokers calling our tenants every day.”
Whether in office, retail or industrial buildings, most leases last three to five years. Zvijerac, his colleague Roz McQueen and Nicola’s various asset managers don’t wait until six months before they expire to contact tenants about renewing. They have a program to call or meet each one on a systematic basis throughout the term of the lease.
The team’s key tenet is “don’t give tenants a reason to leave,” Zvijerac says.
Inevitably, some tenants do leave, often for reasons out of the landlord’s control. If a tenant needs a larger (or smaller) space, the team will try to find a more suitable suite in the same city. “We have the scale now where we can keep tenants within the portfolio,” he says. While some landlords are loathe to spend money updating vacant space, “we take it upon ourselves to make the space as leasable as possible. We call it market-ready work.”
Real estate is cyclical from market to market, and sometimes that means capping or even dropping rents to maintain occupancy. More often, it goes the other way, though. And that’s when it’s important to educate tenants, who seldom follow the market, so they aren’t shocked when the Toronto industrial space they were paying $5 a square foot for is now commanding $12 to $14 on renewal.
“Those conversations are not easy to have,” Zvijerac says. But there are good ones too, like the encounter he and asset manager Jason Penner had recently in Las Vegas, where Nicola had bought a property called Desert Canyon only a month earlier. Unprompted, three different tenants thanked them for improvements they’d made since taking over from the previous landlord.
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