How to Lease up Your New Building
So, we're getting the project built, starting to market it, and now we need to lease it up. Our goal is to get actual leases signed and people moved in.
There are two main things to consider right off the bat: who will be the leasing team, and whether or not you will pre-lease the building.
Let's start with the leasing team and the process.
People often confuse property managers with leasing agents, but these are two very different skill sets. Property managers, while they may have good people skills, are more operationally focused. Leasing agents, on the other hand, are trained in sales techniques, customer relationship management, and effective communication strategies that are essential for converting inquiries into signed leases. They are adept at showcasing the property's best features, handling objections, and creating a sense of urgency, all of which are crucial for a successful lease-up.
One common issue I see a lot is developers relying on their property management firms to handle their lease up. This can work if the firm has specialized leasing agents and is experienced in new building lease ups, but it's crucial to have a dedicated leasing specialist on your property.
There are two main ways to handle this:
In-house: If you're a developer with an existing management firm, you might have a leasing firm you’ve started, with agents working for you. This setup allows for better control and consistency with the company's brand and messaging. However, it requires maintaining a staff even when no new projects are underway.
Third-party: Most developers prefer to stay lean, as projects can be sporadic. A common approach is to hire a specialized leasing firm. These firms have a few dedicated agents solely focused on leasing your building. They're not involved in management; they only handle leads, tours, and closing sales. This approach provides flexibility and allows developers to scale their operations based on project demand.
We typically use specialized leasing firms for our new lease-ups. Once the building is fully leased and stabilized, you can switch to a management firm for renewals.
However…even then (!) I recommend ensuring that the management firm has at least one specialized salesperson on staff to handle leasing inquiries and maintain occupancy rates.
Another key consideration is whether to pre-lease or not.
Pre-leasing means signing leases 60 to 90 days before the building opens. Before COVID-19 and supply chain issues, timing was more predictable, and we pre-leased everything. We still do, but now we’re more cautious due to potential delays. If construction isn't finished on the expected move-in date, it can create issues. To mitigate these risks, clear communication with tenants about potential delays and setting realistic timelines based on past experiences are crucial. Pre-leasing helps in securing tenants early, but it also requires managing expectations and being prepared for contingencies, such as offering temporary accommodations if there are delays.
In some markets, like California, there's such a housing shortage that pre-leasing isn't necessary; buildings fill up quickly once they’re finished. In Minneapolis, we typically launch our pre-leasing 45 to 60 days before opening. This timeline usually works well, but there have been instances where we've had to temporarily house tenants in hotels due to delays.
That sucked.
And it was expensive.
The leasing firm and the developer set a rent schedule before leasing begins. This involves walking through the entire building, discussing each unit type, and setting parameters. The leasing team then operates within these guidelines without needing approval for each lease, unless there's a special situation (e.g., a potential tenant asking for a lower rent).
We also always use model units because most people lack the vision to imagine a furnished space. Staging a unit with furniture helps potential tenants visualize living there. You can tell them what living there will be like, but it’s better to SHOW them.
“Yes, your queen bed will fit perfectly in this bedroom.”
“Yes, a standard couch will work nicely across from the TV wall.”
Tell, then show (or in this case, point :-)
Typically, we stage one unit, but for larger buildings, we stage multiple units, like a one-bedroom and a two-bedroom. We've chosen to buy furniture instead of renting to maintain a specific look and style that aligns with our brand. While this approach might not always save money, it ensures a consistent aesthetic that can enhance the appeal of the units. Our secret weapon here in Minneapolis is Fuse. They’re rock stars when it comes to curating furniture for our model units - furniture that evokes a sense of home while still being design-forward.
Lastly, we maintain regular communication with the leasing team through weekly reports and calls. These updates cover what's working, the number of leases signed, the number of tours, and any events or open houses. We typically pay a monthly fee during the initial setup phase (about $500 to $1,000 per month) and then a commission, usually one month's rent per lease. This can sometimes be negotiated for less, depending on market conditions and the specific arrangements with the leasing firm.
Questions? Hit me up in the comments!
Peace,
