By Katherine Field

(October 19, 2009) Once each year, hundreds of retail lease administrators gather together to hone their skills, compare technologies and strategies, and share best practices. For the National Retail Tenants Association, however, which hosts the afore-mentioned annual event, lease administration and negotiation are a year-round focus.

More than 300 lease administration professionals attended the NRTA 14th annual conference held last month in Palm Springs, Calif. The event attracted commercial real estate professionals from across the United States and Canada. “NRTA leadership was delighted with the positive response by conference attendees who, despite the economic pressures that retailers face, invested the time and resources to participate in the three-day educational program,” said Paul Kinney, executive director.

More than a third of the attendees were first-time conference participants, according to Kinney, and their goal was to “gain an effective grip on their occupancy cost centers and improve lease administration policies and procedures within their companies,” he said.

The program consisted of 35 courses and 20 small-group discussion sessions designed to encourage practitioners to improve bottom-line performances -- a hot topic in the downturn. Course topics ranged from lease abstracting and protecting retailers from landlord bankruptcies to co-tenancy issues and lease auditing.

At the heart of the program, and a major component of the foundation of the NRTA, is control over occupancy costs. While not a new discipline within well-heeled lease administration departments, the function of lease renewal negotiation has taken on a life of its own in today’s economic climate for both tenant and landlord positions.

Jerry King, president of Boston-based Rent Research, specializes in lease renewal negotiations, and has taught a course on the subject at NRTA’s annual conference for the past several years. He is seeing retailers with strong site positions achieve 5% to 15% reductions in monthly rents, asserting that “your case improves if you are a strong tenant and the landlord really needs your commitment to stay.”

Tenants sending letters requesting a reduction in rent definitely are getting a landlord's attentions, said King. However, with vacancy rates more than double from two years ago, solutions usually don’t represent an immediate cash windfall to tenants. Landlord responses have varied, ranging from agreeing to keep a rent flat or foregoing a scheduled rent bump while in turn asking a tenant to either extend the lease or renegotiate the co-tenancy clause or some other clause.

Some industry observers have expressed concern that an overly aggressive attitude on the part of retailers pushing for immediate lower rates might reap short-term concessions, but may also breed bad relations down the road. Others concede that while this is a possibility, there is also a critical short-term window of time available for them to get market prices and costs in line.

Rick Burke, president of Marblehead, Mass.-based Lease Administration Solutions and also a regular instructor at NRTA meetings, said most landlords recognize that their tenants are experiencing revenue drops and cost increases. “Using a benchmark ratio of sales per square foot, retailers need help to avoid having occupancy expenses reaching dangerous levels,” said Burke. “At these higher cost levels, the rent becomes too much of a burden and a retailer faces the risk of having to go dark,” he added. In those cases landlords lose too, said Burke, and want to cooperate to avoid those negative situations.

Admittedly, Burke said, these danger levels of percentage rent vary depending on the industry segment a retailer falls within. “Traditionally, jewelry retail is at the higher end, apparel retailers fall within a middle ground, and electronic and dollar store retailers are at the lower spectrum,” he said.

The educational backbone of NRTA, which includes Burke and King and a host of industry professionals who have actively supported the organization since its inception, has continued to grow its sphere of influence and coverage.

According to executive director Kinney, the NRTA is now developing a series of educational webinars on real estate issues that affect commercial tenants. Kinney also reported that the NRTA was invited to discuss the topic of post-commencement lease restructuring at a recent independent Dunkin Donuts franchisee conference in Worcester, Mass.

“This was a new experience for us,” said Kinney, “to go ‘on the road’ with an educational presentation for a specific retail group. Clearly retailers recognize that occupancy cost is a primary cost center, and improvements to lease administration practices lead to bottom-line gains.”

Kinney added that more franchisees are looking to the NRTA to provide mini-workshops on various aspects of lease administration. “Franchisees are seeking ways to become more profitable and healthier during this tough economy,” said Kinney. Topics to be covered include lease renegotiations and lease audits.

For more information on the NRTA, visit retailtenants.org.