Commercial Strip Mall Leasing and Management agent questions

[Tom Nguyen]

Hello

I am in the process of buying the strip mall center and just received the proposal for managing the retail strip mall from the current agent since they already manage the strip mall. I want to get your opinion on this and wonder if the term looks normal or should I renegotiate with them with something more standard.

1. the term is 1 year and auto-renew if not terminate last 60 days 

2.Does the language below mean 7% of everything collective even NNN?

"Management Services 7 % of all actually collected monies received. The term "cash revenues" shall mean all income resulting from the operation of the property, including but not limited to all rents and other sums deposited including, parking fees, common area charges, percentage rents, operating expense, real estate tax, and insurance premium reimbursements, late charges, security deposit forfeitures, and insurance claims proceeds" 

3 Construction Supervision: Agent shall be paid a fee of (10%) of the total costs of any and all Tenant Improvements, Repairs, or Renovations for coordinating, supervising, and contracting for such work on behalf of the Owner.

4 If  Agent is successful in obtaining a real estate tax assessment reduction for the property or any part thereof, Owner agrees to pay Agent a fee equivalent to fifty percent (50%) of the first year's real estate tax expense savings realized by Owner as a result of such reduction. Said fee shall be payable to Agent on or before the due date of any real estate tax bill affected by the assessment reduction.

5 All lease agreements shall include a Late Payment Charge clause. Owner agrees that Agent may retain all payments of late charges collected from tenants based on this Late Payment Charge clause as additional compensation. Agent reserves the right to revise this clause and demand from tenants reasonable late charge payments. These late charge payments shall be in addition to those required by the Owner in the Lease Agreement.

6 If the Owner elects to terminate this Agreement then Owner shall continue to pay to Agent its monthly fee up to the time of the effective date of termination and shall continue to pay Agent on any renewals or extensions on the leases in effect at the time of such termination.

[Joel Owens]

1. Have a probationary period where you can cancel within 60 days notice for any reason. You do not want to be stuck with them for a full year. You want immediate outs if they are dropping the ball.

2. "all actually collected monies received". This is important because if tenants do not pay some property managers already take out their fees regardless. 7 percent is a lot. On a small center 4% is typical and sometimes I have seen 5. Have never seen 7. On larger centers 100k sq ft you might see 4 to 3 percent. It tends to get smaller as size gets bigger the management fee just like multifamily.

Also you have to read the leases and see if any caps on cam because tenants might be currently paying less and then you pay more and eats into your NOI as you do not get reimbursed above a certain amount by the tenants.

3. That's normal. Management wants to be compensated for extra items that fall outside the scope of general property management. Just like if they lease up a space that is a different fee from management.

4. Usually  a property tax attorney does that for you and 50% fee sounds high. Would want a specialist attorney running that process and not some property manager.

5. I don't like number 5 because it can create conflict between you doing a workout with tenant or money owed to the PM company. Would not agree to that.

6. Would not agree to that. You need to make sure current seller has paid all TI, etc. and fees to any brokers. You do not want to be burdened with going forward.

This PM company appears to be taking you for a ride. Would get multiple quotes from other companies in the area. Make sure they specialize in small box retail and not the huge stuff. The big companies if one of their clients pulls out of the area then they lose interest in the small stuff they are managing.

No legal advice given.

Now you understand why I do not work on the small retail center deals under 2 million just STNL. Lot's of heavy lifting and time with analysis for a low fee/return.