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Retaining tenants against the odds.

Retaining tenants can be a challenge in the competitive office market, even when everything is going smoothly. But how do you keep tenants happy when the going gets tough? For example, when you're undertaking a major - and disruptive - building renovation? Or when you have a trophy tenant and new competition is coming on line in your market?

In the two following cases, building management found ways to deal with tenants creatively in extraordinary circumstances. The key to success in both cases was the same: good communication and a close partnership between tenants and management.

Retaining tenants

during renovation

When JMB Properties Company undertook a $1.5-million renovation to replace all the exterior glass on the Southeast Bank Building in Orlando, Florida, tenant relations was an important part of the renovation planning.

According to Mike McConnell, JMB property manager/assistant vice president, two factors precipitated the decision to renovate. The city of Orlando had made a commitment to downtown revitalization, including restoration of Lake Eola, which is adjacent to JMB'S property. This city plan was instrumental in JMB's decision to make a long-term investment in maintaining the Class A status of the Southeast Bank Building.

The second factor supporting renovation was more concrete. The bronze glass used when the building was built in 1975 was no longer manufactured. When panels needed to be replaced, new glass did not match the existing glass, and gave the building a checker-board effect.

JMB determined that, rather than continuing to replace windows at random, it would replace all 3,472 windows in the 15-story building with high-performing, blue-green Solarban glass. The bronze mullions would with cream-colored ones. The project began the first week in April 1991 and was completed in mid-November.

A major concern of McConnell and on-site property manager Cliff Rieger was minimizing disruption to the building's 42 tenant companies. Before work began, the project team comprising Rieger, McConnell, and the project construction manager sat down and discussed how the project would affect tenants. One consideration was to find a way to perform all work from the exterior, so that no workmen would go into tenants' spaces.

"It's somewhat more expensive," says McConnell, "but, because of the potential impact on tenants, we never looked at doing it any other way."

As with every renovation project, the company allocated a portion of the renovation budget to tenant concerns. An individual assigned from JMB's renovation and design group in Chicago to oversee the construction also worked with on-site staff to anticipate tenant issues and develop plans to minimize inconvenience.

One of the decisions made in initial preconstruction meetings was to hire a public relations firm to help deal with renovation issues affecting the tenants.

"The company felt that an outside perspective would be helpful in identifying things the tenants might perceive as problems," says McConnell. The PR firm assisted in developing press releases for the media, coordinating tenant information events, and developing special editions of the building newsletter on the renovation.

"We also felt that a lot of things could go wrong on a project like this," continued McConnell. "The PR firm was prepared to handle media and tenant concerns if a problem arose. The PR budget for the project was 3 to 4 percent of the overall renovation amount.

Someone to call the shots

Another key decision made in the preproject meetings was to hire an on-site tenant coordinator for the term of the project. "We needed someone who had construction knowledge but was also comfortable communicating with professional tenants," said Rieger. "We contracted with a local general contractor to bring in a construction manager, Burt Braman, who specializes in tenant buildout. He not only had managed crews, but had dealt with tenants in very adverse situations."

The tenant coordinator was the point man in communicating with tenants and handling their questions. The number-one question had to do with scheduling: "When are they going to get to my office?"

In developing a schedule, the renovation team sought a combination of efficiency and flexibility.

The work was done in vertical drops, each one four windows wide. Workers could move the work staging area anywhere within the fifteen floors of the drop. That mean that work could be done on the fourth floor, then the eighth, and then the twelfth, offering flexibility to meet tenant needs. "We didn't want to have them moving horizontally because that would have meant moving the stages;' explained McConnell. "But we had flexibility within that vertical row."

"Most of the work was done during the week," said McConnell. "The exception was the restaurant and parts of the bank, where work was done over the weekend to minimize disruption to their operations."

Braman worked with the glass company in preparing schedules. Work on each floor of the vertical segment took one or two days. Only one or two offices on each floor were dislocated at any one time.

When the work was scheduled for a particular area, Braman would inform tenants by letter two weeks in advance, then follow up with a phone call. The day before work began, he would meet again with the individual tenants and would personally supervise the removal of furniture, videotaping everything in the office to make sure it would be put back properly and to document any damage.

"An important part of the tenant coordinator's job was to protect the tenant's suite as well as the furniture;' said McConnell. The day before the glass was to be removed, Braman would hang a heavy vinyl curtain just off the curtain wall inside the tenant suite. The curtain was not only for safety; it also offered protection from the outside elements.

Each window was 4 1/2 feet wide by 51/2 feet high and weighed approximately 200 pounds. Workers replaced one pane at a time, generally within an hour, and the replacement glass was always at the site for immediate installation. Installers never left the site before completing their job, so open windows were never left unattended.

Braman also worked closely with the office managers of larger offices, informing them in advance of when particular offices would be worked on so they could schedule their employees.

Braman also adjusted schedules within columns. "For example," said McConnell, "there are a lot of lawyers in the building. If a deposition were scheduled to be held in a particular office on the day we had planned to remove the glass, Burt would arrange to have the crew work on a higher or lower floor that day to accommodate the needs of the tenant."

Because the project took place mainly over the summer, it was often possible to schedule work when employees were going to be on vacation.

"The contractors were very experienced and their schedules and timetables were extremely accurate," said McConnell. "It was to their credit that in a project of this size there were almost no surprises."

Keeping tenants "in the know"

Throughout the renovation process, communication with tenants was always a key consideration. "We knew there would be a certain amount of inconvenience to our tenants that we couldn't eliminate," said McConnell. "But we felt that if our tenants knew what was going to happen, when it was going to happen, and how it was going to happen, they would be able to deal with it, even if it were an inconvenience. The underpinning of our whole approach was to communicate well with our tenants at every stage of the project."

Building management had a rendering made of the completed building. McConnell and Rieger then visited the major tenants individually before the project began and described to them, sometimes in painstaking detail, what was going to happen and how it would affect them. A model, set up in the lobby, was colored in as the glass was built out, so tenants could see how the project was progressing.

Newsletters also kept tenants informed about the renovation. The first was published before the project began, a second during the project, and a final one coincided with the project's completion. In addition, management scheduled a series of events around the renovation. The first, a renovation announcement breakfast, was held in the lobby early one morning prior to the start of the project. More than 200 people attended the information breakfast, where they received the first newsletter.

One of the most popular programs was a "Tenant Survival Kit" developed by the PR agency and left by the tenant coordinator on the desk of each employee whose office was about to be worked on. The kit contained a glass ruler with the name of the building and project as a memento, along with earplugs, aspirin, and M&ms. A humorous letter explained that the last three items were for when times get hard: "When the going gets tough, the tough eat chocolate."

"The response from the tenants was strongly favorable," said McConnell. "We received numerous letters thanking us for the packages.' In addition, every individual directly affected by the renovation received a certificate for a free lunch at a nearby restaurant.

Other events included several "management mingles," informal continental breakfasts held in the building lobby. These mingles gave Rieger, his staff, and the tenant coordinator a chance to answer questions about the project in a low-key, informal atmosphere. These events were so successful that they will be continued even though the project is over, Rieger said: "It's a good tenant relations program. It allows people to voice small concerns that they wouldn't bother to call us about."

At the halfway mark, an ice cream social was held; a cart with the ice cream and toppings visited each floor, and employees were invited to make their own sundaes. Another afternoon a popcorn stand was set up, attended by Rieger and the tenant coordinator. At Thanksgiving, a pilgrim handed out pies to the tenants. "These events didn't cost a lot, but they were very popular," said McConnell. "We held them to show the tenants our appreciation for their cooperation and patience."

Management's sensitivity to tenants' inconvenience during this major renovation project had the desired effect. "Through this process of working out problems before they happened, we turned a situation that could have divided management and tenants into one where we are even closer than we were before," said Rieger. "Rather than feeling put out or that their business was disrupted, tenants felt that they participated in the process."

A side benefit to the renovation for both management and tenants is that the new glass is more efficient in reducing heat buildup. This will enable JMB to operate the building more efficiently, and tenants are likely to realize savings on air conditioning costs.

"There were no complaints on heat buildup before," said Rieger, "but we live in Florida, and there is a lot of heat. It's like putting on a pair of sunglasses. I talk with tenants frequently, and I hear over and over again how surprised they are. They didn't realize the impact the new glass would have on the comfort level in the building."

Retaining a major tenant

against now competition

How do you retain a trophy tenant whose lease will expire just as several new competitors are coming on line in your marketplace? Once again, communication is the key, according to Bill Norwell, CPM [R] former executive property manager for Hawthorn Management. (He is now with Corporate Realty Advisors in Des Plaines, Illinois.)

The building in this example is part of a 512,000-square-foot low-rise office campus located in Oakbrook, Illinois. The campus was one of the first of these developments to be built in the Chicago area. The second phase of the development was owned by an investment client of Chase Investors Management Corporation, an institutional investment advisor (now UBS Asset Management, New York, a subsidiary of Union Bank of Switzerland). The holding consists of four office buildings totalling 312,000 square feet. The tenant, a Fortune 500 high-technology company, occupies approximately 100,000 square feet of a 120,000-square-foot building.

Revolutionary when it was built in 1980, the development now faced tough competition from the many new buildings proposed or under construction along Chicago's fast-growing suburban east-west corridor. Some of these projects, and the square feet of space projected to be available in each in the first quarter of the year, included:

1986 - New space:
Mid America Plaza 203,000
Lincoln Center 294,000

1987 - New space:
The Crossings 159,000
Oakbrook Business Center 212,000
Oakbrook Terrace Tower 680,000

Space still available:

Lincoln Center 294,000

1988 - Space still available:
Lincoln Center 95,000
Oakbrook Business Center 212,000
Oakbrook Terrace Tower 300,000

Many of these buildings were having trouble leasing space. Most were newer than the subject property and could easily have handled the tenant's space needs. Several were looking for anchor tenants, and many were offering large concessions. It was in this competitive environment that Norwell began to renegotiate the major lease.

A strategic plan for retention

One of Norwell's first acts was to propose a strategic plan for the property that emphasized retention to Bill Schwartz, Chase's vice president for real estate.

"Our objective," said Norwell, "was to achieve the owner's goals. In this case, the owner wanted to own this property for the long term, so long-term cash flow and appreciation were important. The thing that could create the most long-term value was renewal.

"Within that model, we analyzed the property in relation to the market. We looked at the likelihood of retaining the tenant. If that likelihood had been low, we would have focused on the broker market and on obtaining another tenant."

Because of the glut in the market, many properties were offering concessions, Norwell said. "But once the freerent period was over, the lease reflected an inflated rental stream to finance on. Our owner was not looking to sefl or refinance, so they measured rent on a net effective basis."

With a strategy of pulling out the stops to retain the tenant, a key component of the plan was to approach the tenant immediately on lease renewal, even though its long-term lease would not expire for three years. "Although this was a longer lead time than normal," said Schwartz, "this was a major tenant that occupied one-third of the space in the project. Chase would have had a substantial vacancy had the tenant moved out."

The other factor in starting renewal talks early was Chase's perception of what the market would be when the lease expired. With the amount of space that would be available and the quality of the tenant, quite a few owners and developers would be interested in obtaining this tenant," Schwartz said. "We wanted to keep them."

Learning what the tonant wouts

Norwell's first step was to talk to the tenant's on-site facilities manager and determine the tenant's concerns about the property. The facilities manager identified two areas that needed to be corrected: janitorial services and HVAC.

Company employees complained that there was a lack of air circulation in the building and that there was a heat load on the west side of the building in the afternoon. In addition, when the compressor had broken the previous summer, there had been a long delay in getting the system fixed.

Norwell immediately tackled these complaints. To resolve the janitorial problems, the janitorial supervisor was directed to meet with the facilities manager daily at 4:00 p.m. to discuss the previous night's cleaning and what should be done that night. These meetings continued for several months until the facilities manager felt they were no longer necessary. Management also changed janitorial contractors, but arranged to have the supervisor, whom they liked but felt had been getting inadequate direction from her previous employer, hired by the new service.

To address the HVAC complaints, Norwell worked with the tenant's corporate in-house engineers. Together, they came up with mutually satisfactory specifications for a 3M product to be applied to the western exposure, at a cost of around $30,000, to reduce the afternoon heat load. A new compressor was purchased, at a cost of $18,000. Management also purchased $3,000 of miscellaneous parts that were long-order items, so that if there was a breakdown, they had the major electrical and mechanical parts needed to get the system up and running again quickly.

Probably the most important thing, according to Norwell, and the one that required the closest cooperation between the tenant and the on-site staff, was the solution to the air circulation problems. Norwell found that, under its lease, the tenant had the right to make improvements up to $25,000 without the owner's approval. The company tended to break up projects so they were under that amount and not to consult with building management.

"Together with the building engineers," said Norwell, "we trained the company's on-site people to understand that when they put up a wall through the plenum, it prevents air from circulating because that's where the air returns." Norwell's staff worked with the tenant to locate thermostats and to balance the system when alterations were made in order to prevent air circulation problems.

In addition to Norwell's on-site efforts, Schwartz had several face-to-face meetings with the client. "In the normal course of lease renewal we rely on on-site management. But in the case of such a major tenant, we wanted to really listen to their needs and to be responsive to them," said Schwartz.

"We wanted the company to know that we would work with on-site management to keep them happy. We also wanted to emphasize the importance of the tenant to the building's owners."

When it came time to renew their lease, said Norwell, "the tenant didn't go out into the marketplace because they were comfortable we were trying to address their needs

Norwell believes there are two keys to effective tenant retention. "First, communication with the tenant shouldn't wait until the renewal process historically begins - in the last 12 to 18 months of the lease - because by then the frustration has been allowed to build to a point where it is overflowing and you're going into a negotiation with an adversary rather than a team member.

"Second, the operation of a building with a major tenant should be a team effort. Because that tenant pays for operating expenses, it should be viewed as a partner, in a relationship of cooperation and open communication."


Your tenants chose your building originally because it suited their requirements. Unless their requirements have changed substantially, moving out is as troublesome an option for them as it is for you. Even a slightly better deal elsewhere is rarely worth the cost and disruption of moving a business.

If your building and your lease terms are competitive in the marketplace, tenants are most likely to move out because they are unhappy with building management and feel their needs are not being met.

At the same time, you cannot build a good management/tenant relationship during the last six months of a lease. By then, it is too late. But if you enlist tenants as partners throughout their lease term and have a history of cooperation and open communication, then you can keep tenants on your side and in your building even under adverse circumstances.
COPYRIGHT 1992 National Association of Realtors
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Romano, Ellen
Publication:Journal of Property Management
Date:Jul 1, 1992
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