Leasing With The Times
While many shopping center owners have cut back on leasing staff, Phillips Edison & Company has charged ahead, adding more agents and establishing new strategies throughout the company to overcome the challenges of the economic climate.
Randall Shearin

In late 2007, Phillips Edison looked at several economic indicators — primarily increasing prices for food and fuel, and restricted credit — and realized that its tenants were beginning to feel the stress of the economy. The company, which specializes in grocery-anchored community and neighborhood centers, saw some decreasing occupancy and decided to get ahead of what could become a serious problem. Over the next 2 years, it implemented several key initiatives to bolster the company’s leasing efforts.

At the beginning of 2008, the company launched its Accelerated Leasing Program to combat market conditions and prevent increased vacancy across its portfolio.

Bridgewater Falls was acquired by Phillips Edison in 2009. The 600,000-square-foot center in Fairfield Township, Ohio, is anchored by TJ Maxx, Target, Best Buy, PetSmart and Dick’s Sporting Goods.

“We wanted to add more focus at the property level,” says Bob Myers, senior vice president of leasing and operations. “We implemented a multi-faceted plan that included hiring more experienced leasing agents and decentralizing their locations to put them in areas where we had a greater concentration of properties.”

The program increased the number of agents and made each one responsible for fewer properties. While each agent previously would handle as many as 15 centers in six markets, they now focus on 10 properties in three markets.

Duties were also segmented to create specialists in designated types of leases. “Historically, each agent had been responsible for new leases, renewals, assignments, amendments, outparcels and duties relating to the lease document,” says Myers. “As part of the Accelerated Leasing Program, we separated some of those functions.”

To increase efficiency, Phillips Edison assigned two agents as renewal coordinators to concentrate solely on renewing existing leases. The company also hired four additional anchor leasing specialists to focus on large and medium size boxes. The outparcel program was separated from in-line leasing, with two agents hired to run the outparcel business on a national basis. Anchor leasing agents, outparcel agents, renewal agents and small shop agents work together, providing a four-pronged approach to leasing at every center in the portfolio.

With most of the Accelerated Leasing Program in place by the end of 2008, the company realized it needed to be even more aggressive in 2009 to champion the cause within its organization. “We wanted to communicate our leasing mission to all associates across the company,” says Mark Addy, chief operating officer. “We wanted everyone to be energized toward accomplishing our goals.”

As 2009 began, another key initiative was launched which expanded the initiatives of the Accelerated Leasing Program portfolio-wide and added new goals for every department. This internal campaign was branded “Mission Possible 20/20,” reflecting its increased concentration on 20 properties in each of the company’s two largest funds.

Phillips Edison operates through private equity funds that have more than 240 properties combined. “Within each fund, 20 percent of the properties represent about 80 percent of the upside potential,” says Addy. “Those are generally the properties with the most distressed characteristics.”

Village Center in Phoenix, Arizona, is a 170,000-square-foot center anchored by Target.

Mission Possible 20/20 identified 40 centers and created fully-integrated teams that would work on each property, along with compensation plans to drive focus to those properties. “We firmly believe that as you establish priorities and focus, you are able to get more penetration into those properties,” says Addy.

Phillips Edison set incentives for leasing activity within each of the centers targeted by the 20/20 campaign. Whenever a deal is struck for a new tenant in one of the centers, the entire company celebrates with small rewards, such as wearing jeans on Friday and ringing a bell hung in the offices. There are additional cash incentives, sales contests (e.g., Race for the Rolex) and gifts such as cruises. The increased focus on the 20/20 properties resulted in the completion of more than 75 deals in 2009, effectively filling more than 800,000 square feet of space in these 40 properties.

Every department in the company has made changes and accepted new challenges to support both the Accelerated Leasing Program and Mission Possible 20/20.

Property management initiated a new business model for temporary leasing to increase revenue. Phillips Edison already did a lot of seasonal leasing business around holidays such as Christmas, Valentine’s Day and Halloween. In years past, temporary leases typically generated an additional $250,000 throughout the year. In 2009, the company created a business plan that incentivized property managers to expand the temporary leasing program into ATMs, clothing bins, traveling carnivals and other opportunities. As a result, the company gained over $1 million in additional income through temporary leasing in 2009. For 2010, it has set the bar at $2 million.

“This program has energized the participants and has been helpful to our tenants because we are driving additional traffic and the community to our shopping centers,” says Addy.

The goal for the company’s internal lease administration department was to increase quality and decrease turnaround time for generating and negotiating leases. “Improving efficiencies allows us to be more effective, and that improves our financial results,” says Myers. “Time kills deals and every day a document sits unsigned is a day that someone is not paying rent.”

Since the company does repeat deals with many tenants, it has been able to adopt a template lease for select tenants that speeds the process and all but eliminates negotiation. In addition, a pod structure work environment brings together the leasing, lease administration and construction departments. Individuals from each department work on the same properties, enabling development of a team atmosphere and open communications.

At the beginning of 2008, the lease administration team’s average turnaround time was 5 days; by the end of 2009 it was 3.5 days. This increased efficiency made it possible for the department to handle nearly 800 leases in 2009. The ultimate goal is to turn leases around in under 3 days.

Results of these combined initiatives have been impressive. In 2008, the leasing team contracted approximately 1.06 million square feet of new space (non-renewal and excluding options). As of mid-December, the company expected to reach 2 million square feet of new leases in 2009 across a portfolio that has remained essentially the same size over the past 12 months. The goal for 2010 is to execute 3.5 million square feet of new leases.

One center that has benefited from the aggressive leasing programs is Upper Deerfield Plaza in Bridgeton, New Jersey. When the company acquired the property in May 2008, its occupancy rate was only 15 percent. Over 12 months, the leasing team signed deals with Aldi, Dollar Tree, Big Lots and Tractor Supply Co., bringing occupancy to 89 percent. Only a few inline spaces and pad sites are still available. “That’s a property where we have almost reached our stabilized goal in a 12-month period…even in this economy,” says Addy.

Phillips Edison has taken several steps to keep its leasing moving in the right direction. As a grocery-anchored center owner, the company has always been focused on the core consumer. Its long-standing relationships with value-oriented retailers are particularly beneficial in today’s market.

“We believe that the effort that you put into it, as well as the communication and relationships you develop over time, will help you get repeat business,” says Myers. “Because we are a fully-integrated operating owner, our tenants know that we are going to drive down the costs of operating a shopping center while maintaining a clean, safe shopping environment.”

Examples of efforts to drive down costs include appealing the property taxes assessed on centers in every state, actively re-bidding service contracts every 60 to 90 days, working with multiple insurers to get the best pricing and using its internal construction group to handle remodels and tenant outfitting to get tenants open on time and at the lowest possible cost.

Expanding on the success of these initiatives, Phillips Edison is taking its pod work structure to the next step and regionalizing the authority in its organization. Myers will run the leasing operation for the company’s Eastern portfolio, while Bob Edmonds, vice president/leasing, will run the leasing program for the Western portfolio.

The company continues to actively acquire shopping centers as well. Village Center in Phoenix, a 170,000-square-foot center anchored by Target, was acquired by the company’s latest private equity fund, which has another $90 million of equity to place in the coming years.

In addition, the Strategic Investment Fund, which was started to acquire land for future development, has switched to a value-oriented distressed property fund with another $35 million of equity available. “We are actively looking for deals that need to be fixed,” says Addy.

The Strategic Investment Fund’s latest acquisition is Bridgewater Falls, a 600,000-square-foot center in Fairfield Township, Ohio, anchored by TJ Maxx, Target, Best Buy, PetSmart and Dick’s Sporting Goods. While it has a number of top big box players in place, the center has about 70,000 square feet of vacancy (about 12 percent of its gross leaseable area). The bank had taken the property from its owner, and after seeing the upside potential, Phillips Edison acquired it in an all-cash transaction in October 2009.

When Phillips Edison acquires a property, it knows that there will be a period until it stabilizes the property. Generally, the company figures 24 to 36 months from acquisition to stabilization. As the economy has changed, the company knows this timeline will stretch or shorten, depending on the property’s location and other factors.

“We know we have a lot of work ahead of us and we’re going to keep pressing forward,” says Addy. “We know we have challenges ahead, but we are generating positive leasing absorption and increasing our occupancy. We are continuing to grow and to execute our business model. We have the opportunity to exhibit that we are the best-in-class owner who is an actual operator.”

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