Finding an Edge: How Private Landlords Drive Business Growth
Tenants in commercial real estate frequently deal with two different categories of landlords: private owners and institutional owners. In my experience, this is one of the most overlooked factors that business owners make when choosing a location for their company because when you sign a commercial lease, you are in essence partnering with that landlord.In order to make a wise decision, you must be aware of the distinctions between each, as each has special characteristics and advantages of its own. In this article, we will examine the differences between private owners and institutional owners, as well as the factors that might influence a tenant’s preference for one over the other.
Private owners, as the name suggests, are individual investors or small groups of investors who own and manage commercial real estate properties. They may include entrepreneurs, high-net-worth individuals, family-owned businesses, or local partnerships. Key features of private owners and the benefits they offer are:
Flexibility and a Personalized Approach: Private owners often provide a more personalized and hands-on approach to managing their properties. They tend to be directly involved in the day-to-day operations, enabling them to be more flexible and responsive to tenant needs. They may offer customized lease terms and allow for greater flexibility when negotiating lease terms.
Accessible Communication: With private owners, tenants usually have direct access to decision-makers, enabling faster and more efficient communication channels. This accessibility can be advantageous when addressing maintenance issues, lease renewals, or discussing any concerns or requirements directly with the landlord.
Long-Term Holder: Private owners typically hold the asset for longer periods compared to their institutional counterparts. This often-overlooked trait is arguably the biggest differentiating factor because their commitment to long-term ownership translates into lower costs throughout the tenancy. By avoiding frequent ownership changes or corporate restructuring, private owners can provide stability and consistency, reducing the potential for disruptive rent and operating expense increases or unexpected transitions.
Institutional owners, on the other hand, are professional real estate investment entities such as real estate investment trusts (REITs), pension funds, insurance companies, or large real estate investment firms. Characteristics of institutional owners and the advantages they offer are:
Stability and Resources: Institutional owners typically have significant financial resources, allowing them to acquire and manage large portfolios of commercial properties. Their financial stability provides reassurance to tenants, as they can ensure consistent property maintenance, well-funded capital improvements, and long-term investment strategies.
Standardized Processes: Institutional owners often have established systems and procedures in place, streamlining lease negotiations, property management, and tenant interactions. This standardized approach can offer predictability and efficiency in dealing with lease administration, tenant services, and maintaining high-quality property standards.
Property Scale and Portfolio: Institutional owners often have larger portfolios and diverse property options, while private owners may have a narrower range of properties. Having the ability to expand within the property or broader portfolio is critical for any high-growth company hesitant to commit to a long-term lease.
The choice between private owners and institutional owners in commercial real estate depends on a tenant’s specific needs and preferences. When deciding, tenants must carefully evaluate their own priorities and consider factors such as their need for customized lease agreements, the type of relationship they want to have with their landlord, financial backing, and access to a broader range of properties in the event they need to expand or contract. Some tenants prefer the personalized touch and flexibility that private owners offer, while others prefer a well-capitalized and professional team. Understanding these distinctions enables the executive team to make informed decisions that best suit their business needs and long-term objectives.