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Developers try leasing what they build
San Francisco Business Times, April 27, 2007 by Sarah Duxbury sfbt

Some like to hang onto reins of properties with unique characteristics

Sean Jeffries of Millennium Partners knows his limits, and he's not afraid to outsource to the experts even as other developers prefer the do-it-yourself route.

While Millennium in aggregate is a significant retail landlord, it's rarely got more than 50,000 square feet of retail in any one town. Using a broker with deep local knowledge of tenants and customer behavior is more cost-effective than hiring someone to do that.

"Ultimately, to get the most exposure to the widest net of retail tenants it's almost always better to go with a national firm with a strong local presence," Jeffries said.

Other developers agree with Jeffries, yet a surprising number of them have decided to go it alone. It seems that high profile projects are most likely to be leased in-house, perhaps because the visionaries behind them dare not lose control.

"We find we're the best advocate of what we do," said Patrick McNerney of Martin Building Co., the developer turning Mint Plaza into a pedestrian haven adjacent to the Old Mint at Fifth and Mission streets. "We own the success of the thing ... and we know we tell the best story."

For much the same reason, Alicia Esterkamp, a principal with Pacific Waterfront Partners, handles retail leasing for the Piers project in San Francisco. Pacific Waterfront Partners already had the personnel to do it, she said, and the location, on Piers 1 ½, 3 and 5 by the Ferry Building, meant that its retail spaces practically leased themselves.

"We were trying to accomplish something that is so hand-crafted — the mix of tenants and getting the absolutely right tenor for what we're trying to do is so finely tuned — I simply needed to do it myself," Meany said.

"It wasn't necessarily being able to do it better. It was more of a timing thing," Esterkamp said of not using a broker. When the core and shell were completed last November, tenants were already lined up for a shot at one of three restaurant spaces. Pacific Waterfront Partners is close to signing tenants for the 2,000-square-foot, 4,000-square-foot and 11,000-square-foot restaurant spaces.

For a lower profile project, however, Pacific Waterfront Partners would perhaps go the broker route, and it is using CAC Group for its office leasing.

In how it's handling leasing as well as in inspiration, Pacific Waterfront Partners has followed its neighbor. When Wilson Meany Sullivan was completing the Ferry Building, it also used CAC Group for office leasing, but Chris Meany did the retail himself.

"We were trying to accomplish something that is so hand-crafted — the mix of tenants and getting the absolutely right tenor for what we're trying to do is so finely tuned — I simply needed to do it myself," Meany said. A broker could be conflicted because he would represent the tenant, not the vision for the Ferry Building. It certainly was not to save money that Meany skipped the retail broker.

Meany said it took six years to lease the Ferry Building, calling it the hardest job he's had. "It cost three times as much money in terms of time as I ever would have paid in commission if I had turned it over to somebody. But I never would have gotten the tenants," Meany said.

Where office and residential lease rates closely adhere to supply and demand, in retail potential sales determine rent, and so getting the right mix of merchants is paramount. Brokers excel at that, and with most other projects Meany said he prefers to use them.

"A good broker is not out trying to hock this space as a commodity. They try to help clients see the sales potential," Meany said. Nevertheless, he added that "good retail brokers, no matter what they say, are always tenant brokers. ... Their real relationship is with tenants because they do more repeat business with tenants."

"We know it's not a shotgun approach, and that's something realtors provide," McNerney said, acknowledging that not using a broker means Martin could miss some potential tenants. But because Martin is focused on the kind of tenants it wants -- local concepts that can also attract diners from other neighborhoods, like Chez Papa and Limon — it believes it can succeed without seeing everybody out there.

By working closely with a developer, a broker can also be sure that the landlord only sees the most suitable potential tenants.

Millennium uses Kazuko Morgan of Cushman & Wakefield, and she and Jeffries meet at least once a month to talk tenants and bandy about ideas regarding trends in the marketplace.

"After a period of time, the person becomes like an in-house person because she knows what tenants we want, what would be attractive to us," Jeffries said. "A good broker is matching up both landlord and tenants with a good fit, maximizing the time of both."

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