What 150 Tenants Taught Me About Commercial Real Estate

When we acquired the first building for the Johnson Foundation of Florida, it was sitting at 60 percent occupancy. The numbers looked bad on paper. The previous owner had been chasing top rent—$25 a square foot for space that was never going to fetch that in a secondary market. Tenants were either moving out or negotiating concessions until they found better, cheaper alternatives.

The lesson was immediate: you can chase rent or chase retention. You probably can't do both.

Over the past 12 years, we've built a portfolio of four commercial buildings in Tampa with more than 150 tenants and a valuation north of $25 million. Not all of them came at 60 percent occupancy, but enough of them did that I've learned something about how to think about the commercial real estate business in the middle of the market—the small-bay flex spaces, the unglamorous industrial, the office that doesn't qualify as Class A but doesn't need to.

The Occupancy Versus Rent Trap

Here's the trap every first-time commercial owner falls into. You buy a building with empty space. You see that space as revenue sitting on the table. You set the rent high—maybe too high—thinking that someone will fill it eventually and you'll have that revenue on top of everything else.

What actually happens is that space stays empty for 8-10 months. You're paying for the carrying cost, maintenance, taxes, utilities. You're not getting rent. Then when someone finally takes it seriously, they negotiate because they know you're desperate.

So you concede. You give them six months free, or 30 percent off year one, or you cover their build-out. By the time they move in, you've given away more value than you would have if you'd just priced the space fairly in the first place.

The second mistake is assuming that higher rent means better tenants. It doesn't. It means tenants who can afford higher rent. That's not the same as tenants who are stable, who renew, who take care of the space, or who stick around.

When we took over our buildings and repriced them at market rate—what a reasonable tenant would actually pay for that space in this market—occupancy moved. We went from 60 percent to 95 percent within two years. More importantly, we started getting renewing tenants. Businesses that had moved in at a fair price stayed. They weren't constantly shopping for cheaper alternatives.

What Lease Concessions Actually Buy You

I used to resist concessions. They felt like losing. Give someone six months free and you're giving money away.

Then I did the math. A tenant in one of our spaces, at current market rate of $15 a square foot, in a 2,000-square-foot bay, is paying $2,500 a month. If that tenant renews once, they're 24 months of revenue. If they renew twice, they're 36 months. If they're there five years, they're $150,000 of revenue, and I haven't had to market the space again, I haven't had vacancy, and I haven't had turnover costs.

A tenant who moves because the rent is $2,700 instead of $2,500 and finds a cheaper option elsewhere? They're a $30,000 mistake. You've lost their revenue, eaten their vacancy, and paid to re-lease.

So concessions actually make sense if they're strategic. Two months free on a three-year lease is cheaper than nine months of vacancy and turnover. Covering $5,000 of build-out is cheaper than losing the tenant to a competitor.

The key is not defaulting to concessions. It's being willing to use them tactically when the math works.

What we actually do now is price fairly and negotiate terms. If someone can't afford $15 a foot, they probably shouldn't be in our space anyway. If they ask for a concession, we ask ourselves: Is this tenant worth $150,000 over five years? If yes, we negotiate. If no, we wait for the next one.

Why We Buy Small-Bay Flex Over Class A

This is a localized choice for Tampa, but the logic applies anywhere. When you're operating commercial property in a secondary market, Class A office is a trap. It requires constant capital expenditure. It's chasing institutional tenants who are increasingly working remotely. The rent isn't high enough to justify the investment.

We buy industrial flex. Two-thousand to 5,000-square-foot bays, 14-foot ceilings, roll-up doors. They attract small businesses, contractors, light manufacturers. Those businesses don't have a lot of options. They're not moving every two years. If the rent is fair and the space is maintained, they renew because they can't find better elsewhere.

The math is simple. A 2,000-square-foot Class A office space in Tampa on Florida Avenue might lease for $18 a square foot. A 2,000-square-foot industrial flex space on the same corridor might lease for $12 a square foot. The Class A space has five times the turnover, higher vacancy rates, more capital needs. The flex space has tenants who are building businesses inside it. They stay.

Our buildings are on Busch Boulevard, Florida Avenue, Hillsborough—not the places institutional investors are looking. The buildings aren't pretty in the way Class A is. But they're occupied, they're stable, and they're throwing off cash.

The Occupancy Math and What It Actually Means

Most people look at occupancy percentage and think that's the number that matters. 95 percent occupied is better than 85 percent occupied. That's true in some contexts. But it's not the number I care about most.

I care about renewal rate. If 85 percent of my tenants are renewing, and I'm at 92 percent occupancy, I'm in better shape than someone at 98 percent occupancy with a 60 percent renewal rate. They're going to have constant turnover, constant vacancy, constant marketing costs. I'm going to have predictable revenue and stable cash flow.

We target 90-plus percent occupancy across the portfolio and an 85-plus percent renewal rate. That's the combination that makes the math work.

When we have a tenant move out, I ask one question: Did they renew, or did they choose to leave? If they renewed and something forced them out—growth, relocation, business change—that's fine. That's the natural lifecycle. If they chose to shop and leave, I want to know why. Is it the rent? Is it the space? Is it the landlord? That's data.

You're not running a real estate business. You're running a tenant retention business that happens to own buildings.

The NOI doesn't move if you're filling space with tenants you can't keep. It only improves if you're keeping the tenants you have and filling the remainder with people who'll stay.

What We Don't Do

We don't chase appreciation. We don't buy and flip. We don't do aggressive repositioning where we're pushing tenants out to upgrade the space. We don't offer luxury amenities that small-business tenants don't want and won't pay for.

What we do is maintain the buildings, set fair rent, keep the tenants we have, and fill the gaps with people who can benefit from what we've built. That's been enough to turn a 60-percent-occupied building into a $6 million asset with 150 tenants across four properties.

It's not glamorous. But it's stable. And that's actually what the commercial real estate business is supposed to be about.