Focusing on Tenants

by Nate Hunter

With National Real Estate Solutions Team in place, Chicago-based Baum Realty helps tenants expand nationwide.

Baum Realty Group’s National Real Estate Solutions Team has helped clients like Potbelly Sandwich Works create a real estate structure that works. Pictured is a Potbelly location in Garland, Texas.Chicago-based Baum Realty has expanded nationwide through its National Real Estate Solutions Team, which acts as an real estate department for a number of retailers, who outsource site selection and lease negotiation to Baum.

The company launched its platform nationally to help retailers accelerate their expansion plans post recession. Many retailers laid off or entirely closed their real estate departments during the recession. Now that they are beginning to expand again, many need expertise to add sites.

“Companies hadn’t been growing as aggressively during the recession,” says Phil Baugh, managing director of Baum’s National Real Estate Solutions team. “Now, many retailers are positioning themselves for growth. They need to think about how to structure their real estate team correctly. Many retailers have seen ownership and management changes over the past few years, which has led to a lot of turnover in real estate personnel.”

Baum Realty Group has been known as one of the strongest retail real estate firms in the Midwest for many years. The company, who represented a number of retailers in the Chicago area, was frequently asked by many of its clients to help them expand in other markets, but shied away since the firm stresses local market insight as critical to retail success. In 2005, Baugh, who joined the firm from a national consulting firm, sat with the partners and drew up a plan to expand the reach of their services outside of Chicago by partnering with local brokers who are experts in each local market.

“The key to this is that Baum controls the process,” says Baugh. “We develop the real estate strategy with our client and then we partner with best-in-class brokers in the local markets. It’s not just a hand-off. We actively oversee and manage the process for each deal for every client.”

The division grew slowly as Baum was selective with its first few clients. “We never want to over-promise and under-deliver,” says Baugh. “We started with a number of clients who allowed us to fine tune our model. Over time, we developed a strong network of brokers who we worked with across the country.”

After a few years, Baum began actively marketing the division at ICSC shows and through word-of-mouth. Baum now has a number of successful experiences under its belt, and uses those to show other retailers what the company can do to help them grow.

For Jiffy Lube, Baum was hired to add support functions to the existing real estate team so that the retailer could execute its expansion plans without adding headcount. For some smaller retailers, who have no real estate department, Baum can act in that role.

“We become experts in our clients’ brands and concepts,” says Baugh, who is going on his eighth year at the helm of the team. “One of the success factors for our division is that we are set up to be nimble and flexible as to how we plug-in to our clients’ corporate structures.”

Baum has in-house capabilities for demographics, research and site selection, which some clients chose to take advantage of. For clients like Potbelly Sandwich Works, however, who has its own demographics department, Baum utilizes the client’s internal research. Other clients choose to outsource demographics to other analytics firms, and Baum is able to work with their products and processes as well.

“We function as an extension of the retailer’s team, however they need us to work,” says Baugh. “Often times, we become their real estate team and we help clients fine-tune their real estate strategy. We also serve as the project managers who execute the strategy throughout the country.”

Baum has also worked with franchise based retailers for many years, and, accordingly, has acquired valuable expertise in this field. When working with franchisors, Baum works as a go-between with corporate real estate departments or franchising departments, and the franchisee. “We have been working with franchising for so long that we understand the nuances of the model, not only from the legal and financial standpoints, but also from the psychological standpoint,” says Baugh. “You are dealing with franchisees from a wide range of backgrounds, and for some of them it is their first location. Others are very sophisticated, multi-unit, multi-business operators. We’ve developed a strong methodology for working with people of all different business backgrounds.”

Potbelly Sandwich Works wanted to try a franchise model for its system. The company has an internal real estate department that handles corporate deals, but wanted to outsource the franchise real estate operation so it would not create an additional internal burden. “Aylwin Lewis, Potbelly’s CEO, worked at Yum! Brands for many years, and knew from experience that when working with franchisees on site selection there are several unique factors that come into play in addition to those encountered when rolling out corporate locations,” says Baugh. “Potbelly needed a team that had that corporate real estate capability as well as experience in franchising.”

Baum also works with large companies who are exploring retail for growth. Duluth Trading Company, a mail order and Internet retailer, is expanding into brick-and-mortar retail. The company opened two test locations near its headquarters in Madison, Wis., which performed well. The retailer then hired Baum Realty to develop a real estate strategy for a potential expansion.

Developing a real estate strategy for clients has been high on the list of requests Baum is receiving. For example, Baum frequently works with private equity firms who are invested in or who own retail chains. For these types of clients, Baum is typically asked to examine the target’s real estate holdings and evaluates each location to determine market optimization. Baugh and his team then summarize their results and present their findings to management to prepare them for their next strategic move.

“About two-thirds of our clients come to us without any defined real estate strategy,” says Baugh. “It has become an essential part of our process. We help clients define their strategy. It becomes our job to continually modify and evolve the strategy as the retail concept continues to evolve.” Baum wants to work with clients for a long period of time; it prefers arrangements where the company will be responsible for multiple real estate transactions over time. “We are in the long-term business with our clients,” says Baugh. “We want our clients to roll out a large number of locations and we want to be working with them for years and years. The only way to do that is to make sure that we are all looking at opportunities based on their blueprint for success. We’re in the game for a long-term relationship where the retailer is opening successful units repetitively.”

Baugh says that he sees more retailers looking to outsource real estate services. Often, this starts with a partial assignment — seeking stores in the Northeast, for example — but then leads to more work after success and efficiency are proven.

“Retailers have tremendous pressure to keep their overheads lower and to streamline operations,” says Baugh. “There is also a lot of pressure for retailers to grow. Most retailers are being conservative with their growth expectations, which doesn’t support a full-time real estate department. We offer the retailer scalability and the ability to avoid the large fixed costs of building an internal real estate department. It is a sound economic decision to go with an outsource model for many.”

To aid its efforts, Baum partners with brokers in every local market it enters on behalf of a client. It feels this is the best way to get the best locations for its clients.

“Real estate is a combination of art and science,” says Baugh. “We manage the science components of analytics, strategy, and procedures and we certainly can manage the art of the negotiation, but the art of incorporating local market knowledge and relationships can’t be overlooked. Our partnerships with best-in-class local brokers enable us to provide our clients with in-depth market insight and connections. The overall package generates winning results for our clients.”

Baum is set up in teams that are organized by client, not by region. That way, clients deal with a dedicated project manager, not a regional representative who works on behalf of a number of clients. “Every retailer has a go-to person who is their project manager,” says Baugh. “They are overseeing everything for the brand.”

Baum goes where its clients take the company. While it has worked nationwide, including Alaska and Hawaii, as well as Canada, current assignments have the company extremely active in the Southeast. The company is also working with several international retailers and acts as their U.S. real estate department. Recently, the firm helped United Kingdom based Yo Sushi! enter the United States. It is also working with a European retailer with aggressive American expansion plans. Baum is working with that group, including consulting with them to define the unit-level economics for its concepts, to create and implement a rollout strategy in the U.S. over the next few years.

“Because we are a boutique group that can give specialized service and we can cover all of North America, we are getting interest from a number of companies who are looking at the U.S. and Canada for the first time,” says Baugh.

— Randall Shearin

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