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Rent-to-own business?


Schneider says landlords must act as banks



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Landlord Chuck Schneider (right) bought all the assets so tenant Donna Walker could open the Spa on the Lake in Lake Orion. Eventually, she will buy him out. Photo by C.J. Carnacchio. (click for larger version) (click for larger version)
December 29, 2010 - Traditionally, the nexus of the landlord-tenant relationship has been one thing and one thing only – the rent.

Beyond that monthly check, the two didn't get involved in each other's financial matters. They didn't need to. They didn't want to.

"It's always been this is your business; this is my building. I'm the landlord; you're the tenant. Good luck," said Chuck Schneider, a local real estate developer who owns numerous commercial properties in Oxford and Lake Orion.

But given these difficult economic times, Schneider, who serves on Oxford's DDA board, came to the realization that this age-old relationship must change and evolve if landlords wish to lease the glut of empty buildings on the market right now and entrepreneurs wish to start new businesses or expand existing ones.

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In his view, landlords must now fulfill the role banks once played by providing the capital entrepreneurs need. By doing so, landlords will fill their empty buildings and over time, see their rents increase.

Schneider's new model isn't just talk. He put his money where his mouth is by partnering with Donna Walker, a tenant of his who owns Head to Toes Total Body Works in Oxford, to open the Spa on the Lake, located at 302 S. Broadway St. in Lake Orion. The new business opened Dec. 7.

"I've been at this 30 years. I've had as many as 150 tenants. I've never done this before," he noted.

Originally, the two-story building owned by Schneider was Schenden's Spa, but the doctor who owned it decided to close it, concentrate on the medical side of the business and centralize his operations in Troy.

Rather than be left with an empty building decorated by a for-lease sign, Schneider decided to be proactive and purchase all the assets.

"I bought the place lock, stock and barrel," he said. "Here we have a clientele. We have a staff. We have a furnished building. Are we going to cast these 16 (employees) adrift, or do we try and keep this place going?

"The alternative was he goes away, I put a for-lease sign up and we end up with who knows what. It just seemed a lot more intelligent to keep that business that had been a good business for 10 years. This just seemed like the logical way to go. Ten years, we're talking a lot of clients."

But Schneider had neither the desire nor the experience to run a day spa. That's where Walker comes in with her six years experience of owning and operating a successful spa. She worked there for two years prior to owning it.

"The plan is ultimately, she's going to buy out my assets," Schneider said. "I'm just doing this as sort of a stopgap."

Schneider explained that most banks these days aren't lending money for small businesses despite their advertised claims.

"The billions of dollars (the federal government) gave the banks never filtered down to the consumer," he said. "The banks used it to buy other banks; they didn't use it to make loans more affordable for people. They're not opening up their credit, they're restricting their credit."

Without capital, entrepreneurs looking to start a new business or expand an existing one can't afford to do it.

"Oakland County has various training programs – how to write a business plan and how to decorate your windows. Those are great, but we've got to get the person in business first," he said. "That's where we're falling down. The finance piece of that process doesn't exist. Without that finance piece, the business doesn't exist."

"Most people don't have the working capital. They need the money for their house payment, their car payment, their kids' education and groceries," Schneider explained. "They don't have the resources to say I'm going to take X amount of dollars and plunk it here and by the way, I want to have six months savings to feed the meter while this business is getting off the ground."

This is where landlords must step in and follow Schneider's model of becoming a partner or investor in their tenant's business venture, as he's done with Walker.

"I'm the bank. I'm basically financing the purchase of the business," he said. "She pays a start-up rent to get her rolling."

Over time, Schneider said the rent structure will change and Walker will purchase all the assets from him, thus becoming the sole owner of the business.

Gone are the days when landlords could simply buy a building and wait for someone to lease it. Schneider said landlords have to be more proactive and willing to take a gamble on new businesses with their own money.

"You have to look at the individual and say, 'I'm betting that you have the skill set to do this,'" he said. "Those are people you work with to be successful."

"Conversely, landlords have to look at people who aren't qualified, who have no experience or know-how, no business plan or background, and say I'm not taking a chance on you," Schneider explained. "You have to be a good judge of people and what you think their capabilities are and what their skills are."

Basically, landlords must now fill the role abdicated by banks to help get the economy moving again.

"We are a credit economy – like it or not. And when credit goes, this economy goes because that's the way it's been created," Schneider said. "When the credit tightens up, it's like putting the brakes on the train. It just comes to a stop."

The benefits to landlords – and the communities in which they own properties – are occupied buildings and higher rents.

"Once the buildings are full, then rents can rise. But rents will never rise when you have empty buildings," Schneider said. "You have to fill everything up, then create demand for the community. Prices will never rise when you have vacancies and no line of people saying, 'Hey, I want to go to Oxford."

Schneider noted that Rochester filled 38 stores in one year because the town's DDA was "very aggressive" about going out and recruiting new businesses.

Rochester filled 38 stores in one year because its DDA was "very aggressive" about going out and recruiting businesses.

"They had property tours and did a lot to make the town desirable to people," Schneider said. "Thirty-eight stores in one year is a lot. They've turned the corner there."

As for Oxford, "we're not there yet."

"We still need to do a lot of work to attract people to the community," he said. "For-lease signs don't say successful and vibrant, they say just the opposite."

CJ Carnacchio is editor for The Oxford Leader. He lives in the Village of Oxford with his wife Connie and daughter Larissa. When he's not busy working on the newspaper, he enjoys cigars/pipes, Martinis/Scotch, hunting and fishing.
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