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How to Tell a Good Tenant from the Rest

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Distinguishing an attractive tenant from an undesirable one is like separating the wheat from the chaff.  Good tenants will have lasting appeal and the rest are likely to be short-lived.  Here at Berger Commercial, we’re committed to taking the steps necessary to assure that the tenants we find for commercial centers are the good ones: the tenants who bring financial stability and good will that enhance a building’s reputation in the marketplace.

There are two basic sets of criteria to determine whether a tenant will be an asset to a commercial building: its financial stability and its potential for success.

Today’s Financial Checklist

How can you be sure a prospective tenant’s financial condition is sound? The first step is having a reputable credit agency do a credit check to determine the tenant’s financial viability and whether it can afford to pay the rent you’ve set.  It’s also wise to ask to see the tenant’s financial records, review them carefully, and discuss any questions you wish to have clarified. By taking the time to talk to the tenant’s main vendors and current landlord, you can find out whether this tenant pays its bills on time and has a stable payment history. Have a look at the tenant’s current location to see whether its operations appear to be thriving and sustainable.

Future Outlook

Leases are by their very nature forward-looking commitments, making a tenant’s future potential as important as its current financial status.  Once you’re satisfied that the prospective tenant is financially viable today, take a look at its potential for years to come. While no one has a crystal ball, there are tell-tale signs that may give you a sense of the tenant’s future viability.

Some companies fail because they’re poorly managed.  Others bomb because, despite their showy beginnings, they fail to deliver anything of lasting value. Begin by researching answers to the following questions:

  • Have the tenant’s sales been trending up or down?
  • Does the business seem to be efficiently run?
  • Is the tenant in a business that seems to have long-term appeal or does it seem to you like a flash-in-the-pan?

No Track Record?

What if the prospective tenant is a start-up business in search of its first location?  Newly owned businesses are more difficult to evaluate and therefore riskier, but should nonetheless be able to provide evidence of the owners’ credit worthiness, a business plan, initial sales, advertising commitments and other evidence of potential growth.

Despite the high vacancy rates in commercial properties – or perhaps because of it – it’s essential to take the time to check out prospective commercial tenants. Due diligence goes a long way in separating desirable tenants from the rest.

By St. George Guardabassi

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