Renegotiating Leases And Saving Tenants In A Recession

Even though the rent is only one of a long list of costs of doing business, commercial property tenants who get into financial trouble seem to always put rent relief near the top of the list of things to address.  How do commercial property managers or owners know how best to approach the problem of a retail or office tenant who is struggling financially?

This morning’s session at NAR Annual led by Richard Muehlebach examined the issue from the point of view of his 41 years of experience in commercial property management, bringing home the following expert findings:

To Help Or Not To Help: Rich spelled out that there is no right decision when it comes to the question of whether or not to even consider renegotiating a commercial lease.  Some landlords are of the basic belief that the business problems of the tenant are exclusively their own, and that’s entirely defensible.  Others consider a wider range of aspects of the business relationship and seek to head to the negotiating table with a solid understanding of what is possible and what is prudent.  Aspects to consider include:

How To Spot Problem Tenants: In retail situations, Muhelbach counseled a property managers to cultivate a regular relationship with tenants including walking around the space to eyeball characteristics of the tenant’s operation; its sales, its inventory (is it low, is it old?), its staff and its advertising  (have there been recent reductions?)

When The Request Comes, Make Some Of Your Own: When a tenant seeks rent relief, Muhlebach says to ask for the following:

– Get the request in writing, and provide a diligent, speedy response.

– Request a business plan (not an elaborate one – two pages or so should suffice) from the tenant that illustrates their own plan for getting their business back to profitability.

– Ask for financial statements of the business, and of the owner personally.  Evaluate the tenant’s request for help, and if you find a high net worth individual who isn’t kicking in to his own operation, that helps quite a bit in the decision to renegotiate a lease.  The point is to not make the decision in a vacuum .

– For retail tenants, benchmark the last two years sales against the national averages published bi-annually in The Urban Land Institute’s Dollars And Cents Of Shopping Centers, which Rich called a “bible” of the business.

These and many other excellent tips can be obtained in the session recording available at PlaybackNAR.

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