When you lease or manage a mall, it’s tempting to take on the first tenant that comes along to fill a long-term vacant space in the property. Yes, I know we are always looking for the best tenants who can fit into our property, but waiting too long for the right tenant can hurt asset performance and landlord cash flow. The pressure is there, if you know what I mean!
The owner is looking for quick results and a stable rent on the market. This is why they entrusted us with the management and rental of the property for them. So, do you bow to the pressure of finding a new tenant, or do you hold out for the best fit for the mix of tenants?
It is a fact that a vacant rental space deteriorates the visual appearance of the property and can destabilize the mix of tenants. If you have several vacant units close to each other in the same commercial building at the same time, the impact is much greater. Although this is a pressure situation, you still need to be very careful with the tenant choices you make in the property.
If you choose tenants that are inexperienced or don’t match the needs of the buyer or the tenant mix, you’re extending the issues and simply changing them. After a few months, you’ll be back where you started with another vacancy and a defaulting tenant. All of this costs time and money.
So let’s lay down some rules to help solve a process of selecting tenants and placing them into vacant space in a commercial building.
- Who are the people in the business? When dealing with a small business, it helps to understand who owns the business and who is the primary partner or decision maker. Someone will hold the “purse strings” in the business.
- What do they know about retail and their products or services? They should have a track record of success elsewhere. If it’s in a mall, see if you can speak to the property manager or owner for feedback and facts about the success and history of the business.
- Where have they operated from over the past few years and can they show you their audited cash flow? Their accountant will be the best person to provide this information. You can also ask to see the business plan they are working on.
- The placement of the tenant mix will have a lot to do with their service or product. They will have to complement the other tenants around them. Look for similarities in tenant placement. The clustering process works in retail leasing and management.
- The rental conditions will be set by the owner and negotiated with the tenant. You should have a set of fixed (non-negotiable) baseline terms and others that you can compromise on.
- If the tenant wants incentives in the rental process, this should only be done if the basic terms and conditions of the landlord’s lease are met and you get a solid set of tenant commitments in the lease. Nothing is really agreed until the lease is signed; remember this !
- Guarantees must be provided to the landlord to compensate for any potential lease defaults, if any. Personal guarantees are worthless, so ask your tenants for a cash deposit or a bank guarantee. The value of the guarantee must be equivalent to at least 3 months of rental.
So the message here is that every tenant should be vetted and vetted before they are allowed to rent the vacant space in your commercial building. When you exercise care in the selection process, the property will perform better in the long run for the owner.