Potential tenant offers to pay 6 months in advance - retail strip

OP

Property Manager · TX · Member since 2019 · 327 posts · 69 votes

@Greg Dickerson Thanks Greg. Per your advice we will hire a commercial real estate attorney specializes in retails to draft the lease for us. But I think we will do the lease negotiation ourselves on some basic things such as: lease term, deposit, TI, free rent. Really appreciate your input. Thanks and have a great day!

Jerel Ehlert

Attorney · Austin, TX · Member since 2014 · 890 posts · 759 votes

Hire a VERY GOOD commercial leasing attorney. Pay the "outrageous" hourly rate and consider it a small measure of assurance.

First problem: nature of the business. Asian Massage Parlors (AMPs) can be sexually oriented businesses (i.e., prostitution). Face this one directly and tell them no prostitution or other illegal activities. Monitor for such. Ask law enforcement about this from your area.

Second problem: pre-paying rent. Another indicator of illicit activity (more so in residential leasing). Unless there's a good reason, rent is usually an overhead expense paid for from operations. It also means that you won't have a "non-payment of rent" reason to start eviction, only default in other performance under the lease.

Leasing to an attorney, by itself, isn't much of a reason to deny the application. Sure, we can be a pain in the butt to deal with sometimes. We need a place to do business and live, too. And sometimes you might need one.

1 Reply

OP

Property Manager · TX · Member since 2019 · 327 posts · 69 votes

@Jerel Ehlert Thanks so much for chiming in. Are you commercial or residential or both?

First problem: Asian Massage Parlors. I was thinking exactly the same. Each time I look in the news and there is a prostitution ring got busted chances are it's in a Foot reflexology owns by Asian. I am Asian too and always feel so ashame.

Second problem: pre-paying rent. You won't have a reason to evict due to 'non-payment of rent' during the period that they pre-pay. But I thought after that if they don't pay you can still evict for non-payment of rent if they don't pay?

Leasing to an attorney: I hear you. I don't have any problems with leasing/doing to/with attorneys. We just signed a lease with an attorney in June and he is super nice. Just that I like transactional attorneys more and this guy is a litigation attorney and apparently he is good at what he is doing. That makes me extra careful :).

I am going to meet him this weekend and will tell him straight that our strip is a good, clean, family oriented center and we intend to keep it that way. So no prostitution or any illegal activities are allowed. If they are still interested then we will talk more, if not, so be it. I rather leave the unit vacant than rent to those.

Thanks again for your advice/input. I really appreciate it!

Jerel Ehlert

Attorney · Austin, TX · Member since 2014 · 890 posts · 759 votes

I do both residential and commercial.

Like any industry, there are both legit and illicit. In law school, I would hit the legit places for a therapeutic massage just before exams and the bar.

If there's a performance default, you can still evict, but it gets awkward. Local laws aside, there's a general principle that LLs have a duty to mitigate losses. If they get evicted and you replace them with another tenant when you still have their pre-paid rent, you will have to return (you cannot get paid 2x for 1 month).

OP

Property Manager · TX · Member since 2019 · 327 posts · 69 votes

When I was in CT once in a while we would have a massage therapist came into the office and for a day and I used to get one here and there whenever I was so stressed out. Real, legit massage parlors are good. My dilemma is, I have no way of knowing for sure if this one will be a legit one or not. Been looking at complaints report for that area and it seems most of them are bad.

Ronald RohdePro Member

Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes

Originally posted by @Courtney Duong:

When I was in CT once in a while we would have a massage therapist came into the office and for a day and I used to get one here and there whenever I was so stressed out. Real, legit massage parlors are good. My dilemma is, I have no way of knowing for sure if this one will be a legit one or not. Been looking at complaints report for that area and it seems most of them are bad.

How long have they been in business? Hire Jerel, it will be worth it.

OP

Property Manager · TX · Member since 2019 · 327 posts · 69 votes

@Ronald Rohde This is their startup but she has been working in other parlors. I was thinking of hiring Jerel to handle this if we decided to lease to this couple. But then right on that day there was a post on NextDoor about those massage parlors and exactly like Jerel said most of them are not legit so we decided to skip. We rather have a vacancy then be part of something like this if they turn out to be not legit. Our current tenants are good businesses who are doing good even during this covid-19 so we intend to keep it that way.

Ronald RohdePro Member

Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes

Originally posted by @Courtney Duong:

@Ronald Rohde This is their startup but she has been working in other parlors. I was thinking of hiring Jerel to handle this if we decided to lease to this couple. But then right on that day there was a post on NextDoor about those massage parlors and exactly like Jerel said most of them are not legit so we decided to skip. We rather have a vacancy then be part of something like this if they turn out to be not legit. Our current tenants are good businesses who are doing good even during this covid-19 so we intend to keep it that way.

Sounds like a cautious approach! Fit and keeping other tenants happy is very important

Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

Podcast Guest on Show #47

A bad tenant can be like a bad worker in a business. It can be a cancer that makes everyone else want to leave. Not worth it.

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OP

Property Manager · TX · Member since 2019 · 327 posts · 69 votes

Yup, not worth it at all. Yesterday we had a tenant rep broker reached out to us saying he has a potential tenant (franchise, pastry type of store) who expresses interest in our space but after checking our exclusive agreement with one of our tenants it will violate that agreement so had to turn them down.

OP

Property Manager · TX · Member since 2019 · 327 posts · 69 votes

@Joel Owens how are you doing Joel? Haven't seen you here often. Must be super busy still? We are super busy here on residential side I barely have time to breathe! On commercial side we want to give it a little more time before buying more. When we are ready for that I will reach out to you again.

Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

Podcast Guest on Show #47

Yeah I haven't had much time. Been too busy with clients buying stabilized NNN. I am launching a national NNN podcast show going live soon for everything retail. I am still working on writing my book and then syndicating my value add deals as a sponsor.

A lot of posts on here now are small balance commercial odd ball mixed use properties which I do not specialize in so not much to comment on.

Just make sure right now retail tenants looking for space are trying to lock up sweetheart leases for the next 5 to 10 years taking advantage of landlords that might be desperate to fill a space because of COVID. It can be better in a lot of cases to wait it out for a better tenant with normal terms or see if tenant agrees to 1 year reduced rates but then pays market when Covid goes away.

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OP

Property Manager · TX · Member since 2019 · 327 posts · 69 votes