Commercial/Light Industrial Tenant Screening

[Ken C.]

I am looking for someone who can share their experience in finding tenants for units in a light industrial building. Each unit is approximately 1800 to 2100 sq ft. How do you vet a business tenant vs a residential tenant? These units typically appeal to owner-operator type businesses - machine shops, home remodeling, etc., so were are typically renting to an individual, not a "business".

Do you request a credit and background check of the potential lessee for light industrial rentals? It seems like stating in the  "property for rent" ad that the checks will be done could be be useful. Those that have something in their background that would turn up in a background or credit check, would not bother inquiring about renting the space, saving the property owner the trouble of screening a potential problem tenant.

[Matt Clark]

Ken C. Yes, we pull credit reports on the business owners. And some established businesses will have a DUNS number that you can use to pull the business credit report.

[Ken C.]

Thanks for the information.

[David Conroy]

In the industrial market landlords almost always ask for tenant financials. Usually in 10,000 Sf units and up the landlords I work with don't even pull the credit of the end user unless the company financials look shaky. In 2,000 SF units you're probably dealing with a lot of 1 or 2 people companies so a combination of the individuals strength along with the companies financials would be a good strategy (they may even be the same thing). 

Any company with more than 10 employees we've always asked for trailing 2 years P&L and a balance sheet. I've never gotten pushback on that.

[Steven Line]

Would you ever rent to a guy with no income, a > 700 credit score that is trying to start a woodworking business? He says he has plenty of savings but won’t trust me to say how much. The space is small — 750 sqft and in a rural area in tennessee. 2/3 of my tenant candidates want space to work on their hot rods / cars. Most of them are surprised that I want to do a background check at all.

If this was a residential rental I’d immediately reject him but I’m new to commercial.

[David Conroy]

The savings won't matter too much if the business doesn't do well as he'll get out of the business regardless if it's not cash flowing on its own. Typically with a startup on the commercial side we'll simply ask for a 1 month security deposit per year of term if there's no operating history. Perhaps if its an as-is deal with no T.I. dollars then you can back off that slightly. As an example for a 3 year commercial lease which is what we see as average term for spaces under 5,000 SF in my market you'd get a 3 month security deposit. If it's an as-is deal you don't put additional capital into the space for then perhaps 1.5-2 months would be fine. 

[Gabriel Graumann]

@Ken C. Check and verify EVERYTHING. Even after 17+ years in commercial leasing and brokerage, for our properties and clients, I check everything there is to check when screening prospective tenants. Credit, background, SOS for corporations & entity searches, bond, insurance, and references from clients and past landlords (2-3 deep if possible...because the most recent one will give a good reference just to get rid of a trouble tenant). Also, if it's a sole member LLC or similar entity, I'm checking the spouse and partner background and tenant as I may end up working with these people and want to know who I'm dealing with. Cost for all of this is on the tenant, and make it high enough to assist in the screening process to weed out tenants you don't want. Finally, before you sign them up go see their current facility to get an idea of how well they keep a space.