3 Factors to Look At When Evaluating Commercial Retail Tenants
3 Factors to Look For In a Commercial Retail Tenant
Gotspacenm.com
Showing retail property on a daily basis, I have learned what to look for when talking to a prospective tenant. Below are the three most important factors (in my opinion) to look out for when interviewing a prospective tenant. These factors will reveal whether they are a serious candidate for your space.
Experience: As the Landlord, you are going to want to see a tenant that is going to be sustainable for your commercial real estate property. The likelihood of the Tenant prospering and exceeding is the experience and credibility they have within the marketplace or industry. Don’t get me wrong, there are a few stories out there about how someone became an overnight success in a particular area….but not many. As I stated make sure it is credible experience, although an individual may have waited tables for a few years that does not make them qualified to operate their own restaurant. Make sure they had exposure to the financials of their previous operation so they are knowledgeable about what it takes to survive.
Competence: The savvy business owner or entrepreneur should know the questions to specific questions relating to their business as soon as you ask them.
For Example:
- What demographics are you pursuing?
- Who is your target market?
- What is your occupancy cost?
- How much money do you have earmarked for this operation?
- Who are your main competitors?
Based on the way they answer these types of questions you can really tell if the tenant has done their homework and is prepared to open a successful operation. If the prospective tenant struggles to answer these types of questions more than likely they haven’t written a formal business plan. Ask for a copy of their formal business plan for further evaluation.
Financials: Similar to marriage, this always seems to be the touchy subject with prospective Tenants. How much money does the prospective tenant have to implement their concept into your building? To be specific you want to focus on this piece of information not only for a negotiating standpoint regarding TI but also to see if they really have the wherewithal to cover all expenses aside from rent. Once again, if you Tenant is knowledgeable and has put their ducks in a row, they should have an immediate/ precise answer to this amount. If the Tenant simply states, “I have some private investors with money” more than likely they have not done or studied their financial analysis. Ask for a meeting or written documentation from the investors that show the amount they are prepared to give the prospective Tenant. You as the Landlord should be looking out for yourself and the Tenant; the last thing either party wants to do is to occupy the property and then struggle financially throughout the term.
In the end, you want to make sure that the tenant is going to be successful and prosper and grow. Because when a Tenant is prospering, that means they’re making money which in turn means they are able to pay the rent….in full….on time.
If you have any questions or would like to talk to me personally about interviewing Tenants, please contact me.
Clayton King
505-263-8531
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