Finding the right tenant for a piece of commercial real estate is crucial to the profitability of the property. Be sure not to overlook the following.
Examine the tenant’s finances
For an existing business, review the potential tenant’s revenue stream. Request tax returns and certified or audited profit and loss statements for the past two years as well as year to date financials. If you’re working with a startup, run a credit check and review personal bank statements to make sure they can cover the rent. Even if all the numbers look good, you should require a substantial security deposit. For startups or newly formed businesses, you may want to consider a personal guaranty from the business owner. For LLCs or other special purpose type entities, a corporate guaranty from the parent company might be in order. Ensure that the financials you are reviewing match the name of the legal entity that will be leasing the space.
Keep surrounding businesses in mind
Make sure the potential tenant’s business is appropriate for the space you’re renting and will fit in well with nearby businesses. Ask yourself: Will this tenant’s business interrupt the surrounding businesses? Will surrounding businesses cause any conflict for this tenant?
Hire a broker who has previously worked with properties similar to the one you want to rent. Request references from the broker and any agents that will be working on your listing. A broker interviewing for your listing should be able to tell you what lease rates and CAM are for the area where your property is located as well as how much vacancy there is in the surrounding area and what properties are considered part of the competitive set for yours. Also, ask how long it typically takes the broker to find a tenant.
Research the rental rates of neighboring business spaces. You should also evaluate the condition of those spaces and compare them to yours. If your property is newer and in better condition, don’t be afraid to ask a little more than what other are units are going for. It’s important to consider what the market is for space similar to your property, in addition to considering your own investment goals. Also, consider whether you are willing to or interested in investment in incentives such as tenant improvement allowances, free rent, etc., and how those incentives may impact your pricing. It’s important to factor in all costs associated with leasing the space, such as construction, professional fees, advertising, etc., to ensure that your deal produces the revenue that is expected.
Contact the DRK professionals for help finding the right tenant for your commercial real estate property. We’ll use our knowledge and resources in central Ohio to help you achieve your commercial real estate occupancy and investment goals!