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Hard tenant truths in the CRE world

As a commercial real estate agent, my job is to line up tenants with landlords, and sellers with...

As a commercial real estate agent, my job is to line up tenants with landlords, and sellers with buyers.

Kelly Macysmic, ICR Commercial, Saskatoon.

Kelly Macysmic, ICR Commercial, Saskatoon.

Unlike a sale, where both sides part ways at the end of transaction, I think leasing is a lot about building a relationship.

However, much like in our personal lives, we all know some relationships are just not meant to be.

Great ideas do not good business plans make

I can definitely respect and admire the courage it takes to start a business with a radical new idea. I’ve seen many entrepreneurs over the years with ideas that seemed less-than-plausible prove me wrong!

Landlords, however, do not get the luxury of being able to ignore the potential for failure. If a landlord is putting any money into fitting-up space or giving away free rent, he/she has to believe fairly strongly in the business idea.

Oftentimes, this is where a relationship can die before it starts.

Landlords have every right to determine the validity of a tenant and whether that tenant will be an asset or a liability. If they can’t see the vision of what a tenant is proposing, it’s very hard for them to give up a space that could possibly suit a more stable operation.

Commercial real estate is an investment for landlords and they must protect it, as any of us would in our personal investing.

Put your money where your mouth is

Apart from selling the idea of a business to a potential landlord, tenants must be prepared to provide a fairly comprehensive idea of how they plan to fund their venture.

A landlord is no fool; contracting a lease under a holding company with no assets provides little to no reassurance for them.

It’s not unheard of for sophisticated landlords to ask for personal credit checks and net worth statements in their vetting of potential tenants. They want to understand financially where you stand and how this business will fit into your life.

An inability to show financial strength is probably one of the biggest reasons offers are rejected or do not make it to the lease stage.

A picture is worth a thousand words

I’ve heard it all. I really have:

* “We’re doing $100,000 sales every month,”
* “I’m working 20-hour days just trying to keep up with our demand.”
* “We can hardly keep the stock on the shelves.”

Talk is cheap. I can poke holes in these statements all day long. For example, you haven’t told me what your sales volume is in relation to your monthly overhead.

As well, that’s awesome that your business is flourishing, but please respect the time and requests of the landlord to prove these statements true. In the famous words of ICR managing partner Barry Stuart, “the proof’s in the pudding.”

If a tenant can’t provide documentation to back up their financial claims or company history, this is a huge red flag for landlords. And rest assured, any unanswered or dodged questions regarding the stability of a company will be filled in by a landlord’s imagination.

As agents, we can help paint the picture and put offers in the best light so landlords can make informed decisions. Without the co-operation of the tenant, however, we’re at a loss to represent them to the best of our ability.

Even if the answer is that this is a new business with little funding, I’d rather put that on the table and let the landlord identify the risk on their own.

I do ask a lot of my tenants when we start out. However, I know I’m putting them into the best relationship I can with their future landlord.

Sometimes delivering these hard truths to tenants can be a less-than-glamourous part of my gig, but I can say confidently I’ve never regretted abiding by it.

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