The New Tenant Creditworthiness Game

Landlords will forever insist on seeing financial statements before finalizing a lease deal with a tenant, whether they are a small business or a publicly traded company.  And they should.  But what does a tenant do if their ship has been tossed – and perhaps badly damaged – in the hurricane of the recent, extended recession?  And, I mean, who amongst us hasn’t suffered?

I represent tenants who, in some instances are looking to downsize for the sake of their very survival.  It is unlikely their financial statements are going to inspire many landlords to spontaneously break into song.  So, does this tenant need to resign themselves to rejection?  Absolutely not.

Landlords have suffered a parallel fate as their struggling tenants.  They naturally prefer tenants that have capital reserves that will better insure that their rent will arrive in the mail every month.  But today they are forced to look beyond the numbers, and brokers need to coach their tenant clients how to tell their story in a persuasive way.   That comes with taking the time to learn about the clients business and ask some difficult questions to get at the truth.

I recently  had a client – we’ll call him Stuart – who is a prominent interior designer for large homes and hotels.  His industry was decimated by the recession and the very fact that he survived at all was a testimonial to his reputation and perseverance.  We presented the landlord with a couple of years of personal tax returns (since the landlord would require a personal guaranty on the lease.)  This gave the landlord the facts.  They are what they are.  Starting off with honesty is always the best policy.  But what we submitted with the numbers was Stuart’s story: his long history in the business, his impressive resume of clients worldwide, and his nimble resizing of the company to insure its continued viability.  We worked together on the story so it hit what I knew from experience would be a landlord’s hot buttons .  We proceeded to final lease documents without a single question from the landlord.

The facts + a success story that reaches back to more robust economic conditions = the new creditworthiness. 

 

Aaron Weiner CCIM, CPM, LEED AP

aaron@bailesre.com