5 Considerations for Leasing to Local Tenants: Insights from a Developer
Tyler Alley shares his insights on top things a developer looks for when leasing to local tenants.
#1) A Clear Business Idea
The first question we ask potential local tenants is “what kind of business are you looking to open?” You would be surprised how often the answer is a handful of different ideas for potential businesses. If someone doesn’t know exactly what kind of business they want to do– run!
#2) Reasonable Cost Expectations
The second question we ask potential local tenants is “how much have you budgeted for this project?”
In my experience, when tenants fail, it all starts during the construction process when they run out of money. They almost always find a way to finish the project, but it usually comes at a great cost. Often, it comes with debt or a reduced marketing budget. This question really helps to weed out who is serious and who hasn’t put in the proper research.
#3) Experience
“Have you operated a business like this before?”
This answer can come in two forms. Ideally, the tenant owns and operates a similar business elsewhere and this is their third or fourth location. With that said, even having decades of experience in the industry is a great sign. This often comes down to a gut feeling, which leads me to my next point…
“Ultimately, the best credit is a successful business, not a strong balance sheet…”
Tyler Alley
President and CEO
Rose City Partners
#4) Intangibles
Sometimes, you just know it’s going to work out. And sometimes, you just know it’s going to fail. Maybe it’s because the operator doesn’t seem to have their things together. Maybe it’s because the use doesn’t seem to fit. Maybe it’s just a gut feeling after meeting them.
Admittedly, this actually works in the tenants favor more often than not. Some of my best tenants are tenants I took a chance on, and it came from just looking them in the eye and believing what they were saying. Maybe it’s because if they can sell their business to me, they can sell it to customers.
#5) Financials
Are financials important? Yes.
Are they the most important thing when choosing a tenant? Not in my opinion.
I know that strong financials are helpful with lenders and eventual buyers, but I never go into a deal thinking about going after the tenant to get obligated rent.
I want a tenant who is hungry, who is organized, and who will do whatever it takes to make their business a success. So long as they have enough money in the bank to get the project going, I will almost always choose the tenant that I think will be most successful, regardless of who has the better financials.
