by: Peter D. Morris CRX, SCLS, SCSM, SCMD
Greenstead Consulting Group
Specialists in Commercial Real Estate Training and Consulting
Before we discuss the need to analyze the landlord, we should pause and recap the process of finding space. In Step 4 we looked at the market where we want to locate. This should have resulted in at least one general area and preferably more. Next we took an inventory of potential locations in those areas that also fit our general criteria for space, based upon our research. Once again, we should have several potential options as a result.
In Step 6 we continue our research. This step is often overlooked even by corporate real estate experts; but it is important, as the landlord you choose to negotiate with and eventually come to a lease with will be a significant part of your business for several years. You will want a landlord that has a demonstrated history of being fair, responsive to your ongoing needs after the lease has been signed, is reputable and can otherwise meet your needs.
There are several ways to conduct this research. A popular method is to interview existing tenants in the building to get their impressions of the landlord. But bear in mind that there may be more than one entity you’ll be dealing with during your lease. For example, you can be dealing with the owner (Landlord) directly, or you could deal with the Landlord via their property manager; which may be a separate, arms-length company that you will also want to vet. You may find the property manager is very reasonable but the owner is not, or vice versa.
You will also want to find out as much as you can about the landlord’s financial position generally and in respect to the property specifically. A cash strapped landlord may be in a position to negotiate a deal that is more favourable to you, but may also come with the risk of deferred maintenance or the potential of bankruptcy.
A trip to city hall will also tell you if the landlord is in arrears on property taxes or if there are building code violations.
Likewise a quick title check and corporate records check (if applicable) can reveal a number of important items about your landlord and may also provide negotiating strength.
The real estate community is surprisingly small and both good and bad reputations are widely known in the local industry, so it pays to speak with commercial Realtors in your area.
Aside from checking if the landlord will be a good supplier of space to your business. Your investigation should seek to find information that you can use as leverage in your negotiation. Does the landlord have a mortgage coming due for renewal soon? Is there another time sensitive event on the landlord’s horizon that you can use to your advantage? Are there a large number of tenant leases coming up for renewal in the property? Is a major tenant in the office building vacating so the landlord will want to replace some of that lost income? Is the property for sale? These are just a few of the many questions you’ll want answered as you look at the landlords of each property you are considering.