Owners must think about vacancies when checking a prospective tenant. Will the tenant’s business survive? When you have a prospective tenant for a commercial center, you must consider whether that prospect would be a good tenant. There are two key standards to apply; (1) the prospective tenant’s financial stability; and (2) the prospective tenant’s potential for success.
Financial Stability
The prospective tenant must be able to afford the rental that you set. Its overall financial condition should be sound. Among the first things you’ll do is to see if the prospective tenant pays its bills on time. Having a reputable credit agency do a credit check on the tenant can easily check this. It is also wise to talk to the tenant’s main suppliers and its current landlord.
An examination of the tenant’s assets is also essential. Ask to see the tenant’s financial records, study them carefully, and discuss with the prospective tenant’s accountant any questions you may wish to have clarified.
Once you are satisfied that the prospective tenant is financially stable, you must ask the question: Will the tenant be successful in your center? To answer this question you must determine the following;
• The tenant’s reputation at its present location.
• The tenant’s sales volume. In the retail business, a turnover of stock at the rate of four to five times a year is considered good.
• The trend of the tenant’s sales. Has the tenant’s sales been increasing from year to year?
• The type of merchandise the tenant will be selling in your center. You’ll look to avoid duplications with other tenants in the center.
• The profile of the tenant’s average customer at its present location.
• How efficiently is the tenant’s business now being run? Is the efficiency or inefficiency likely to continue?
• The nature and extent of the tenant’s advertising.
No Track Record
The preceding is for the prospective tenant who has an established record, who has been in business and offers tangible evidence of performance. But what about a newly owned business that wants to rent space in your shopping center as its first-ever place of business?
You should appraise this kind of prospective tenant by using the same two key standards: financial stability and potential for success. But instead of looking at past records, you will be predicting and forecasting and making judgments about the prospective tenant’s ability, ideas, and business expertise. It is a riskier situation for the center’s owner-manager but a totally new business might generate totally new interest in the center. It’s not the same old merchants merely doing business from a new location.