How to qualify commercial tenant

[joojubs]

Hi everyone,

My in laws bought a commercial condo food court unit and are in the process of looking to find a tenant to secure a lease.

A potential tenant would run his/her food business in this unit.

Would anyone know how to qualify a tenant like this? I would think a personal credit check is not as relevant but we don't know how to screen a food business and its owner. What kind of documents do we ask for? Or are there any companies that do commercial leasing tenant placement? We are in Toronto, Ontario.

Joo

 

[LucasAtwell]

Here are 5 things you can do, before you invest in any real estate investment property, to qualify the existing tenants and to make sure that the terms of each commercial lease are at market:

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[*]Be a Secret Shopper. Pretend to be a customer and visit the business - in person - and see what your first impression is.
[*]Drive the Market Area. Make a list of your prospective tenants and drive around to see how much competition they have. Consider how they compare to the tenants you're buying.


[*]Examine the Tenant File. During your due diligence period when buying the property you've likely been given copies of the leases to review. Make sure to ask the seller for copies of the tenant applications, credit reports, and business plans gathered when the space was first leased. If the seller can't or won't provide these ask why, and give the property transaction extra scrutiny.
Examine the Actual Rent Deposits. Again during your due diligence, the seller will likely give you profit & loss and aging reports showing rent payments received from each tenant. Make sure to look at the actual dates the rent checks are deposited. Seeing a report that shows a tenant paying every month is different from seeing that the tenant is paying late every month.
Look at Competitive Properties. Talk to the tenants in neighboring properties and see what opinion they have of the building you're about to buy.
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[Thomas Beyer]

Look for / Analyze:

• expertise in the line of business
• their previous or current business
• their personal networth
  their health
  their mental state
  their cash situation to buy and survive the first few month as they build a reputation

 

[Pheenix]

It depends on whether the tenant has an existing business or this is a new one. The principal thing to remember is that you have the right to ask a lot of questions about their financial situation and history. You will be granting them credit so you can take the general perspective that a lending institution does. You have a lot more power than you would in a residential situation.



If they have an existing business, whether related or unrelated you can get info from D&B. Also look for credit references from at least 3 - 5 suppliers. Get the principal's personal information for credit checks as well if a new business. Include an authorization to make these types of inquiry.



You will also need to determine what business structure they will be using because this may effect you attitude if not rights in the event of default.



Self Counsel Press has some good publications and I think have one for commercial situations, as a starting point. However, don't try and to do this without a lawyer.



Good luck

 

[invst4profit]

A personal credit check is definitely relevant and should make up part of your screening process. How a individual manages his personal finances goes a long way to determining how he will operate his business finances as well. Look at his credit history in regards to what bills he may have defaulted on. Remember as the landlord you want to be paid ahead of all other financial responsibilities he may have. You first they everyone else otherwise in the case of a commercial lease you can evict immediately.