Originally written by Christopher J. Destino, SIOR, of the Lee & Associates-Orange office. Full Article here.
Within Industrial Real Estate the market activity is very high. How should sellers and landlords decide on which buyer or tenant to choose. There are several key factors to consider in making the right selection.
From the landlord’s perspective they should consider more than just the highest lease rate being offered. For starters, the credit history and financial strength of the prospective tenant is of significant importance as this will demonstrate past performance and future sustainability. Will they be able to pay the offered rent consistently. The tenant’s use of the property needs to work within the city’s guidelines. Of even greater importance is that the proposed use is not going to create excessive wear and tear on the property or create any potential liabilities for the landlord. It is important that landlords protect themselves against any potential environmental liabilities. The longevity of the applicant’s past operating history will demonstrate their stability and a proven track record of performance through the normal ups and downs of market cycles. Understanding the reason why the applicant either needs to move or wants to occupy this space will help the landlord gauge how long the tenant may stay at the property. For example, has the applicant experienced rapid expansion, steady growth, or has the property they currently occupy been sold. Each of these scenarios will indicate different potential long-term plans or objectives for this space.
The seller’s perspective is similar since price is initially very attractive. But a good broker will assess other pitfalls lying under the surface. We recently received a strong offer on a building, much higher than we initially expected. But when we dug deeper with the buyer, we uncovered some things that made us caution our seller away from the deal with them. For example, this particular buyer was reluctant to meet us in person at the property, we could not get a clear picture of the type of business they were planning to do, it was difficult to determine where they were presently located, and the broker they had representing them was not very clear when we asked direct questions. All of these behaviors raised red flags to us as the seller’s agent, so we strongly encouraged the seller to pursue another buyer. In contrast, the other buyer stood out as a strong candidate because they provided a very clear understanding of their financial capability to close the deal, a clear picture on where they were located, and how they planned to use the property. To help avoid false starts with a group and to minimize the potential of a canceled escrow, it helps sellers tremendously when their agent, in concert with the sellers themselves, perform the proper front end investigations on the potential buyer. This is even more important on investment sales.
Therefore, as landlords and sellers navigate these investigations, it is important that they partner with an experienced real estate agent who can help them discern the right choices for their unique situation. Our team has created a streamlined process to determine the critical elements for each unique decision to achieve clarity and direction as to what is the right path for the most successful outcome. Contact us today and we can help you.
