THREAD: Financials We Collect with LOI from Retail Tenants and Why.
#Retail #RetailLeasing #ShoppingCenters #CRE #REtwit #CommercialRealEstate
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#Retail #RetailLeasing #ShoppingCenters #CRE #REtwit #CommercialRealEstate
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Collecting thorough financials in retail leasing is crucial because you are starting a relationship for a minimum of 3 to 5 years and often longer if you are effective in your leasing and management processes.
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There are two main types of inquiries on retail properties outside of national credit tenants; Existing Businesses and New Businesses.
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Existing Businesses are more desirable for the Landlord as it generally means they have a proven business model that existed somewhere else for a period of years (find out how many) or that the tenant is having enough success to justify a 2nd location.
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Existing Business Requested Financials:
- Past 2 years of income statements: this will show financial strength for the tenant, give us clear picture of income/expenses, previous rent paid (or rent at another location), and expected rent to income ratio.
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- Past 2 years of income statements: this will show financial strength for the tenant, give us clear picture of income/expenses, previous rent paid (or rent at another location), and expected rent to income ratio.
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Existing Business Requested Financials: (cont)
- 3 months business operating bank statements: this shows that the tenant has enough cash in the bank to sustain operations during start up, pay a few month's rent (hopefully more), cover TI's, etc.
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- 3 months business operating bank statements: this shows that the tenant has enough cash in the bank to sustain operations during start up, pay a few month's rent (hopefully more), cover TI's, etc.
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Existing Business Requested Financials: (cont)
*Optional for Existing Business if Above are Strong*
- Credit report from guarantor: if the income and bank statements are at all questionable then we always insist on a credit report and guarantor on the lease. More below.
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*Optional for Existing Business if Above are Strong*
- Credit report from guarantor: if the income and bank statements are at all questionable then we always insist on a credit report and guarantor on the lease. More below.
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New Business Requested Financials:
New businesses differ from existing businesses in that they have no financial history. Due to this, we underwrite the personal financials as opposed to the business financials. We collect the following financials from new businesses.
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New businesses differ from existing businesses in that they have no financial history. Due to this, we underwrite the personal financials as opposed to the business financials. We collect the following financials from new businesses.
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New Business Requested Financials: (cont)
- 2 years of tax returns: We always collect 2 years of tax returns because it's important to fully understand their financial situation before a Landlord invests their capital in a new tenant (TIA, free rent, commission....)
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- 2 years of tax returns: We always collect 2 years of tax returns because it's important to fully understand their financial situation before a Landlord invests their capital in a new tenant (TIA, free rent, commission....)
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New Business Requested Financials: (cont)
- 2 years of tax returns: (cont) (time, opportunity cost, cost to evict, damage to space, etc) Do they have another job? Will they continue that stream of income? Any other questions that might come up after a thorough review.
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- 2 years of tax returns: (cont) (time, opportunity cost, cost to evict, damage to space, etc) Do they have another job? Will they continue that stream of income? Any other questions that might come up after a thorough review.
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New Business Requested Financials: (cont)
- 3 months personal bank statements: Always gathering 3 months of statements is important to ensure that the tenant hasn't fluffed their bank account with recent loans that wouldn't have hit the credit report or money..
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- 3 months personal bank statements: Always gathering 3 months of statements is important to ensure that the tenant hasn't fluffed their bank account with recent loans that wouldn't have hit the credit report or money..
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New Business Requested Financials: (cont)
- 3 months personal bank statements: (cont) from family and friends. Always ask the source of large amounts of money if not apparent. The same information above on existing businesses applies as well.
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- 3 months personal bank statements: (cont) from family and friends. Always ask the source of large amounts of money if not apparent. The same information above on existing businesses applies as well.
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New Business Requested Financials: (cont)
- Credit report from Tenant/Guarantor: We always get a credit report and guarantor if a new business. If they are not invested in their business, then why should you be? I've seen many deals be killed because of this and it...
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- Credit report from Tenant/Guarantor: We always get a credit report and guarantor if a new business. If they are not invested in their business, then why should you be? I've seen many deals be killed because of this and it...
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New Business Requested Financials: (cont)
- Credit report from Tenant/Guarantor: (cont) always rubs a Landlord the wrong way when they aren't willing to do so. Credit reports can give you other valuable information, such as if they own a house, if they have...
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- Credit report from Tenant/Guarantor: (cont) always rubs a Landlord the wrong way when they aren't willing to do so. Credit reports can give you other valuable information, such as if they own a house, if they have...
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New Business Requested Financials: (cont)
- Credit report from Tenant/Guarantor: (cont) fulfilled past financial obligations, paid on time, etc.
New businesses can be good if this processed is followed property but they can just as easily go bad.
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- Credit report from Tenant/Guarantor: (cont) fulfilled past financial obligations, paid on time, etc.
New businesses can be good if this processed is followed property but they can just as easily go bad.
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This process is one of the most important when leasing to non-credit tenants and can save you or your client countless amounts of time and money.
Would love to hear if you do anything to improve your process for collecting tenant financials beyond this.
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Would love to hear if you do anything to improve your process for collecting tenant financials beyond this.
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