Dear reader: I wanted to update a blog I posted a couple of years ago because the issue -- tenant credit -- remains salient.
I am working with a tenant that ran several boxing gyms in New Zealand and Australia for ten years and recently relocated to California. He wants to launch the same business here and has a clear vision and plenty of confidence. But when I asked him to share his balance sheet with me, what he presented was, well, underwhelming. I explained to him that what financials do is tell
a story. If the numbers are strong, the landlord presumes the story is "success". But when the numbers are unimpressive -- not uncommon with startup businesses -- you need to narrate the story addressing experience, past success, and a business plan that shows a clear vision of the business and its customers. It also shows the landlord that you have a plan and are ready to execute it. I will let you know how it goes...
Another client had a recent bankruptcy on their record that would have cut off discussions with many landlords. I coached them to present a story that explained how their recent financial troubles were unrelated to the business that would be operating in the space and paying rent. The transparency and honesty of their story got them over the hump and I ended up negotiating a very
fair deal for them.
A couple of years ago, I negotiated a ten year lease of a surface parking lot in an upscale Westside commercial district for a client who was an immigrant from Sri Lanka and who had just become a citizen of the U.S. While he had several years of experience in the parking lot management industry here, he didn’t have two nickels to rub together. But with a
story that we could have titled "The American Dream" that featured the tenant's "up by the bootstraps" story, we got the deal done – with an institutional landlord, no less – without providing any financial statements whatsoever. The financial discussion didn't start that way, to be sure. I remember when I first contacted the landlord's agent he asked me about the tenant's capital stack. What immediately popped into my mind was a quarter with a nickel, a penny, and a dime
stacked on top. I had the presence of mind not to say that out loud, thank goodness.
Tenants with less than stellar financials will sometimes encounter a very skittish property owner but there are others out there that will be much more open to leasing to a promising business.
A good tenant representation broker can help write the story that will end in “happily ever after”.
