How substantially does tenant credit score risk make any difference in a lease transaction? – Score: 8

13 thoughts on “How substantially does tenant credit score risk make any difference in a lease transaction? – Score: 8”

  1. Think of it like buying bonds. Would you rather take bonds from the USA at 3% or from the Republic of Transnistria at 15%?

  2. Absolutely. Amazon industrial assets on long term leases will always trade at lower caps than non-credit tenants. Same goes for credit tenants with office.

    In my opinion, I am taking lower rent/credit tenant over higher rent/non-credit tenant. Assets become exponentially more financeable with the former.

  3. Yes. Having a materially worse tenant covenant affects your metric selection, so it’s wise to make up for it in higher rents if you can.

  4. Give me a nice solid Anchor tenant and i’d gladly take a slightly lower rent rate. Same goes for Residental. Great Tenant that always pays on-time and low maintenance? I’ll gladly keep your rent as-is to keep you as my tenant.

  5. Ratings agencies give added benefit for IG tenants. It matters, but the location and historical performance of the asset matters 10x more.

  6. Look at it like this. Do you think a McDonald occupying 2500 sqft is worth more than let’s say snookies cookies in the same space?

  7. This is too simple of an approach. Never forget location and releasable value. There is no government lease that I would take if located in a less desirable location. I know through this shit storm of 2020 and the Great Recession, no tenant is immune so get the best location and most flexible building.

  8. I would take the more credit worthy tenant.

    Also, require annual financial statements and a personal guarantee on the lease. This is a standard request and will allow you to monitor the ongoing strength of the tenant.

  9. Quality matters in leasing. Credit Tenants will always yield better terms versus a local Tenant.

  10. first want to make the point that the degree tenant credit risks matters is tied to (i) your basis in the real estate, (ii) quality of the real estate… all of which is to say: can you release the property if they vacate.

    So along those lines, as an example, if you overpaid for the real estate, I would not take a flyer on a start-up. But if its good real estate and you own it at a great basis, maybe try to lease to higher yielding tenants.

    It also depends on your objectives and how involved you want to be in management and whether or you are using debt and what that debt needs from a tenants credit stand point.

Comments are closed.