A vacancy that drags on can take years to recover from. But when the only prospects showing interest have little experience, poor financing, or unproven business concepts, it’s tempting to take what you can get.
Considering Keeping the Vacancy
Do you consider the tenant or do you keep the vacancy? It is often said that a vacancy is better than a bad tenant. And a bad commercial tenant really can set you farther back than a vacancy ever would. Especially if you’ve spent significant money on new flooring, paint, and other build-out items. Now if they don’t pay or they are causing trouble with other tenants in the building, then you have the cost of evicting them. And when a disgruntled tenant leaves, they don’t often leave the space in a marketable condition. It certainly would have been better, in this case, to have kept the vacancy.
Taking a Chance on a Tenant
Of course, you eventually have to take a chance on someone, but could you have known this tenant prospect was someone you should have taken a pass on? While you can’t predict the future, you can improve your odds a prospect is going to be able to fulfill the full lease term and be an asset to the property. How you do that is called due diligence.
Due diligence is a word generally associated with buying commercial real estate not leasing. But it applies here too. Folks often call it screening when referring to tenants, but I like the term due diligence better. It simply means making sure you’re getting what you pay for. Tenants will put their best foot forward when they are interested in a space. And often the bad ones flat out misrepresent themselves. Application verification, financial statements, business plans, are some of the essential ways of performing due diligence. But at the end of the day, you have to verify that what is on the paper is true. That’s due diligence.
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