Magazine article Security Management

Rent and Run

Magazine article Security Management

Rent and Run

Article excerpt

RENT AND RUN

ALTHOUGH THE SOFT COMMERCIAL REAL Estate market is a symptom of the depressed economy, excess office space may actually be a blessing in disguise to the economy. It encourages the start-up or expansion of small businesses as well as an influx of larger corporations looking for an inexpensive city in which to relocate their headquarters.

Unfortunately, the flip side to this die-hard optimism is that a buyer's market for office space can attract unscrupulous entrepreneurs along with legitimate business concerns. In fact, among the potential tenants taking advantage of lower lease prices and special inducements are professional con men of the rent-and-run variety.

Our investigative company's business base has traditionally consisted of law firms and banks that hired us to search for assets to satisfy unpaid debts. In the past several years, however, we have seen an increase in requests for prelease background and asset searches for property owners and managers. These individuals have grown wary of signing leases without the assurance that the prospective tenant intends to fulfill the lease and has the assets to do so.

Most often we have been introduced to our leasing clients on an after-the-fact basis--for example, after a tenant has skipped out at the end of the free rent period or declared bankruptcy when the first lease payment came due. Our client needs to know if anything can be salvaged, that is, if the tenant's company has assets that would make a lawsuit worth the expense.

By that time all we can do is search for vulnerable assets--cash, real estate, investments, or equipment. But even when substantial assets are uncovered, we have to dig deeper to discover if other groups, such as banks and mortgage companies, have first crack at the property to satisfy outstanding loans or other commitments.

Obviously, taking risks with potential tenants is a high-stakes game. Considering that it costs a minimum of $2,500 in attorney's fees to pursue these assets, preleasing investigations represent a considerable savings in money and aggravation.

IN A SOFT REAL ESTATE MARKET, intense competition among leasing agents for tenants helps encourage irresponsible behavior. In their rush to sign up a prospective tenant to help fill up a building, leasing agents relax their standards and often do not conduct the kind of background investigations that would be routine in a better economy. The following cases are examples of leasing frauds our company has investigated. They represent the dangers of low prices, high pressure, and cunning customers.

In one case, an individual claiming to represent a large public company with business assets throughout the United States wanted to rent several floors of office space. As part of his leasing requirement, he solicited a six-figure cash advance from the leasing company to cover his business relocation expenses.

Our investigation showed the various businesses supposedly under the company's corporate umbrella were nothing but shells. Furthermore, the company had no assets, and the individual who claimed to be behind the business had committed several other business frauds around the country.

The firm that hired us to investigate backed away from the leasing deal after the facts were revealed, but a competing firm did not. That firm fulfilled all the bogus company's leasing requirements, building out the floors and advancing the requested money. …

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