Magazine article Journal of Property Management

Is Your Tenant Headed for Trouble?

Magazine article Journal of Property Management

Is Your Tenant Headed for Trouble?

Article excerpt

The following article is an excerpt from the new IREM Key Report, Strategies for Working with Small Tenants, by Shannon Alter, CPM®

IT'S NOON ON FRIDAY AS YOU WALK INTO ANDRE'S ATTITUDES, A FULL-SERVICE HAIR SALON IN THE NEIGHBORHOOD SHOPPING CENTER YOU LEASE, INTENDING TO TALK WITH ANDRE ABOUT HIS OVERDUE RENT. Andre is nowhere to be seen, and another stylist tells you he is not only out of the salon for the day, but is out of town for an undetermined period of time. The usual receptionist, who also handles the bookkeeping, is out sick; and no one else seems to know when - or where - you will be able to pick up the rent check.

This is the second month you have had to chase after Andre for the rent and the shopping center's owner wants you to put him in default, today. You have no idea what Andre's current monthly sales are because you can never seem to catch up with him to find out. While you're waiting for someone to provide assistance, you look around and realize things are looking kind of shabby. Although it is mid-day on a Friday, the salon is not very busy, and there are only two hairstylists. Your heart sinks and your brain goes into panic mode. What should you do?

In situations such as this one, you probably want to do something, anything, to resolve the issue immediately. However, let's start by discussing some of the things you should not do:

Don't keep your owner in the dark. Most owners don't like surprises, especially big ones such as a merchant who is in default or who may soon vacate his space. For an owner, there is nothing worse than learning of a tenant's unforeseen move -out from an article in the local newspaper, the TV news or from the tenant himself. It's always best that you immediately share such news with your owner, even if it's negative, along with your recommendations for resolution.

Don't wait until Monday. Pay attention to your gut. If you sense that a bad situation is about to get worse, you're probably right. Your concerns at this point should be 1) to get payment and 2) to make sure the tenant does not unexpectedly close his store or move out. The chances of a "midnight move" are less likely with a hair salon, restaurateur or other tenant with expensive fixtures and equipment, but it's still a concern. It's important to get the tenant in front of you, cashier's check in hand, sooner rather than later.

Don't make an immediate decision. A merchant who is in dire straits will often try to get the landlord to immediately agree to rent relief or rent deferral. What should you do? Even if you're lucky enough to get a tenant like Andre on the phone, don't let him persuade you to make an immediate deal to delay, defer or relieve rent, unless you have already discussed these alternative plans with the owner. Your task is to make sure the rent is paid and the tenant is a viable one.

So, how can you tell whether a tenant is about to go south or whether it's just a temporary glitch in the road? Here are four telling signs that will help you discern whether your tenant is headed for trouble:

1 Lack of focus and disorganization. Have you ever walked into a store and just as quickly walked out because you really had no idea what the merchant was selling? Sometimes merchants erroneously believe they can succeed by selling a little bit of everything, when focus and a theme are really what make the sale. Additionally, a merchant whose display areas, counters and clothing racks are messy and in disarray may lose customers who cannot find what they are looking for. Even in today's tough economic times, merchants who haphazardly put items on sale without rhyme or reason should closely examine merchandising and sale strategies.

2 Late payments. Gertie's Gifts just called you to say that rent will be a few weeks late this month. This is the second month in a row she has been late. Foot traffic isn't all it should be, she tells you; she's had some turnover and sales are down. …

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