1) Start with researching on the Internet.
a) Place the entire business name in quotations (like this: “International Outfitters”)
and search on Google. See what shows up.
b) If the company is publicly traded, research their stock prices, analyst opinions and
earnings projections. Call the corporate office and see what their plans are for this
c) Do the same thing with the names of the owners and CEOs. Google them in
quotes again … like this … “John Doe”
2) Ask each Tenant for current Financial Statements and analyze those carefully to get an idea of the business’ recent and past financial performance.
You can’t always get the financials form a private business owner … and you can always ask. When you are looking at the numbers … what trends do you see in the financials in the last 6 -9 months?
3) Call each business Owner/Manager and arrange a sit down, face-to-face interview.
One logical time to ask for this interview is when it’s time to go over the Estoppel Letter and confirm its contents. While you’re discussing the Estoppel Letter, you can question them about:
- The strength of their business
- Their outlook for future business
- The challenges they see on the horizon
- How you might help them improve their business when you take over as their landlord
Make note of any concerns you have about the business strength of any of your Tenants.
4) Sit down with your team and discuss ways you could help the business of your current Tenants and mitigate against the loss of any of your weaker Tenants.
The goals here are to help when you can and have contingency plans in case any of your weaker Tenants goes out of business.
Identify the businesses with the highest risk of failure and make sure you and your team know what you’re going to do if they actually do cease to be one of your Tenants. AND make sure you create proformas with and without the income from your weaker Tenants.
You must perform these specific Tenant Due Diligence steps at the same time as you are completing the activities of Market, Financial and Physical Due Diligence for one simple reason …
You could be in the best property, in the most stable market with a glowing Proforma … and if your Tenant’s business falls apart … you will potentially lose money. Take the steps we have outlined here and you will dramatically reduce this Tenant specific risk.
AND never be afraid to walk from a deal if the Seller is not willing to discount the property because of Tenants at high risk of business failure.