How to Handle The Credit Question

How to Handle The Credit Question

“To have or not to have”, that is the credit question. Tenants’ credit can easily make or break a deal. With the positive economic outlook, low vacancy rates, and higher rent rates- tenants are having to do more to prove their worth. In 2014 alone, according to CoStar, there was a 42 percent increase in the net absorption of office space. For the first time in about a decade, the pendulum is starting to swing back to the commercial real estate landlord’s favor. But, with the right credit, tenants can slow the swing down.

Credit? About that…

Landlords want to make money, plain and simple; taking a risk on a company or person rarely appeals to the risk averse landlords. Recently, I wrote a blog about the growing popularity of co-working spaces among entrepreneurs. Here’s an example of a group of business people who, often times, have little or no credit. So what can start-ups or individuals do to get landlords comfortable: post of a letter of credit (LC) and then have your tenant representative negotiate how much the LC will decline each year of lease. But remember, a letter of credit costs money and takes time to acquire, planning ahead is key.

Credit? Steadily Building

Your company is steadily growing and you’re anticipating the growth will continue. Hopeful thinking won’t budge a landlord’s mind. The Landlords’ asset value is in the credit of their tenants, they need proof, not “plans” that the business is moving forward. There are credit enhancers for companies who are still building their credit. In order to get the landlord more comfortable, you can pay rent ahead of time or increase the amount put into a security deposit.

Credit? Strong, So Let’s Talk

If you have a strong credit position-use it. But be prepared to provide all the necessary financial information so you can use the favorable credit score to your benefit. A tenant representative will be able to negotiate a better deal if you use, for example, your own money for tenant specific improvements. By putting your own money into the building, you’re showing the landlord you’re invested and are in for the long term.

Don’t Dis-Credit

According to CoStar, the demand for office space will only continue to peak to the highest levels since the recession.  Class A or newly constructed buildings are the most popular right now, so getting a space in one means due diligence on the part of the tenant. One of the top priorities should having your credit in check before negotiating the terms of a commercial lease.