Purchasing Commercial property can be expensive and risky. Due Diligence typically includes surveys, engineering and environmental reports, zoning compliance and or topographical studies. This due diligence deals with the property itself, but don’t overlook the tenants that occupy the building.
Adding a Quality Credit Acquisition Report to the due diligence process removes the uncertainty from decisions made to analyze the cost benefit of an acquisition. It will help assess the risk as well as the likelihood of the future income stream from the property. Gauging the underlying quality of the existing tenant base is key.
Even if the seller has proof that the tenants have been reliable to date, there are often developing financial issues to consider. It is very important to ensure that the correct, current, full legal names are on the lease. The reports can be produced without the consent or knowledge of the property’s current tenant base.
Before acquiring commercial property, you want to assess risk by looking at the following areas.
Current Corporate Status
Before acquiring a property, you will want to determine whether the name on the lease is the correct, full legal name. Maybe the lease was drawn up incorrectly, or you are inheriting leases with corporation names that have been changed due to a history of name changes or amalgamations.
It is also important to determine whether the corporate entity is currently active and in good standing with Companies Branch and Corporate Tax Branch. You also want to determine if the business is legally registered in the jurisdiction in which it conducts business.
Information on Current Secured Creditors, Borrowing and Lease Facilities
In addition to determining your potential tenant’s current corporate status, you will want to identify secured creditors and any borrowing facilities operated by the tenant including credit lines, term loans, lease facilities, chattel mortgages, conditional sales agreements and assignment of book debts and rents. In addition, you will want to uncover the type of security with collateral descriptions and tax liens or judgments.
This will help you analyze their current financial position and possibly forecast their future position.
Collection, Legal Action, Judgment and Bankruptcy History
Looking into your tenants’ history of collection actions and applicable disposition, history of legal actions launched by and against the tenant, and the legal specifics regarding the cause of action, amounts of actions, judgments and disposition is also important.
This will help you determine their credit history and ongoing financial situation.
Commercial Payment History and Historical Data
Knowing the tenant’s payment history including a summary, list of trade items and payment trends over the past several years can help you better understand the company’s financial stability over a period of time and will let you know how dependable they will be when it comes to paying rent on time.
Corporate Locations/Affiliations Possible Assets
Finally, you will want to determine whether the tenant has any other corporate offices, locations or franchises, business affiliations, amalgamations and subsidiaries, or real and personal property ownership.
Why QCR?
QCR’s superior advantage is that for over 25 years we have been the primary provider of credit reports to the property management industry in Canada, thus allowing us to develop outstanding industry specific databases.
Probability is that QCR has previously produced a credit report on a tenant involved in a property purchase. This previously accumulated information adds a great historical element to the current information provided in our Acquisition Report.