Commercial property management can be a lucrative industry, but, as with all business ventures, it is not without risks. To mitigate these risks, it is important to take advantage of all the tools available to you, whenever possible.
One of the best resources available to ensure you are working with the best tenants possible is an in-depth commercial credit report.
Here are five ways that a commercial credit report can help property managers and other professionals working within the industry.
1 – Income Focused Property Acquisition with an Existing Tenant Base
When looking to invest in a commercial property with an existing tenant base, you not only have to be concerned about the quality of the property, but also that of the current tenants.
Conducting in-depth financial screening reports will reduce risk by allowing you to determine whether the income stream from current tenants is likely to continue, as well as help you gauge the underlying quality of the current lease holders.
2 - Prospective Tenants
For most property managers, it takes a lot of time and resources to find the perfect tenant for a commercial space - prepping the property, generating ads, showing the space, reviewing applications and verifying the information you have received.
As such, the financial implications of having a tenant default on a lease can be severe. Not only have you already spent money trying to secure this tenant, you now have to start the search all over again and possibly incur additional expenses to prepare the property for the next tenant.
Opting for a more comprehensive screening process at the outset will ensure you have properly vetted your prospective tenants and decreases the likelihood of a tenant dropping out of their lease.
3 - Renewal Tenants
The reality is, even if a tenant has been reliable in the past, they may have been developing issues that will put your profitability and your investment at risk.
Possible changes that could signal potential problems in the future include an increased amount of debt, defaults with Companies or Corporate Tax Branches, decreased liquidity or other delinquent activity such as late payments, collection claims, legal actions, judgments or bankruptcies.
That is why it is critical that you approach your renewals like you would your prospective tenants, with increased due diligence. Doing so will better protect your investment, and mitigate risks on a go forward basis.
4 - Skipped and Delinquent Tenants
From the time the tenant first falls into arrears to the time the tenant makes the midnight move, enhanced credit reports can help property managers dealing with a rent abatement situation or considering terminating a tenant's lease for unpaid rent.
If a tenant has gone delinquent, you must decide whether to proceed with a legal action. In these situations, credit reports can help you uncover your delinquent tenant’s assets and liabilities, as well as locating the tenant for service purposes.
In doing so, you will be able to determine the probability of debt recovery, saving you from further losses incurred by pursuing legal action where the tenant does not have the assets needed to satisfy an impending judgment.
5 - Design Builds
Unlike leasing an existing property, design build projects entail more upfront risk for the owner and often rely on a longer-term commitment from the tenant.
As such, confirming the potential tenant’s assets, liabilities and credit history can be a determining factor for your success.
By investing in an enhanced screening and decision-making process, you can better protect your investment and improve the outcome of your build, as well as increase your profits and preserve your company’s reputation.
To find out more about in-depth tenant screening at all stages of tenancy and what information you should be looking for during the screening process, download our property management eBook, The Importance of In-Depth Tenant Screening, today!
Tags: Property Management