The Best Way to Minimize Tenant Risk in Industrial Real Estate0

Posted by Thomas Miller, CCIM

miller-industrial-avoiding-tenant-riskAt first glance, an industrial real estate transaction very much seems like a win or lose scenario. Either the landlord got the better deal, or the tenant did. A bit of experience in the industrial real estate field quickly reveals that’s not actually how it works, but this win/lose scenario does create opportunity for the biggest risk a tenant can take. It’s common, yet avoidable. The biggest risk any industrial or commercial tenant can take, willfully or otherwise, is to enter any phase of the lease transaction without adequate representation. Here’s why it’s a situation best avoided.

The Stage and Its Players

If the transaction is a stage, it’s important to be aware of the many players on that stage at a given time. These may included, but aren’t limited to:

  • The owners and/or investors – The people seeking specific returns on their investment
  • The developers – The people who need to bring economic returns to their investment partners while also staying competitive in the market
  • The property managers – The people tasked with ensuring property maintenance for tenants, developers and landlords
  • The tenants – The people searching for the most appropriate location for their business in a facility that meets operation and budget considerations

A list like this makes it clear – tenant goals are in direct competition with at least two of the other players on the stage, which underscores the importance of professional representation even more.

Too Little, Too Late

As an industrial real estate firm, it’s not uncommon to be approached by tenants seeking advice. After discussing the issue and reviewing the lease documents and the various options, a common follow-up question from our agents relates to why a tenant would have agreed to a specific point in their transaction. The answer is usually a variation of the following:

  • I didn’t know I was agreeing to it.
  • I didn’t understand that section of the agreement.
  • I didn’t anticipate this result when I signed the agreement.
  • I didn’t read the lease very closely.

Unfortunately, no matter what oversight put a tenant into this bind, the disadvantage remains. These concessions may have been unwitting, but that does not make them contractually null.

The good news is that these situations are truly avoidable. Remember that the landlord is advocating for him or herself, and not you, the tenant. The best thing you can do for yourself in a transaction like this is by partnering with someone who handles lease negotiations regularly – just like the landlord does. Don’t assume your negotiating skills are on par with someone who does it for a living. Partnering with an experienced industrial real estate agent is the single best way to avoid the major – and avoidable – risk that most tenants face.

Our posts are intended to educate commercial real estate users so they can make better decisions in their real estate use, investments, buying and selling. We encourage your input and commentary. If you are enjoying these posts and finding them useful, help spread the word via Facebook, Twitter, LinkedIn, Google + or email with the buttons above.

About the Author

Thomas Miller, CCIM

Thomas Miller, CCIM is the president and broker of Miller Industrial Properties in Reno, Nevada. He has worked in industrial real estate since 1991, with 15 years of previous experience designing and building industrial warehousing and manufacturing facilities in the northern Nevada market. Contact Tom at tom@mipnv.com or 775-742-9891.

Leave a Comment

Commercial and Industrial Properties Commercial and Industrial Properties Commercial and Industrial Properties Commercial and Industrial Properties Commercial and Industrial Properties