Charlotte NC Commercial - Blog #commercial tenants

The Success Of A Prospective Tenant

Thu, 01 Oct 2026 15:41:00 -0400

The Success Of A Prospective Tenant

Owners must think about vacancies when checking a prospective tenant. Will the tenant’s business survive? When you have a prospective tenant for a commercial center, you must consider whether that prospect would be a good tenant. There are two key standards to apply; (1) the prospective tenant’s financial stability; and (2) the prospective tenant’s potential for success.

Financial Stability

The prospective tenant must be able to afford the rental that you set. Its overall financial condition should be sound. Among the first things you’ll do is to see if the prospective tenant pays its bills on time. Having a reputable credit agency do a credit check on the tenant can easily check this. It is also wise to talk to the tenant’s main suppliers and its current landlord.

An examination of the tenant’s assets is also essential. Ask to see the tenant’s financial records, study them carefully, and discuss with the prospective tenant’s accountant any questions you may wish to have clarified.

Once you are satisfied that the prospective tenant is financially stable, you must ask the question: Will the tenant be successful in your center? To answer this question you must determine the following;

The tenant’s reputation at its present location.
The tenant’s sales volume. In the retail business, a turnover of stock at the rate of four to five times a year is considered good.
The trend of the tenant’s sales. Has the tenant’s sales been increasing from year to year?
The type of merchandise the tenant will be selling in your center. You’ll look to avoid duplications with other tenants in the center.
The profile of the tenant’s average customer at its present location.
How efficiently is the tenant’s business now being run? Is the efficiency or inefficiency likely to continue?
The nature and extent of the tenant’s advertising.

No Track Record

The preceding is for the prospective tenant who has an established record, who has been in business and offers tangible evidence of performance. But what about a newly owned business that wants to rent space in your shopping center as its first-ever place of business?

You should appraise this kind of prospective tenant by using the same two key standards: financial stability and potential for success. But instead of looking at past records, you will be predicting and forecasting and making judgments about the prospective tenant’s ability, ideas, and business expertise. It is a riskier situation for the center’s owner-manager but a totally new business might generate totally new interest in the center. It’s not the same old merchants merely doing business from a new location.

Variations of Commercial Leases

Thu, 01 Oct 2026 15:37:00 -0400

Variations of Commercial Leases

A lease is an integral part of many real estate investments. It should outline all the obligations of the tenant and of the landlord. This sounds simple, but many questions arise. If, for example, property taxes increase, does the tenant pay all of the increase or only part of it? If the property must be modernized, who pays for the improvement? Can the tenant be moved out during the renovation? If the costs of servicing the property rise, should the tenant pay none, all, or part of the increased costs? How should inflation be handled—with automatic rental increases? With increases tied to some index, perhaps the Consumer Price Index?

Kinds Of Leases

Here are some of the variations of leases used on commercial and industrial properties:

Flat Rate Lease. This is the traditional lease in which the tenant agrees to pay a flat periodic rate for the term of the lease. This might work with a very short lease, say one year.

Net Lease. Some investors try to protect their net income flows by requiring the tenant part (double net) or all (triple net) of the expenses. For example, the tenant may pay the property taxes; or property taxes and insurance; or property taxes, insurance, and all maintenance and operation expenses. When a net lease is mentioned, always ask what the landlord pays and what the tenant pays.

Sandwich Lease Or Subordinated Lease. The tenant leases all or a portion of the property to a third party who pays to the original tenant. The sandwich lease may be at a rate slightly higher than the original lease payments, thus allowing the tenant to make money from such an arrangement. For this reason, some leases do not allow subleasing.

Percentage Lease. The amount of rent is related to a fixed amount, plus a share expressed as a percentage of the gross or net sales or profits of the business to be paid as additional rent.

Ground Lease. Only the land is rented. The tenant owns the improvements. When the lease ends, provisions are made for allowing the tenant to buy the land or the landlord to buy the improvements.

Leasehold Estate. The value of the lease to the tenant. If the tenant has negotiated a rent below market the tenant has a valuable right (perhaps by subletting at market rents). If the rent is above market the landlord has an advantage, but if the tenant is a strong, credit-worthy tenant the lease may be subject to renegotiation.

Index Lease. The lease amount is related to an index and changes as the index changes. For example, banks located in shopping centers cannot be charged on the basis of percentage of sales because there are none. In such cases an index such as the Consumer Price Index might be used.

Renegotiable Leases. The rents are subject to review and renegotiation at a particular event or after a given number of years. These are usually related to inflation measures and indices.

Improperly drawn leases may not produce enough income to cover the costs of owning and operating the property. And long-term leases in particular present problems when prices, costs, and money rates are fluctuating. There is no substitute for a lease prepared by a skilled professional.

Analyzing Office Building Vacancies

Tue, 01 Sep 2026 08:43:00 -0400

Analyzing Office Building Vacancies

Office buildings are excellent commercial properties to own. One of the most important jobs of a leasing agent for a building with available space is to analyze other buildings to see if any tenant could be induced to move.

Newer buildings may fill up at the expense of older buildings. Since new buildings cost more to build than the older ones, rents may be higher. The actual dollars-per-square-foot costs must be compared, along with other benefits that the tenant may receive, before a final decision is made by the tenant on staying or moving. Here are some of the items for comparison;

What is the time factor for employees at the old location? In a business’ expansion at the old location, they may have expanded to different floors or to different buildings as more space was needed. There may be a big loss in employee time due to the inconvenient layout.
In a similar idea, the tenant may be planning an expansion in the next few years, which will make it necessary to rent space in the old location at then-current rentals, raising the average rental per square foot for the tenant’s entire space, in a less than adequate location.
Don’t assume that the new space rentals are not competitive. Cost-of-living clauses in the tenant’s existing lease may have escalated the rent level up to the costs in the newer, more modern building.
The newer building represents more efficient design, better and newer lighting, modern in every way. The intangible improvements in employee morale and efficiency might overcome any slight difference in dollar-costs per month.
Finally, a change in location to a more, prestigious building in a better part of the community can contribute to the reputation of the tenant–and ultimately to the profitability of the business.
The tenants who could be good new tenants at the new location will usually not be aware of all of the benefits of a move until they are contacted and are given the opportunity to make the comparison.

Problems With Rent Free Concessions

Wed, 01 Apr 2026 13:10:00 -0500

Problems With Rent Free Concessions

Commercial property goes in cycles from full occupancy to overbuilt with vacancies. When it has been difficult to rent, various concessions have been made to get tenants in and paying rent.

Free rent concessions have been used sometimes to help fill a building. This may have created more problems than it solved.

As an example, suppose there is a building where office space is offered at $25 a square foot on a five-year lease. The lease can be renewed for an additional five-year term at a negotiable renewal rate. To get tenants into the property, the owner gives a concession of free rent for the first two years. This may sound like an acceptable, though extreme solution, but might not be good for either the owner or the tenant.

The bookkeeping and tax preparation for these two years can be a major problem for both the tenant and the owner.

The landlord has no income from this tenant during the two-year period of the rent concession. This can create a cash flow problem for him.

The tenant’s cash flow is incredible during the first two years, since he is paying no rent at all. Then it jumps up to the $25 a square foot level for the remainder of the lease. This can cause a cash flow crisis for the tenant.

Since the property has such a severe vacancy problem that the owner considered the free rent concession in the first place, he might consider a new manager, or a sit down session with the current manager on how to solve this vacancy problem with some creative ideas other than free rent.

Get Started Now

Corporate Shared Office Space

Sun, 01 Feb 2026 13:27:00 -0500

Corporate Shared Office Space

The Buyer

With the revolution in communications, building owners must keep up with the changing needs of the corporate tenant. Often the larger, well-organized businesses do not need the space that was necessary just a few years ago. Electronic communications to and from employees have substituted for leased office space. Managers are more willing to grant favorable lease terms to operators of shared space. The operator sometimes receives a monthly management fee for operating the shared space plus a portion of rent revenues over a certain amount.

Solving Tenant’s Needs

Tenants in an office suite are offered a private office within the suite that has a receptionist, secretarial help, conference rooms and other amenities. This can be a big saving for small space users or users who need a small office for only a short period of time. Another user is from the large corporation that needs small branch offices in different parts of the country. Other users might be individuals who need a private space for investment or other work activities as well as professionals such as attorneys or accountants who work primarily away from their offices.

Existing Leases

Companies that have excess space that cannot be leased in its entirety can use the concept of shared space. The company’s existing facilities such as copier rooms, computer work stations, reception areas already are available. Any income from this type of shared space can be nearly 100% profit. If this is space that is leased by the company rather than owned space, the lease must be reviewed carefully to see if a sublease could violate the sublease/assignment clause of the lease.

Get Started Now

Question A Provision In The Lease

Sun, 01 Feb 2026 13:25:00 -0500

Question A Provision In The Lease

When a landlord and a tenant agree to a commercial lease, it may contain clauses covering things that neither party to the lease ever expects to happen. Occasionally, one of these will happen with costly and damaging consequences to the tenant.

One lease clause that may seem very reasonable to a tenant is one that agrees to subordinate the lease to any future mortgages that the landlord may place on the property. After all, it is reasonable for an owner to want to refinance a property. The result of the provision is that the foreclosure of a mortgage loan will either automatically terminate the lease or entitle the lender, at its option, to terminate the lease (depending on the law of the state involved).

Tenants entering into leases at current market rentals often assume (if they think about the problem at all) that any foreclosing lender will be happy to keep them as tenants. This may not be the case, however, if market rents have risen sharply or where a tenant has received substantial concessions in the form of free rent periods or below-market renewal options–a common situation in an oversupplied marketplace.

As a result, a tenant who may have spent hundreds of thousands of dollars in improving office premises or fixturing commercial space could conceivably be put out of business in the event the landlord defaults on the mortgage. At the very least, the tenant may be able to retain possession of the premises only by accepting a lease with much less favorable terms.

Non-Disturbance Agreement

The landlord wants the lease to be subordinate to mortgages because financing otherwise might be unavailable. A lender may not be willing to finance a property if, in the event the lender takes over, it will be saddled with the existing leases that may be the cause of the landlord’s problems.

A small tenant in a large building is not likely to get very far in seeking to eliminate the subordination clause. However, an office tenant taking a large block of space, or a commercial tenant prepared to invest a substantial amount in a restaurant or retail facility, is in a stronger bargaining position. Such a tenant may agree to subordinate only if the tenant receives in return a non-disturbance agreement (also known as a recognition agreement). This provides that so long as the tenant is not in default under its lease a foreclosing lender will recognize the lease and permit the tenant to remain in possession for the balance of the lease term. The clause normally also provides for “attornment,” that is, requiring the tenant to acknowledge the lender (or other third party) as its landlord entitled to receive rent.

Will the Lender Agree

A Lease that provides for tenant subordination only in exchange for a non-disturbance clause will not guaranty that a future lender will agree. At the very least, the lender may insist that certain conditions be met before the tenant will be assured of non-disturbance. These conditions should be included by the landlord in the lease clause itself.

Typically, these include the following:

The lender must not be liable for any unperformed obligations of the original landlord (e.g., unpaid tenant allowances) or be obligated to recognize any rent prepayments by the tenant or future periods of free rent.

The tenant must not be in default under any provision of the lease.

Note: The main objection of a lender to giving a non-disturbance agreement if the lender takes over the property is that rents may have risen above the contract rental. The landlord then may want to include in the lease a provision that, in the event a lender does take over, the tenant will agree to pay the market rent (as determined by an independent third party). A tenant is not likely to agree to this, except possibly in exchange for an option for the tenant to cancel the lease if the new rent is unacceptable.

Get Started Now

How To Understand The Different Commercial Lease Types

Thu, 01 Oct 2020 11:20:17 -0400

This month's newsletter has just been released! Check out the latest tips for tenants and users of commercial real estate space. In this issue

How To Understand The Different Commercial Lease Types

Whether times are good or bad, lenders always have foreclosed properties in inventory. During a recession the inventory may be high. One of the problems that banks and insurance companies have is disposing of this real estate owned (REO). They are faced with the decision of whether they wish to dispose of the property immediately or hold it for a period of time to hope for an increase in value. They would like to see the value of the REO increase to equal the loan amount......(more)

Lenders and Property Managers A Service Joint Venture

With the revolution in communications, building owners must keep up with the changing needs of the corporate tenant. Often the larger, well-organized businesses do not need the space that was necessary just a few years ago. Teleworking with computers, faxes and e-mail have substituted for leased office space. Office personal are working from home or a small office near their home and coming into the office once in a while for a meeting. Managers are more willing to grant favorable lease terms to operators of shared space.......(more)

Prospective Tenants For Commercial Centers

Providing Rentals For Seniors

Not all retired people want to own their own home. Many prefer to be tenants. Many feel that the proceeds from the sale of their old home can be used to supplement their pension and social security, rather than reinvested in another home. The money can be used for travel, visits to children and grandchildren or for medical expenses......(more)

Click Here For This Months Newsletter

Commercial Leasing and 1031 Exchange Tips

Sat, 01 Oct 2016 16:14:24 -0400

This month's newsletter has just been released! Check out the latest tips for tenants and users of commercial real estate space. In this issue

Lenders Need Professional Property Management

Having Knowledge About Commercial Leases

Combining A Tax-Free Exchange And A Leaseback

Here is a moneymaking transaction that can be used by many business owners who also own the real estate where that business is located. In any community there are dozens, even hundreds, of property owners who can utilize this formula.....

Important 1031 Exchange Rules and Timelines

There are 2 timelines that anybody going for a 1031 property exchange should abide by and know......

Click Here For This Months Newsletter

How To Negotiate A Sublease

Sat, 19 Mar 2016 16:43:27 -0500

With changes in business strategies, some existing tenants wanted to sublease all or some of their rented office space to eliminate some locations and shrink operations in others. In this situation, the problem for landlords is whether it is a better strategy to enforce lease restrictions against subleasing or to work with tenants on the theory that the sooner cheap sublease space is filled, the better for all. (In addition, another problem could be whether landlords should insist on sublease restrictions in new leases being negotiated now.) Lease Restrictions If there is no provision against the sublease in the original lease, the tenant has the right to assign or sublease without the owner’s consent or approval. However, most leases do contain this provision. In the mid-1990s, when rents were at high levels, tenants could obtain the landlord’s consent only if no other space was available in the building, and even then, the landlord might have insisted on sharing in any profit realized on the sublease. (In those days, sub-rent was often higher than the prime rent.) At this time, few tenants are trying to sublease for a profit. Instead, they are interested in cutting costs of unused space and are often willing to accept current market rents, something landlords are reluctant to do for prime space. Landlord and Tenant Cooperation Although the building owner may take the position that no consent will be given to a sublease as long as prime space is available in the building, the tenant may make some good arguments for cooperation. First, when there is much space available all around, a tenant looking for space can find it easily. A landlord is better off having a tenant in possession, even with a sublease, because the tenant may stay when the sublease expires. Second, the landlord takes the risk that a prime tenant with much excess space may default under the lease either by being forced out of business or because the tenant is willing to risk a lawsuit to collect unpaid rent. By being cooperative in finding a subtenant, the landlord reduces the risk of a default by the prime tenant and has the additional security of the subtenant’s rent payments (even though the amount may be less than the prime rent). Perhaps most important, the landlord may gain the reputation for good tenant relationships that can help in the competitive years ahead. Helping the tenant to shed excess space can pay off when the tenant considers renewal of the present lease. Landlords who are known for taking a reasonable approach to tenant problems, both during and after lease negotiations, are bound to have an edge when a tenant must make a choice between very similar rental space in different buildings. Full Newsletter

What to look for when investing in apartments

Tue, 06 Jan 2015 00:39:12 -0500

This month's newsletter has just been released! Check out the latest tips for tenants and users of commercial real estate space. In this issue

Things to look for before investing in apartments

With real estate values stabilizing, apartment properties throughout the country are the most sought after rentals. Assisting new buyers with the purchase of a residential rental is the job of the commercial broker. When you are looking at different properties, we will furnish full information on existing and potential loans, income, expenses, etc., to help you make the right choice......

The insurance that owners must require tenants to carry

Insurance coverage must be addressed by both landlords and tenants. For the run-of-the-mill daily problems, a landlord must have the maximum coverage for the building and the tenant’s leases. The tenant must cover the business with coverage that will protect it. What if you have a small disaster that is easily repaired, but you lose a tenant because he was not covered for the damage inside the business?....

How Options are great investment tools

An option on real estate is an extremely versatile investment tool that comes in a variety of forms that can be used for a variety of purposes. The primary use of the option is that it gives the optionee.....

How to cure vacancies with investment properties

When an investment property is located in an overbuilt market, the marketing effort must have good planning and direction. Just throwing large amounts of money into the effort can be a waste. Rather than broad advertising, a narrower action, keeping the local brokers who specialize in leasing constantly updated about the amenities of a certain building may be the best way to make it more marketable.....

Click Here For This Months Newsletter