Understanding the tenant’s balance sheet, cash position and how much debt it has are critically important.
When a landlord is negotiating with a tenant, understanding its balance sheet, cash position and debt load and maturity schedule are key to a successful outcome.
“If they have debt, has the tenant had any conversations with the lenders about potentially extending the period when they need to service it or move interest payments back on the calendar,” says Brad Tisdahl, Principal and CEO of Tenant Risk Assessment.
Getting answers to those questions can help a landlord understand the tenant’s balance sheet flexibility.
“We want to understand how flexible a company’s balance sheet is to ride out the pandemic and the surrounding uncertainty,” Tisdahl says. “When we’re thinking about that, we’re trying to assess whether we’re going to be granting relief to a tenant that may not survive the pandemic.”
The lender’s relationship with the tenant is pivotal.
“We’re trying to understand whether a lender is going to be inflexible, or if a business doesn’t have enough liquidity to ride more than a few months,” Tishdahl says. “That’s going to be a significant concern if the revenue isn’t coming back. This is a critical step in the process and a real focal point.”
But those aren’t the only things landlords should look at as they evaluate a tenant’s staying power. The landlord needs to identify key business, industry, reputational, legal, regulatory and macro risks associated with the business.
“As they’re looking at distressed tenants that are asking for some form of relief, landlords need to focus on evaluating a company and the industry,” Tisdahl says. “Does the company have any reputational issues, or are there any legal or regulatory issues that are hanging over it?”
Before the pandemic, Tisdahl said questions about the tenant’s industry and reputation were among the top things that Tenant Risk Assessment would evaluate for landlords. But with COVID, other issues have surfaced.
“It’s not to say that it’s less important now during the pandemic, but some of those factors are less important to the overall sustainability of the business,” Tisdahl says. “You still want to understand whether there’s any pending litigation on a company that might cause it to spend a lot of money on legal fees or settlements.”
Understanding regulatory concerns are also a crucial part of this analysis. “Landlords need to know if there are any regulatory issues that could either make it more expensive or less expensive for that business to conduct itself,” Tisdahl says. “For the most part, we’ve seen that legal and regulatory conditions on a company are less of a priority for landlords right now [during COVID].”
Source: “Regulatory, Legal and Debt Issues Matter in Tenant Negotiations”
“If they have debt, has the tenant had any conversations with the lenders about potentially extending the period when they need to service it or move interest payments back on the calendar,” says Brad Tisdahl, Principal and CEO of Tenant Risk Assessment.
Getting answers to those questions can help a landlord understand the tenant’s balance sheet flexibility.
“We want to understand how flexible a company’s balance sheet is to ride out the pandemic and the surrounding uncertainty,” Tisdahl says. “When we’re thinking about that, we’re trying to assess whether we’re going to be granting relief to a tenant that may not survive the pandemic.”
The lender’s relationship with the tenant is pivotal.
“We’re trying to understand whether a lender is going to be inflexible, or if a business doesn’t have enough liquidity to ride more than a few months,” Tishdahl says. “That’s going to be a significant concern if the revenue isn’t coming back. This is a critical step in the process and a real focal point.”
But those aren’t the only things landlords should look at as they evaluate a tenant’s staying power. The landlord needs to identify key business, industry, reputational, legal, regulatory and macro risks associated with the business.
“As they’re looking at distressed tenants that are asking for some form of relief, landlords need to focus on evaluating a company and the industry,” Tisdahl says. “Does the company have any reputational issues, or are there any legal or regulatory issues that are hanging over it?”
Before the pandemic, Tisdahl said questions about the tenant’s industry and reputation were among the top things that Tenant Risk Assessment would evaluate for landlords. But with COVID, other issues have surfaced.
“It’s not to say that it’s less important now during the pandemic, but some of those factors are less important to the overall sustainability of the business,” Tisdahl says. “You still want to understand whether there’s any pending litigation on a company that might cause it to spend a lot of money on legal fees or settlements.”
Understanding regulatory concerns are also a crucial part of this analysis. “Landlords need to know if there are any regulatory issues that could either make it more expensive or less expensive for that business to conduct itself,” Tisdahl says. “For the most part, we’ve seen that legal and regulatory conditions on a company are less of a priority for landlords right now [during COVID].”
Source: “Regulatory, Legal and Debt Issues Matter in Tenant Negotiations”
