A Candid Look at Tenant Mix Analysis

When you are preparing a larger commercial or retail property for sale, it pays to do a tenant mix analysis to see how you can package the property as an investment and attract potential buyers.  Given the state and slowness of some buyers to act on a property sale, the full factors of property performance must be understood by the broker or agent in moving towards the marketing campaign.

Potential buyers of the property will be interested in most of the following issues:

• The tenants in occupancy today, including their profile and brand
• The integrity and strength of the leases that apply to the tenants
• The rental generated from the leases today and how that will change over time
• The vacancy factors or the threat of upcoming vacancy
• The mix of tenants against each other and the overall effect on trade and attractiveness for the property
• The net income driven from the leases and the mix
• The competing properties in the local area and the threat they pose to current occupancy and the leasing strategy

For all of these reasons you must do a tenant mix analysis.  Understanding all of the above factors will help you with any marketing campaign and inspection process.

So where do you start?  Here are some of the bigger issues to look into:

1. Get a copy of the tenancy schedule for the property and compare the detail against the existing leases and licences.  You will need to do a full lease document review.  That requires reading all the leases to understand the terms and conditions and the critical dates that apply to occupancy.
2. Look at the rent reviews that are current and coming up in all the leases.  Some of those reviews will be geared to market rents so you will need to assess market rents as part of seeing what will happen to rental income in the coming few years.
3. The lease expiry dates can be a problem.  Some tenants may want to vacate.  See if you can identify those issues and determine if the tenant should be encouraged to stay in the property by offering them a special rental or lease deal.
4. Check out the anchor tenants to ensure that they are firmly locked into their lease and that things are going well for them.
5. The permitted uses for each lease should be checked against tenant business and function. Make sure that the tenants are doing the right thing when it comes to products and services within their permitted use and lease description.
6. Clustering will be the factors of cooperation surrounding existing tenants.  Some tenants work well with other nearby tenants.  This is quite important in a retail property to encourage sales.
7. Market rents should be assessed locally.  Are you in line with surrounding property rental levels?  Can there be an improvement?
8. Look at the supply and demand factors for leased space in the area.  Are there any new developments coming up that could swing the balance of rental and incentives in older properties?

From all of these things you can make decisions relating to the property and the tenant mix.  In that way you can move ahead with a sale situation understanding the real benefits that the property creates from its lease profile.