High Credit Tenants Are Money in the Bank – Literally

A recent New York Journal article overviewed top issues affecting office leasing, which included negotiating tenant improvements, guarantees, building services and default remedies, noting that “of critical importance to landlords is who the tenant is, what its creditworthiness is and what credit support is provided.”

Given the level of maintenance required to satisfy most tenant leases, not to mention risk factors involved with each signing, it’s no wonder commercial real estate owners have been clamoring for cell site leases for nearly two decades.

Says Commercial Investment Real Estate Magazine (CIRE),  “Commercial real estate owners have discovered gold mines right in their own backyards… Whether mounted on rooftops in urban areas or on vacant land in less-populated communities, cellular antennas are close to being perfect tenants. Telecommunications companies have solid credit, few property management issues, high renewal rates, and a willingness to take otherwise wasted space.”

Cell site leases not only allow building owners to achieve 100+% tenancies, but the net profit of these leases is considerably higher than other tenant leases, says David Marino, partner at Irving Hughes, commercial real estate advisors. “Carriers do not consume property management resources or exact operating expenses related to occupancy, such as tenant improvements or broker commissions, from the landlord’s bottom line.”

Marino notes it’s not unusual for landlords to spend 20 to 30 percent of the lease value on these costs. “Nobody is calling to report a theft, complain about a stained carpet or request restroom maintenance,” he explains. “In most cases, cell site leases are automatically paid by the carrier, so even invoicing is not required.” In short, cell site leases provide sheer profit to the landlord.

Beyond the revenue you can count on from a Credit A tenant, did you know that the tenant’s credit rating also impacts your ability to financially leverage your property?

When selling or refinancing a building, both buyers and lenders look for known names on the tenant roster, particularly with projects that may be in secondary markets and/or with only local tenants. Top-drawer tenants lend credibility to a project and factor into cap rate valuations as they represent a certainty of cash flow and ability to realize the project’s maximum value.

Says CIRE, “Property owners who meet the (cell) site selection needs encounter few problems (with wireless industry tenants). Telecommunications companies pay to survey the land, obtain building permits, and build access roads. They provide construction drawings and pay for installation and operating costs.”

Summarizes Marino: “Carriers are tenants landlords want to retain.”

© Copyright 2006 Md7, LLC

May 16, 2010
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