What to do when you have multiple people interested in leasing?

Question

Hello,

I am looking for advice on a commercial property. I listed it for lease a few days ago and have a huge interest in the space. I can start showing the space in a few days. I will likely have multiple people who want to lease it. This is a commercial space, not residential.

We plan on getting information on each business and narrowing the list down to those who seem the most reputable.

How do we go about deciding who to lease the space to?

1. Is it common to have all of the potential tenants submit offers to you? Should we look at what they are willing to offer above listing price and how long they are willing to sign?

2. Or do you go with the first person who shows up who is willing to sign the lease?

Any other advice is greatly appreciated. If you were in this situation, would love to hear your story and how you handled it.

Right now, the space is in high demand due to no inventory on the market in that particular type and size of property.

Caroline Gerardo · Answer

What is the proposed use? What traffic do they bring? What time of day operating and does that work with other tenants? What is your parking situation? What will the city/county allow ? How stable are they? Will they stay a long time? Do they want tenant improvements to be paid by you or what?   So narrow down if they are a good marriage match first, toss aside the short term girlfriends. Then let's look at the use type for example: restaurant costs the most to install kitchen, get permits and most likely to go under. What is the owner operator FICO score? Now you have two candidates. Go look where their business is today and who will be your highest paying wife?

Jason J. · Answer

Thanks for the responses so far, much appreciated.

I'm wondering if anyone has seen a for lease listing go for above asking price? Like with the current housing market... where the buyers submit offers over asking price. We may have 5 or more businesses who are qualified and interested in making offers. Should we ask them to submit their best offer by a certain date? Or is that generally unheard of in commercial lease situations?

Side note, there are no tenant improvements involved. The space is a flex space with office and bathrooms.

Ali Horbach · Answer

@Jason J.

Hi Jason. what type of assett class it is?

I have been leasing retail for 14 years and run across this often. We always require the potential tenant to submit a letter of intent along with financials and sometimes their business plan (for start ups) Financials could be as simple as a P&l or snapshot of assets/debts to start. If we move forward in negotiations we would then require full financials such as tax returns and credit check. Sometimes it is more seamless if you create your own letter of intent with your preferred terms and then have the tenant mark it up with their comments. Might be easier to compare this way and will also include the business points that are most important to you such as lease term, rent, maybe personal guaranty etc. If they are national tenants or strong franchises they typically have their own form they will use regardless but I have found it very helpful to have our own form ready for  the mom and pops. I would visit the locations of their existing businesses if they have so you can see how they are run. Also which of the potential tenants is the best co-tenancy or will have the less cost to build out and also to demo if they don’t make it. Also which do you see as more Amazon proof and viable for long term. Finally do you think that tenant is a good fit for a long term relationship or do you see any red flags early on. It is always costly to have to release a space. Something a lot of tenants don’t realize. Happy to talk further if I can answer any questions for you.