Determining Commercial Tenant's Likelihood of Renewal
I'm scouring the internets for information on how the big dogs determine the likelihood that a commercial tenant will renew/extend their lease. Can someone point me in the right direction?
[{"id": "h1w29o3", "text": "Maintaining a relationship with desicion makers, facility team members, as well as their broker. Property team should have an idea of how they use the space and how happy they are there. \n\nIf they\u2019re unhappy and there are other options, assume more likely to vacate.", "replies": [], "depth": 1}, {"id": "h1w6zqb", "text": "If it\u2019s a retail tenant, ask for their sales numbers compared to other locations. They may not give it to you but it can be a great way to tell if yours is under/over-performing", "replies": [], "depth": 1}, {"id": "h1wkilh", "text": "I would ask your tenant. Or say like 3 months before their lease is up, ask them to renew so then you have 3 months to find a new tenant if needed.", "replies": [{"id": "h1wqdbc", "text": "A lot of leases have a 90-day over even a 180-day extension/renewal notification built in. I.e. they have to let you know that amount ahead of time if they plan to extend their lease.\n\nIf yours doesn\u2019t have this provision, add it in the next amendment. It will help you do exactly what TheLordofAskReddit is saying. Give you time to find a new one if they\u2019re leaving.", "replies": [], "depth": 2}], "depth": 1}, {"id": "h1x04yx", "text": "If you're asking because you're considering buying something with a shorter remaining term and wondering what others do: the make an educated guess using a probability and price in the probability and the cost of a new tenant. When using this approach over a period of time for a multitenant building it can be fairly reliable vs. alternatives.", "replies": [], "depth": 1}, {"id": "h25hkts", "text": "The best way to find out is by having a relationship with the tenant or the brokerage who represents the tenant. Many tenants won't give you the info though. I was trying to do a deal and it was based on whether the tenant would renew or not...Tenant's response was - we will let you know when our renewal comes up....in 2 years. And this was a global tenant. \n\nAlso...trying to get store sales info... Many retailers will not release this info, even if they are publicly traded companies, unless it is specifically stated in their Lease agreement that they will release the information to their Landlord.", "replies": [], "depth": 1}, {"id": "h2d0z8h", "text": "Tenant build out / cost to move is a huge factor. If it\u2019s a specialized build out (lab, cold storage, cross dock) you can guarantee the tenant will renew if the business is generating profit. On the retail side, QSR, anyone who did a design build (medical type users) typically renew. Someone who just has 4 walls and is profitable can easily move elsewhere if you try to increase the rent well above market. Other users are typically stuck in place because to rebuild what they have  elsewhere would be too expensive/ not worth the move.", "replies": [], "depth": 1}, {"id": "h5wju4o", "text": "From an analysis perspective and pre-Covid, general assumption across asset types was 70% renewal probability. This has since changed. Will largely depend on type of tenant and the tenants\u2019 business model moving out of the pandemic. If possible, talk to the tenant directly and never assume a 100% renewal probability. Always assess the risk.", "replies": [], "depth": 1}]