How much does tenant credit risk matter in a lease transaction?
Do LL's / Property owners consider the down stream effect's of tenants credit risk on cap - rates?

Would you accept slightly higher rents from high credit risk tenants like Startups or slightly lower rents from low credit risk tenants like the Government, which tends to be sticky with high renewal probability.

Follow up: For tenants where there isn't a noticeable difference in credit rating, how do you evaluate them?
[{"id": "gdsjabm", "text": "Yes. Having a materially worse tenant covenant affects your metric selection, so it's wise to make up for it in higher rents if you can.", "replies": [], "depth": 1}, {"id": "gdsjk7z", "text": "Absolutely. Amazon industrial assets on long term leases will always trade at lower caps than non-credit tenants. Same goes for credit tenants with office. \n\nIn my opinion, I am taking lower rent/credit tenant over higher rent/non-credit tenant. Assets become exponentially more financeable with the former.", "replies": [{"id": "gdtfbr7", "text": "Read about the NECCO factory flip someone did in the Boston area, crazy money", "replies": [], "depth": 2}], "depth": 1}, {"id": "gdsn70s", "text": "Think of it like buying bonds.  Would you rather take bonds from the USA at 3% or from the Republic of Transnistria at 15%?", "replies": [], "depth": 1}, {"id": "gdswk30", "text": "1 year, 2 year, 5 year or 10 year?", "replies": [], "depth": 1}, {"id": "gdt1uzm", "text": "Value is tied to the creditworthiness of the tenants that are leased.", "replies": [], "depth": 1}, {"id": "gdt2mg5", "text": "Ratings agencies give added benefit for IG tenants. It matters, but the location and historical performance of the asset matters 10x more.", "replies": [], "depth": 1}, {"id": "gdtdlct", "text": "You have the right idea", "replies": [], "depth": 1}, {"id": "gdu15sw", "text": "This is too simple of an approach.  Never forget location and releasable value.  There is no government lease that I would take if located in a less desirable location.  I know through this shit storm of 2020 and the Great Recession, no tenant is immune so get the best location and most flexible building.", "replies": [], "depth": 1}, {"id": "gdu4s7i", "text": "I would take the more credit worthy tenant.  \n\nAlso, require annual financial statements and a personal guarantee on the lease.  This is a standard request and will allow you to monitor the ongoing strength of the tenant.", "replies": [], "depth": 1}, {"id": "gduazzb", "text": "Give me a nice solid Anchor tenant and i'd gladly take a slightly lower rent rate. Same goes for Residental. Great Tenant that always pays on-time and low maintenance? I'll gladly keep your rent as-is to keep you as my tenant.", "replies": [], "depth": 1}, {"id": "gedr1ui", "text": "Look at it like this. Do you think a McDonald occupying 2500 sqft is worth more than let\u2019s say snookies cookies in the same space?", "replies": [], "depth": 1}, {"id": "ger7ub1", "text": "Quality matters in leasing.  Credit Tenants will always yield better terms versus a local Tenant.", "replies": [], "depth": 1}, {"id": "gf0qbhm", "text": "first want to make the point that the degree tenant credit risks matters is tied to (i) your basis in the real estate, (ii) quality of the real estate... all of which is to say: can you release the property if they vacate. \n\nSo along those lines, as an example, if you overpaid for the real estate, I would not take a flyer on a start-up. But if its good real estate and you own it at a great basis, maybe try to lease to higher yielding tenants. \n\nIt also depends on your objectives and how involved you want to be in management and whether or you are using debt and what that debt needs from a tenants credit stand point.", "replies": [], "depth": 1}]