Retail Property Sellers Opt to Offer Financing to Get Deals Done (6/11)
Jun 11, 2009 7:41 PM, By Hortense Leon
Tenant financing?
At the same time that seller-financing is growing, another practice is gaining ground. Some well-heeled tenants are taking advantage of strong balance sheets to lend cash to landlords. This is predominantly happening with big-box retailers, says Los Angeles-based Scott Kaplan, senior managing director of retail services for the western region at CB Richard Ellis. Although not officially loans, in these transactions large tenants enters into a joint ventures with landlords. The landlord gets cash now and in exchange offers some sort of concession—such as lower rent—back to the tenant. Kaplan says the interest in these kinds of deals has picked up since January.
Less frequently, landlords are granting loans to tenants, says Mark Gilbert, executive vice president at Cushman & Wakefield in Miami.
"We offered to lend Starbucks $400,000 this past January at a 13 percent interest rate," which was how the bond market was pricing their corporate bonds, but the company refused, says Stiller. He also offered to loan $200,000 for tenant improvements to a doctor who wants to build an urgent care center in Boynton Beach, Florida. The loan would carry a 10 percent interest rate. "In exchange, we will get a second mortgage on the tenant's house, instead of just a signature," he says. Normally, says Stiller, he wouldn't be doing this at all, but unfortunately, tenants cannot easily get financing from other sources today.
Rather than providing financing, landlords are more likely to grant increased tenant improvement dollars or longer periods of free rent as ways of aiding tenants.
But it varies by the type of property. In second-generation centers, which Neal specializes in, landlords are trying to give free rent rather than increasing tenant improvement allowances. "But we see a lot of tenants asking for more tenant improvement dollars today," he says. When Neal does grant requests for tenant improvement money, the qualification process is rigorous, he says. "We really check out the business plan thoroughly as well as the personal and business credit history of the borrower/lessee," says Neal.
Rent concessions are especially prevalent in the Sun Belt and the Northeast. In the Midwest, by contrast, there was less rent appreciation during the retail boom and less grounds for granting reductions or concessions.
"In South Florida, it is unusual for a landlord to give a tenant a loan outside the lease structure, but he may amortize contributions for tenant improvements in leases," says Neal. In cases like these, the landlord looks for a personal guarantee. A five-year guarantee means that the tenant is on the hook not just for the lease, but for the tenant improvements. Instead of $14 per square foot, for example, he may pay $16.50 per square foot for five years and typically, the rent might go down after that, says Neal.
Acceptable Use Policy blog comments powered by Disqus
