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  • Writer's pictureTom Miller, CCIM

Avoiding Tenant Risk in Industrial Real Estate

On the surface, it might seem safe to characterize an industrial real estate transaction as a win/lose proposition. Either the landlord or the tenant will walk away from the negotiating table feeling pleased or dominated. That’s not actually the case, but it’s that scenario that gives way to the biggest risk an industrial real estate tenant can take. That risk? Entering any phase of the lease transaction without adequate representation. Here’s why you would be wise to avoid tenant risk in industrial real estate.

In a given transaction, there are likely multiple players involved. These may include:

  1. The owners/investors – These people are looking for specific returns on their investment

  2. The developers – These people must provide economic returns to to their investment partners while remaining competitive in the market

  3. The property managers  – These people must ensure property maintenance for tenants, developers and landlords

  4. The tenants – These people are searching for the most appropriate location for their business without sacrificing operation and budget considerations

When you look at it like this, it’s suddenly clear why tenant goals seem to be in direct competition with those of the property owner or developer. That’s the likely culprit behind tenants taking unnecessary risks.

I’m often approached by tenants seeking advice for a problem. After reviewing the issue and the lease documents and the options at hand, I usually ask the tenant why they agreed to something in their transaction. The answer is usually a variation of the following:

  1. I didn’t know I was agreeing to it.

  2. I didn’t understand that part of the agreement.

  3. I didn’t anticipate this result when I signed the agreement.

  4. I didn’t actually read the lease that closely.

At this point, we’re usually at a major disadvantage. Those concessions may have been unwitting, but they are contractually binding all the same.

Here’s the bottom line. Tenants can avoid the scenario above – and the risk mentioned in the title of this post – simply by remembering that the landlord is an advocate for him/herself and investor partners. Save yourself the frustration and inherent risk of dealing with someone who handles lease negotiations as a matter of course, and find someone who can bring to the table the same skill set. Partnering with an experienced industrial real estate agent is the best way to level the playing field and avoid the major risk most tenants face.

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Miller Industrial Properties, Sparks, Reno, Nevada
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