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  • Writer's pictureTom Miller, CCIM

The Biggest Risk a Tenant Takes in Industrial Real Estate

The savviest industrial real estate tenants understand, at least to some degree, that their goals are very often completely at odds with the goals of the other players in a given transaction. The good news is that this doesn’t necessarily mean a commercial or industrial real estate transaction is a win/lose proposition. In fact, it’s really anything but that scenario. Still, that situation is what gives rise to the biggest risk a tenant can take: entering any phase of a lease transaction either unrepresented, or worse, poorly represented. Here’s why.

Commercial and industrial real estate is a diverse industry with multiple players. In any given transaction, there’s likely to be:

  1. Owners/investors who are seeking specific returns of and on their investment dollars

  2. Developers who must be competitive in the marketplace while also providing their investment partners the economic returns they promised in addition to turning their own profit

  3. Property managers who need to ensure the project is maintained to a high standard and operating smoothly for the tenants and the developers and/or landlords

  4. Tenants searching for the best suited location for their business that will also meet operational and budgetary hurdles

Laying it out like this makes it easy to see why the tenant’s goals may be direct competition with the goals of the property owner, developer or property manager. And that may be why so many tenants end up taking risks best avoided.

It seems that hardly a week passes during which I am not in touch with a tenant who comes to me with a problem. While some issues can be easily remedied, others cannot. After considering the problem and then reviewing the lease documents and available options, I often go back to the tenant and ask why they agreed to this or that aspect of their transaction. Almost without exception, the answer is that they:

  1. Didn’t know exactly what they were agreeing to

  2. Didn’t understand what they were agreeing t0

  3. Didn’t anticipate that agreeing to something would yield this result

  4. Didn’t actually read the lease that carefully.

Unfortunately, we can find ourselves at a very strong disadvantage trying to assist at this point because of previous concessions made by the tenant, albeit quite unwittingly, but contractually binding nonetheless. Around the time, my client notes that it wasn’t a smart move to agree to this or that – but what can we do at this point? Occasionally, we can pull the rabbit out of the hat somehow and get the issue solved despite the cards stacked heavily against us. But in other cases, we can do little to solve the problem.

Tenants will save themselves such frustration if they understand that landlords are always advocating for themselves and their investor partners – not for their tenants. Remember, landlords are in the lease negotiation game daily, all day long. Landlords only stay in business as long as their produce for their investor partners. Tenants can come and go but returning profits to their investors is a constant.

Knowing where a tenant fits into the commercial real estate equation is important. But even more important is associating with a high quality agent who can guide the tenant through the complicated process and achieve a successful outcome. You deserve to partner with a proven, experienced winner, and not with an agent that is learning as he or she goes – on your dime.

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Miller Industrial Properties, Sparks, Reno, Nevada
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