12/14/2009
Landlords should thoroughly research tenants before signing a lease, says Ed Kearney of the Florida commercial real estate brokerage firm Kearney Commercial Realty/Sperry Van Ness. The due diligence could save money and avoid potential legal and financial problems.
“I am sounding a loud note of warning because I represented landlords that could have suffered severe financial damage,” says Ed Kearney. “My investigation of one potential tenant uncovered problems that wisely led us to walk away from what turned out to be a bad deal.”
Recently, a recycling firm approached Kearney, saying it wanted to lease 50,000 square feet of industrial space in the West Palm Beach area. The company said it had contracts with Fortune 500 retailers to recycle their cardboard and paper.
To handle that waste, the company had to install special equipment and brought in engineers to design the space. To anchor recycling-related equipment, the prospective tenant asked the landlord to cut holes in the new concrete deck the property owner had recently spent $400,000 to install.
The nature of that request for improvements and other interactions aroused suspicions for the managing partner Kearney Commercial Realty/Sperry Van Ness. For example, when the two sides executed a letter of intent, the potential tenant could not produce enough money to pay the security deposit, plus first and last month’s rents.
Kearney repeatedly asked the prospective tenant for financial statements, references and bank documents. He found what he received lacking and pressed for explanations of inconsistencies and missing information. Dissatisfied with the responses, Kearney investigated the company and found that its principal had about a dozen court judgments, some of them large, against him.
The evidence that Kearney uncovered led him to advise his commercial real estate client not to sign the lease. After some discussion, the landlord agreed and the tenant went elsewhere. Within a year, that company disappeared without paying rent, inflicted more than $100,000 in damage to the property it leased, and caused so many other problems that the landlord’s broker had to give back his commission to the landlord.
“The lesson here is that even when the tenant has a good story to tell about its business, you have to deal in facts,” says Kearney. “Those extra steps that I take with my clients help them avoid financial disasters.”
About Edward Kearney and Sperry Van Ness
Edward Kearney is managing director of Kearney Commercial Realty Inc./Sperry Van Ness with an extensive background in various aspects of commercial real estate including investment analysis, landlord and tenant representation, and property tax abatement. SVN is a leading national brokerage firm that markets commercial real estate properties to an investment and brokerage community of more than 100,000. Kearney welcomes investors, brokers, and others with an interest in the Florida commercial real estate market to contact him today by calling 561-616-6262, or visiting http://www.svnpalmbeach.com for more information about the services he provides.
For more information about Edward Kearney and Kearney Commercial Realty Inc./Sperry Van Ness, please visit http://www.svnpalmbeach.com.
