Changing Definition of a Credit Tenant

 Steve McLinden stated in his 2006 Shopping Centers Today article, “Once landlords get past the roughly 35 percent of national retailers that ratings agencies dub investment grade, the pickings get slimmer and the credit decisions grow more crucial.”  If the picking got slim after only 35 percent of the national retail stage in 2006, today’s definition of credit is surely an enigma.  This is a troubling fact for the retail and mixed use development industry, as these credit tenants have been the anchors and building blocks allowing the industry to develop, borrow, build. 

So what is a credit tenant today?  Only time will tell!  However, I encourage emphasis be placed on local/regional tenants as a potential “credit” alternative.  Quality local/regional tenants are transparent, hand’s on managers, with strong work ethic and a well thought out business plan.  These tenants often provide products unique to the market, and have integrated networks and relationships not available to national retailers.  Most importantly however are that personal guarantees (a term from history) are often attainable, providing a valuable collection/bargaining chip.  When individuals face losing their home, amazing creatively ensues to produce cash or sales.  The US was founded on the back of small business, and continues to be the driving force of the US market.  If underwritten and managed appropriately, consideration should be given to the local/regional retailer as a replacement for if not the new “credit tenant.”

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About taddmiller

Mixed Use and Urban Infill Real Estate Development
This entry was posted in Retail, Uncategorized and tagged . Bookmark the permalink.

2 Responses to Changing Definition of a Credit Tenant

  1. Chris Miller says:

    A personal guarantee will always make the new prospect/tenant/owner think twice before signing! Not such a bad thing when times are tough.

  2. Ross Reller says:

    The recent financial collapse and last week’s bankruptcy of Ambac prove that ratings agencies are worthless. Small locally owned businesses that are independent of Wall Street may be hard to underwrite, have their own set of challenges, but in the long run may be preferable to a highly rated comet. Underwriting needs to be based on both what others say about a company AND the landlord becoming intimately familiar with the who what where and why of every tenant they deal with.

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