MacRo LTD Blog

Commercial Real Estate Leasing: The Landlord – Tenant Death Spiral

Posted by Rocky Mackintosh on May 17, 2017 Leave a comment

It is often said that life is a two way street, but on a rare occasion a sinkhole may instantly open up in the middle of the road sending travelers and real estate investments into an abyss.

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Frederick County has seen its share of sinkholes over the years and many have disrupted the flow of life and traffic, often causing near death experiences. 

How does a sinkhole come about? The Maryland Geological Survey states that “sinkholes form in carbonate [i.e., limestone] areas as the dissolving and weakening of bedrock cause it to collapse.” Quarrying is often found to “alter surface drainage and lower the water table.”  The combined affect is that ground strength is decreased, thereby increasing the likelihood of hazard.

The crazy thing about sinkholes, is that while certain geographic areas are known to be more susceptible than others, they keep happening.  Take for instance the former LaFarge and now Bluegrass quarry E South Street and Interstate I-70. It's hard to count the number of times the ground has opened within a half mile radius over the last 30 years.

Just imagine if one opened at the Square Corner in downtown Frederick!

Okay, here I go again getting off on another analogy!

But there is a clear similarity between what may be considered a surprising event like a sinkhole and the one trigger that blows up a relationship between a Commercial Real Estate landlord and its tenant. Like the solid limestone bedrock underneath the foundations of many structures in Frederick County, a once believed solid relationship between a commercial landlord and tenant may have been slowly dissolving away without anyone paying attention … and when the ground gives way, at least one side is “shocked.”

Often this can be as simple as a landlord not paying attention to the expansion needs of his tenant. Without regular “checking-in” communication between the parties, a tenant may form assumptions that his plans, which may fall upon his business suddenly, cannot be met by his existing property owner.  Many a good tenant have been lost this way before the lease renewal date is on the landlord’s radar screen.

Other more challenging matters occur when a landlord neglects a property and/or a tenant finds itself in a bind financially and looks for ways to take advantage of the situation, such as using more parking spaces than allowed, abusing the services provided under a full service lease, or withholding rent over unmet management responsibilities. This can be endless.

Tenants don’t want to fight with their landlords, and landlords surely don’t want to end up spending money on legal fees to attempt to resolve disagreements, but it does happen.

Too many landlords lose sight of the basics of tenant communication as part of their property management responsibilities. They may work hard to win over a good tenant by offering an attractive lease package, but after that, tenant needs may fall on deaf ears.

Building a strong on-going relationship with lessees can provide for much smoother resolutions when challenges pop-up. Most business tenants look at their leased premises as a place to conduct their livelihood and don’t want to be concerned with property maintenance and working utilities.

Their place of business is a way of projecting a professional image. 

The likelihood of a medical practice renewing its lease in a building where physicians are leaving at a very high rate, is probably going to follow suit.  No one wants to be associated with a loser … and that goes for commercial real estate properties, not just people or teams.

A busy landlord may not wish to personally devote his time to building lasting relationships with his tenants, but someone on his team must bear that responsibility … or else. 

When a landlord earns a poor reputation within the commercial real estate industry, tenants and their brokers will look elsewhere. The funny thing is that property owners who are not focused on such things will find that they are the last ones to know that they are vilified within their community. 

A neglected property will often attract tenants who bring baggage of credit issues, lack of professionalism and the like … This can compound matters further, setting in motion a death spiral into an sinkhole of undefined depth. 

If such a structure still has “good bones,” this will likely be one that investors who specialize in “bottom feeding” will seek to acquire at ridiculously low figures as a turn-around profit making opportunity. Surely no landlords ever set their investment goals to attract buyers of this type, but it happens all the time.

Developing a strong and lasting bedrock from which to build a commercial real estate leasing success story does require that landlords have a team of professionals available to cover property management and leasing responsibilities that are capable of attracting tenants of good compatible quality and building strong relationships with each.  Throw in reasonability, experience, responsiveness and attention to matters that concern all, and a commercial landlord will surely avoid an abyss that can cause destruction to valuable real estate and relationships.

To learn how MacRo Commercial Real Estate can assist you with the management of your properties to prevent the commercial real estate leasing death spiral, simply click the link below and we'll be happy to assist. 

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 Rocky Mackintosh is President of MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He has been an active member of the Frederick, Maryland community for over four decades. He has served as chairman of the board of Frederick Memorial Hospital and as a member of the Frederick County Charter Board from 2010 to 2012.  He currently serves as chairman of the board of Frederick Mutual Insurance Company. Established in 1843, it is one of the longest enduring businesses in Frederick County.

 

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Topics: Commercial and Industrial Real Estate Ashleigh's Fields Notes