As a commercial property landlord, what are the pros and cons of having a national name brand commercial tenant versus a local owner and operator?
- GREG ARBUTINE
- 2 days ago
- 4 min read
As a commercial property landlord, what are the pros and cons of having a national name brand commercial tenant versus a local owner and operator?
There are two types of national tenants: corporate direct tenants who are managed by the large corporation directly and then there all also franchisees (often mom and pop owned) who have strict guidelines that are governed by the corporate rules and regulations within the franchise.
Pros to having a national name brand tenant:
Good Pay Tenants - National Corporate Direct Pay Tenants usually have deep pockets and you will likely never have any disruptions of cash flow due to non-payment. Same is probably true for franchisee's as well.
Long Term Leases - National Tenants (both direct and franchisees) tend to want longer term leases as in 10-20 years. With less turnover of a tenant space, you will likely make more money as a landlord as a result.
Portfolio Prestige - It's always a good thing when you can show your roster of tenants that includes well known national brand name tenants. Banks looking to do financing love these tenants. It's also good when and if you go to sell your property as buyers will tend to favor plazas and properties that have a strong tenant mix.
Contract More Solid - If a direct pay national tenant pulls out of your property, you have a lot better chance of recovering the remaining time on the lease versus a local person. The big national corporation with deep pockets will likely make good on the lease. Franchisees may be more like a local tenant in that if they go under, you're likely not recovering the remaining lease term time from them (especially if they declare bankruptcy) nor will you usually have any recourse with the franchise that they represent.
Cons:
800 Pound Gorilla - You will likely be more at risk of giving concessions to a national tenant with a lot of leverage versus a local non-national name brand owner. The national tenant knows their value and can ask and demand for a better rental rate and also for more build out dollars and even lesser maintenance costs. Just make sure as a landlord that when you place a national tenant that you have a pretty strong placement where both parties have a win win and need each other. The national tenant should love your great location, incredible drive by traffic numbers, synergy with the other tenants (anchored by a grocery store is the ideal) and visibility in a high end market with great house hold income statistics. Make sure you have a strong plaza that can carry a national tenant. If it ends up being a weak or mediocre placement and the national tenant is not making their numbers, the national tenant will either leave at the end of the lease or beat you up unmercifully on renewals.
Harder to communicate - With a local tenant you get on the phone and can talk usually within 24 hours. A national tenant has more of a hierarchy in the command structure and it can often take days or even weeks to be put in touch with the current person managing the property and lease. If a franchisee, you'll probably have a more direct line in this scenario.
Turnover in representation - With a local tenant you're likely to have the same relationship throughout with the owner representative until they either sell their business or decide to retire. However, with a national tenant that operates hundreds or even thousands of locations, you will see a lot of turnover in the managers and contact persons that you deal with. Just remember to keep good notes and histories of communication as you may have to bring the next round of corporate managers up to speed on things by educating them yourself on the nuances of your plaza.
Conclusion: Overall, you will want to have national tenants in your portfolio of properties. However, just be careful not to put all your eggs in one basket and also make sure that the placement is one that both parties feel strongly about for its future success. You don't ever want to get in a position where the big corporation has you over a barrel and can demand concessions that you don't want to give. Don't take a national tenant if you have to give away the store and looks like will be a constant hassle and battle - it's not worth it. Keep the profit motive in mind when doing all deals for your plazas. Locally owned tenants can be just as lucrative and many stay for the long run if you present a well run plaza and treat them fairly.
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Greg Arbutine
Alan Development Co-Owner
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