In the world of net lease real estate, tenant quality can be the difference between mediocre and high-performing investments. Great tenants offer stable occupancy, high credit worthiness, and cash flow for years to come, with little active management required. When it’s time to sell, a brand name tenant boosts property value even more because investors value name brands, and all the intangible value that accompanies them.
A few years back, our tenant, a successful local physician group, outgrew our property and informed us they were planning to move to a larger facility. While we were certainly obligated to the remaining few years of lease payments, we knew that we could maximize the property’s value by seeking a new long-term tenant right away. Rather than take the easy, short-term money, we elected to let the existing tenant go and explore the open market.
Our team reached out across the Alliance network of real estate brokers, bankers, and attorneys, searching for attractive tenants. It didn’t take long for our efforts to pay off. We got word that a prestigious university medical network was looking to add a new location in the neighborhood of our property.
This is the kind of top shelf tenant that investors pay a major premium for in resale – great name, long-term contract, impeccable finances, a strong presence in the region, and clearly a bright future. Tenants like those are worth pulling out all the stops to land.
We started by getting a deep understanding for what the university health system was looking for in their new facility- e.g. timing to move, size, location, facility quality. Our team also did extensive research into what the other facilities looked like and how the university handled their previous expansion efforts.
When it came time for face-to discussions with the university administrators, we were diligent in addressing their questions and listening to their concerns. Their approach was different than our usual commercial counterparts, and we adjusted our style accordingly. Understanding their priorities helped us structure a lease agreement that was too good to resist. We also realized during these discussions that a few of their decision makers were hung up on small, addressable aspects of our property. Rather than risk losing momentum, we committed to making these small renovations ourselves.
In the end, we landed the whale. And when a few years later we went to sell the property, it became one of Alliance’s highest performing deals ever.