What do you say to a tenant that requests substantial rent reductions because of the effects of the economy on

He is a good tenant so far meeting all his lease obligations.However he is asking for 50% reduction on monthly rent payments that if awarded the landlord may default on her loan obligations.
In Market Conditions - Asked by George A. - Dec 15, 2008
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Glen W.
Lender/Mortgage Broker
Atlanta, GA

Not sure a 50% reduction is warranted in this economy. It is important to make some concessions to tenants in order to keep them in the property. Some cash flow is better than no cash flow and getting new tenants is extremely difficult in this economy.

Dec 16, 2008
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Erik C.
San Jose, CA

I would ask the tenant for their P/L statements to verify income has decreased. Secondly, I would work w/ the tenant to come to arrangement on payments that is within the guidelines of the loan doc's.

Dec 16, 2008
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Gary V.
Palm Beach, FL

1. If it triggers trouble with the owners bank then discussions with the bank are important and the first step.
2. Rent reductions, in markets with decreasing occupancy and lowering of ask rents, will be a fact of life and necessary to retain tenants. One should look at the overall goals and review cost saving opportunities in operations.
3. I would craft a plan that includes rent escalators in the second and third year as this may turn the corner and business improve. Having these will allow the landlord to review the business performance annually.

Dec 18, 2008
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Andres G.
Miami Beach, FL

I would be reluctant as I am sure you are. Contact leasing specialist in your are and compare his offer with what you think you could realistically collect if you get a new tenant. I would also ask for financials from the business, if I am going to reduce the income (and therefore the value) of a property because a business is going through hardship they will HAVE to prove that they cannot afford the new rent. I would also send the financials to a CPA or small business expert (at the tenants expense) for review. I don't have a lot of info but 50% sounds ridiculous.
Andres Garcia

Jan 22, 2009
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Mick D.
Punxsutawney, PA

I don't agree that it is difficult getting renters in this market place. There are more people leaving homes that they once owned and since they have to live somewhere they are renting. Tenants are more and more available especially in certain areas. I own and continue to look for MultiFamily complexes around the country. What I would say to the tenant that wants a reduction in rent......expenses on the property are inceasing which in turn lowers the NOI on the property and therefore decreases the value of my investment......I would concede that I would not raise rents but they must stay intact while expenses continue to rise!!

Sep 17, 2009
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