Building debt makes its way onto tenant checklists

As plunging rents and empty office and retail space continue to threaten the city’s commercial landlords, prospective tenants are increasingly looking at a building’s financial health before committing to a lease. “Maybe four or five years ago, there were only one or two landlords you’d have to watch out for,” says Ted Rotante, a senior managing director at FirstService Williams. “Now there’s maybe 10.” Even if a financially-strapped landlord doesn’t actually default, the strain often becomes obvious in the form of run-down lobbies and stringy heating or air-conditioning. Some commercial brokerages are developing ways to assess the likelihood of these kinds of situations. CresaPartners, for example, uses databases like Trepp’s CMBS Deal Library to analyze a building’s debt. In one recent transaction, the brokerage looked at an undisclosed Class A Midtown office tower and advised its client to go elsewhere when it found that the owner would have needed $50 per square foot, or $10 above the market rate, in order to cover its debt service and operating costs.