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Evaluating Tenant Credit Analytical Options
Tenant requirements come in many sizes, ranging from 2,000 square foot offices to 200,000 square foot buildings. The Alliance Group offers you ways to scrutinize tenant credit throughout that spectrum, with budgets that can range from $100 to $4,000. Whether your out-of-pocket investment will be $5,000 or $5 million, we can help you assess the tenant risk in any leasing transaction or acquisition opportunity. Our analytical options enable our clients to choose a scope and budget that is appropriate to an individual tenant transaction. Each option offers a deeper level of tenant scrutiny and you are able to gain increasing levels of certainty about the strength of a particular tenant and obtain increasingly specific and insightful opinions about the viability of a tenant over the life of a lease. The options also enable you to choose a budget that fits the dollars being invested in a particular tenancy. Written reports present the results of our research in simple, easy-to-understand formats. They vary widely in the depth of their discussions and how specific their recommendations and conclusions are. The basic rule of thumb is that the more comprehensive the analysis and the more information we have to draw on, then the more definite and precise we are able to be with our judgments and opinions. The Alliance Group provides a range of reports that can fit any of your needs, from simple file back up for your decisions, to presentations to investment committees. Review Letter This option is designed for scrutiny of tenants where square footages and TI investments will be relatively small. Our analysis includes a review of available financial statements that are typically internally generated. The goal is to highlight any areas of obvious financial weakness that might exist and assess how that translates into tenant risk (see sample letter). We also make suggestions about whether credit enhancements seem warranted. Estimated fee range:* $100 - $400 Tenant Credit Review This option provides an in-depth review of a tenant’s financials over a 3-4 year period, with the emphasis on understanding long-term trends in key financial areas -- revenue growth, profit margins, overhead factors, cash flow, balance sheet accounts, debt coverage ratios, overall capitalization, etc. Our analysis often includes discussions with management about areas of concern and issues that require clarification. The written report (see sample) provides observations about the tenant’s financial strengths and weaknesses and presents discussions and opinions about a tenant's current financial condition. The report includes a detailed spreadsheet that summarizes a company’s key financial statistics and scrutinizes the trends over a multiple year period. This trends analysis enables us to discover areas of weakness (if they exist) that hint at future problems for the company. Our conclusions assess the level of tenant risk and makes recommendations about how to mitigate that risk. Estimated fee range:* $800 - $1,400 Tenant Credit Rating The Alliance Group now offers a Tenant Rating Report (see sample) that presents a comprehensive assessment of the risks involved in a particular tenant transaction. The Rating represents our opinion about the current creditworthiness of a company with respect to a specific lease obligation and is derived from an in-depth analysis of a company's key financial and business fundamentals. Our overall Tenant Credit Rating distills the issue of tenant risk down to a single number and is designed to simplify the process of making leasing/tenant decisions and determining the need for credit enhancements. Tenant Credit Rating Guide Rating Level of Tenant Risk Need for Credit Enhancements Precarious There is a strong possibility of tenant default, with the level of risk at an unacceptable level. Avoid as tenant Vulnerable While the threat of tenant default is not  currently probable, default is a possibility under certain circumstances in the future. Protection needed Fair There are certain aspects of the tenant’s financial condition and/or market position that are worrisome. Enhancements should be considered Good The level of tenant risk is at an acceptable level. Unnecessary Excellent There is a low level of risk with this tenant. Unnecessary This is our most rigorous level of tenant scrutiny and the one that will provide the highest degree of certainty about the level of tenant risk involved in a lease. A Tenant Rating Report includes a rigorous analysis of all aspects of a company's financial condition, as well as an examination of market-related issues in order to determine the dynamics of the tenant's target market and its position within that space. That market assessment includes a peer group analysis that measures the target company against its key competitors. We examine eight financial and market factors in order to develop an opinion about the company as a business, with the Tenant Rating Report ultimately presenting our judgment about how those factors would affect the company's prospects and qualifications as a tenant. A key advantage to the Rating system is that, once an initial rating has been established, inexpensive updates can be done periodically in order to detect changes in the overall rating of a particular tenant. Shifts into a higher risk category can be charted and a course of action can be initiated. Estimated fee range:* $3,100 - $3,900
Note:* The pricing on the reports is presented in estimated ranges since analytical projects vary widely in the complexity of financial documents, availability of market data, the cooperation of management, and other project-specific issues. The estimated fee schedules assume that a single company or market is being examined. The scrutiny of technology-based companies often requires specialized research efforts: markets are frequently ill defined; the ability of management to productize a technology must be judged; and complex technologies need to be examined. Expenses are in-addition to analytical fees. All invoice payments are due on a net 30 day basis unless alternative arrangements are made prior to the start of a particular project.