Do commercial tenants recognize the dangers associated with notunderstanding the creditworthiness of their prospective, or eventheir current, landlords? Standard operating procedure formost landlords is to gather financial information on prospectivetenants and assess their associated risk before entering intoleases. Historically, commercial landlords, as a group,have been considered to be financially stable. Tenantsdidn't concern themselves with the possibility of landlordsbecoming insolvent.

[youtube=http://www.youtube.com/watch?v=3Jz_tti4Ros]Despite somereports of stabilizing markets, in most of the country commercialreal estate vacancies continue to rise, albeit at a slowerpace. Demand for office space remains very low, withlittle change foreseen in the short-term. Asubstantially lower percentage of new leases are being completedthan in previous years. Many lease renegotiation transactions are takingplace throughout the United States. Lease renegotiationtransactions often result in longer leases for lessspace. While modifying existing leases in this manner couldhave long-term positive effects on landlords and the values oftheir buildings, the short-term effects of higher vacancies and theresulting lower positive cash flow could lead to devastatingresults for some landlords. In the current globaleconomic environment, many companies (tenants) previouslyconsidered to be rock solid are experiencing severe financialchallenges. Most landlords are stepping up their focuson tenant creditworthiness and are modifying how they negotiateleases to protect themselves.

I've heard from commercial landlords that few tenants, boththose engaged in negotiations for new leases and those seeking torenegotiate existing leases, request financial information fromthose landlords. Why not? Since most landlords are notpublicly held, this lack of inquiry can't be because tenants aresatisfying themselves with publicly availableinformation. Are most tenants just happy idiots? Are they not aware that like any other companies that requiresustained revenue, landlords can become insolvent, too? Aretenants completely confident in the landlord industry, the economy,or the bankruptcy system, such that they don't feel the need toconduct due diligence into the financial backgrounds of theircommercial landlords?