The Landlord As the Detective

Public documents, like lawsuits or tax liens, can give you an idea of a tenant's help, as can trade publications covering whatever industry they're involved in, said speakers here at the Building Owners and Managers Association's annual Office Building Show at a session entitled "Recognizing and Managing Tenant Financial Distress."

"It's out there," said Tara Gorman, an associate at Washington DC-based law firm Greenberg Traurig. "You just have to look."

There are other things a landlord can do to physically assess the health of a tenant. Gorman suggested counting how many people come out of an office during a fire drill. It also doesn't hurt to make sure the name of the entity on your lease is the firm's most updated name and still exists. "If you see people walking through the front lobby with a plant, that's a good sign someone is leaving," she said.

Lights off in the middle of the day are a bad sign, said Dan Chancey, a Grubb & Ellis property manager based in Memphis, TN. "You have to know as much about your tenant than you've ever known," he said.

That's because the nature of how companies got through bankruptcy has changed over the last few years. Instead of Chapter 11 restructuring, when a company would reorganize, emerge and continue to do business--more firms, like Circuit City, are filing Chapter 7 and simply going out of business altogether.

|In the case of a bankrupt tenant, it's advisable to hire a bankruptcy attorney, Gorman explained. "There's a lot of paper in bankruptcies," she said. "So make sure someone's on top of it." Either way, in a best-case scenario, a bankruptcy situation is going to cost a landlord about $20,000.

One thing the industry is seeing more of are "midnight move-outs" Chancey said. Gorman told a story about how one tenant left during a weekend and simply left a note on the reception desk of a landlord. "These things are happening all of the time," she said.

Some landlords might be tempted to give over favorable concessions to cost-cutting tenants that know they have leverage in this environment. "Sometimes they think that rent is excess spending," Chancey said. "You're going to be asked for things you've never had to do before."

But tenants likely don't want to move to avoid those relocation costs. Right now, up front communication with tenants is key more than ever Chancey said. "It's much cheaper to deal with this on the front end," he said. "If you can work cooperatively, you'll come out better."