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(taken from Sioux Falls Business Journal)
As a business, transaction and real estate lawyer at one of the largest law firms in Sioux Falls, Brendan Reilly has an insider’s vantage point in a key sector of the area’s economy.
Reilly, a partner at Davenport, Evans, Hurwitz & Smith, is a player in this new era of commercial leasing – an important reflector of local economic activity – on both the landlord and tenant sides of deals.
He sees opportunities and burdens on both sides. But tough market conditions, including high vacancy rates in commercial buildings, have created opportunities especially for tenants.
“It’s kind of a buyer’s market right now. It’s kind of the same in leasing. It’s a tenant’s market right now,” he says.
Landlords want tenants, but business tenants can shop around and look for bargains.
In addition to reduced lease rates, prospective tenants might find landlords are more willing than in the past to grant other enticements, such as a build-out allowance to help remodel space, Reilly says.
Depending on the space, landlords also might be willing to lock in a lease rate for a longer period without a built-in price increase.
Tenants, meanwhile, might face greater advance scrutiny from landlords.
Landlords have to take the due-diligence process especially serious during challenging times because replacing unsuccessful tenants is expensive, Reilly says.
“You don’t want to give away the farm and have tenants that are unable to carry out the terms of the lease,” he says.
So, more so than a few years ago, landlords tend to want stronger financial guarantees built into leases, he says.
In the past, a landlord might have been willing to settle for the financial promise of a business entity. That left open the risk that if a business folded, no one was responsible for the remaining financial obligations.
These days, landlords often want the personal financial guarantee of a key shareholder of the business as well as the promise of the limited liability company or other legal entity, Reilly says.
Reilly, who’s been practicing business law for 12 years, says legal work flows with the market. If development is slow, work related to filling existing space might require more attention.
If real estate agents are busy, business lawyers will be busy, too. So Reilly is a cheerleader for the commercial real estate industry.
“The market hasn’t stopped. It’s slowed. Maybe the focus has changed,” he says.
Behind-the-scenes business activity is up, compared to six or nine months ago, however.
“I think in Sioux Falls we’ve hit rock bottom, and we’re on the way back up,” Reilly says.
Rob Swenson can be reached at rswenson@sfbusinessjournal.com.
