We are looking at the highest rate of bankruptcies this year since 2010. A total of 286 companies have filed for bankruptcy in the first five months of the year, from Silicon Valley Bank to Avaya to Bed Bath & Beyond. Bankruptcies are occurring across many industries, markets and among large and small, public and private companies. Given the current high rate of bankruptcies this year, it is time to step up your game and consider a holistic approach to tenant risk management.

We recently discussed our tenant risk scoring system (“A Predictive Tool for Tenant Default Risk”), which serves as an essential first step in evaluating tenant risk. But effectively managing tenant risk in the commercial real estate landscape requires more than just the initial assessment. It calls for a holistic approach, one that combines risk scoring, mitigation strategies, and continuous monitoring.

Tenant risk scoring forms the foundation of our best practices tenant risk management strategy and system. The score, delivered as part of our Megalytics Viability Assessment (MVA) reports, offers landlords a perspective on a tenant’s potential risk by benchmarking against the tenant’s industry peer group based on industry segment. However, understanding the risk is only the beginning. The next step is implementing strategies to mitigate the risk.

Included in our MVA report, we provide Risk Mitigation Options (RMOs), a selection of options that landlords can implement to protect themselves from tenant default. These RMOs may include measures such as securing rent deposits, obtaining corporate and personal guarantees, arranging for irrevocable letters of credit, or setting up insurance bonds to safeguard against potential defaults. Each RMO offers a distinct way to bolster the landlord’s financial defenses. A landlord can use one or all, in any combination, to mitigate risk.

The risk landscape is not static; it evolves with the tenant’s financial health together with the broader market and industry dynamics. That’s why continuous monitoring is crucial. Our Tenant Tracker™ system provides 24/7 monitoring of key risk factors, giving landlords real-time insights into their tenants. This system provides alerts on actions that could impact the tenant’s risk score and indications of tenants potentially going into a lease default, allowing landlords to be proactive in their risk management.

Commercial real estate is a high-stakes game. There is nothing a landlord can do to prevent a lease default. But with a holistic approach to tenant risk management, landlords can effectively navigate this landscape. Landlords can stay ahead of the game by starting with the Megalytics’ best practices due diligence process that includes a comprehensive tenant risk score, employing targeted risk mitigation strategies, and maintaining continuous monitoring.

This holistic approach to tenant risk management and mitigation will improve your portfolio performance, validate your implied cap rate and resulting valuation, and go a long way to project confidence to your investors, lenders and other financial stakeholders.

So, embark on this journey with Megalytics and discover the satisfaction that comes from comprehensive tenant risk management. Contact us at info@megalytics.net and get started.