How do industrial funds monitor tenant covenant strength in real time?
Industrial funds monitor covenant strength by putting each tenant and any guarantor on a credit monitoring service such as Creditsafe, Dun & Bradstreet or Experian, which alerts them as scores, filings, court judgments and directors change, and by watching rent payment data in Yardi or MRI. No method is truly real time: alerts are only as fresh as the filings behind them, so arrears data and tenant conversations fill the gap. Scayled does not monitor covenants. When a covenant weakens and the unit may come back, it finds 250 to 350 businesses the building suits.
- What is tenant covenant strength?
- Which services monitor covenant strength?
- How close to real time can covenant monitoring get?
- What should a covenant review cover?
- What should you do when a covenant weakens?
- What does Scayled cost?
What is tenant covenant strength?
Covenant strength is a tenant's financial ability to meet its lease obligations for the rest of the term: paying rent and outgoings, maintaining the building and meeting its make good obligation at the end. Valuers and lenders price it directly, because a strong covenant makes the income more secure.
It depends on more than the tenant's credit score. Check which entity actually signed the lease, whether a parent company guarantees it, what rent deposit or bank guarantee is held, and how long the term runs against the strength of the business.
Which services monitor covenant strength?
Creditsafe, Dun & Bradstreet and Experian all let you add tenants to a watch list and receive alerts. Creditsafe's score is a 1 to 100 estimate of insolvency risk over the next twelve months. Dun & Bradstreet's Failure Score estimates the likelihood of business failure over the next twelve months, and its PAYDEX score reflects how promptly a business pays its suppliers. For listed tenants, CreditRiskMonitor's FRISK score rates bankruptcy risk on a 1 to 10 scale and updates daily.
Rated tenants also carry ratings from S&P, Moody's or Fitch. Coverage of private companies and subsidiaries is thinner, and many industrial tenants are subsidiaries, so monitor the guarantor as well as the tenant entity.
How close to real time can covenant monitoring get?
Some data moves fast: court judgments, insolvency notices and director changes usually appear within days. Financial accounts move slowly. In the UK, a private company has nine months after its year end to file accounts, so a score built on them can describe a business as it was more than a year ago.
The fastest covenant data a fund has is its own: rent arrears, part payments and requests to pay monthly instead of quarterly. Review the arrears report weekly alongside credit alerts, set news alerts on each material tenant's name, and ask large tenants for management accounts where the lease allows it.
What should a covenant review cover?
For each material tenant: the entity on the lease and any guarantor, the security held, the latest accounts (profitability, net assets, cash and debt maturities), payment history, credit alerts since the last review, and news about the business. For logistics tenants, add customer concentration, because a third-party logistics operator that loses its main contract can weaken quickly.
Rank tenants by income at stake multiplied by the likelihood of a problem, and review the top of the list on a set rhythm, such as each valuation cycle. Keep the evidence behind each judgement for the investment committee and lenders.
What should you do when a covenant weakens?
Act on both sides of the lease. With the tenant: talk early, review the guarantee and security, consider asking for additional security in return for flexibility, or agree a surrender on terms that suit the fund. For the unit: plan for it coming back, so a departure is a handover rather than a cold start.
That second side is Scayled's job. When a covenant review puts a unit at risk, it produces the businesses that could replace the tenant, 250 to 350 of them across the area and the wider market, with the signing contact checked and an email drafted for each, in about five working days. The struggling tenant is left out of the list, and nothing is advertised.
What does Scayled cost?
For a unit whose covenant is slipping, Scayled runs a one-off campaign: US$749 for the Full version, paid once, with no commission on the letting and no subscription. It is written as the owner and sits alongside an appointed agent.
Credit monitoring tells a fund when a covenant is slipping; Scayled is what the fund does about the unit once that risk is real. That second side is described in replacement tenant software for industrial landlords.
Lease The Vacancy In-House, Before You Appoint An Agent.
The Campaign finds the 250 to 350 businesses the building suits, names the person who decides at each and writes every email, ready in about five days. One payment of US$749 per property, no commission and no subscription. A focused 100 to 150 from US$449.