When should a fund retain an industrial tenant versus plan to replace them?
A fund should work to retain an industrial tenant when the deal it can strike (rent, term, incentive and capital spend) beats the expected result of re-letting after downtime, letting fees and incentives, and the tenant's covenant is sound; it should plan to replace when the tenant is weak, paying well below what the unit could achieve, or clearly leaving. Scayled informs the replacement side of that comparison: it finds 250 to 350 businesses the building suits and the person who signs at each, so the re-letting case rests on named businesses.
- How do you compare retention against replacement?
- When does retaining the tenant make sense?
- When does planning a replacement make sense?
- What evidence do you need on each side?
- Can a fund pursue retention and replacement at the same time?
- What does Scayled cost?
How do you compare retention against replacement?
Model both outcomes. The retention case: the rent and term the tenant will accept, less any incentive and capital spend. The replacement case: months of downtime with no rent and the outgoings the tenant used to pay, then letting fees, legal costs, the incentive a new tenant needs, any refurbishment, and the new rent.
ARGUS Enterprise or the fund's own model compares the two on value and income. The answer turns most on two inputs: the downtime in the replacement case and the strength of the tenant's covenant in the retention case.
When does retaining the tenant make sense?
When the tenant's covenant is sound, the rent is close to market, the unit suits it well, and the cost of keeping it (incentive, works, flexibility) is less than the cost of a void. A regear that extends the term before expiry can also lift WALE and value.
Retention is also usually right where the unit is specialised or oversized, because fewer businesses could take it and the downtime risk is higher.
When does planning a replacement make sense?
When the tenant's covenant is weakening, when the rent is well below what the unit could achieve and the tenant will not move to market, when the unit needs repositioning that the current tenant blocks, or when the tenant has already decided to leave.
In all four cases the replacement plan has to start early, because downtime is the largest cost in the replacement case and it starts the day the tenant goes.
What evidence do you need on each side?
On the tenant: its stated plans, credit monitoring from Creditsafe, Dun & Bradstreet or Experian, payment history from Yardi or MRI, and news on its business. On the replacement: comparable rents and incentives from CoStar and agency research, local vacancy, and the businesses the unit could realistically suit.
That last item is usually missing, and it is what decides whether the downtime assumption is realistic.
Can a fund pursue retention and replacement at the same time?
Yes, and it often should. Negotiating with the sitting tenant while knowing who else could take the unit strengthens the negotiation and shortens any void if it fails.
Scayled is built to run quietly alongside a live tenancy. It prepares the replacement side, 250 to 350 suitable businesses, each with a decision-maker and a drafted email, while the retention talks continue. The fund sends the emails itself, so it decides who receives one, and the sitting tenant stays off the list.
What does Scayled cost?
Scayled does not decide retain or replace, and it does not score tenants. It supplies the replacement evidence and the approaches.
The replacement side costs one payment per unit: The Campaign at US$749 for the Full list, or from US$449 for a Focused 100 to 150 if the fund only needs enough names to test the re-letting case. There is no subscription and no commission, and it runs alongside any appointed agent. Direct-to-occupier leasing explains the approach behind it.
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.