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Surviving the Zombie (Property) Apocalypse

August 22, 2018

Is it a good idea to lease a neglected fixer-upper?

These days, zombies are big business. From television shows to movies, books to bumper stickers, zombies are everywhere. Not only have Abraham Lincoln and Jane Austen jumped into the flesh-eater-fighting fray, but the Internet is full of expert advice on how to survive a zombie attack. There’s so much zombie stuff out there, it’s as if the apocalypse has already begun.

In the CRE world, though, zombies are a whole new breed of monster. What may work for the undead doesn’t work on a property, leaving many tenants to wonder if it’s financially wise for them to lease what’s called a “zombie” space.

What is a zombie property?

In markets around the country, including South Florida, there are many Class B and C and older tiered properties suffering from neglect. In a perfect world, many of these properties can be repurposed and fixed up into something new and exciting, but the owners of these properties lack the capital to provide even adequate maintenance.

In time, the fixer-upper looks more and more like a zombie, a battered, dusty shell of its former self: parking areas full of weeds, dead landscaping, water-stained ceilings, AC and plumbing issues, falling rents, and mostly-vacant spaces.

Is leasing a zombie property worth it?

There’s a sadness when it comes to zombie properties. Neglect of any kind is never easy to witness, and for tenants, that unease often translates into walking by some really good deals. In other words, some zombie properties shouldn’t be ignored, but should be considered with even greater caution than usual.

To help navigate that path, it’s important to develop a relationship with the landlord and or the management company and to get a firm understanding of their current financial state and financial wherewithal.

Finding comfort in a zombie property

When a potential tenant is interested in leasing a space, the owner can request to see the financials of that tenant to determine if it’s a financially secure deal. The tenant, though, often doesn’t have that same ability when it comes to getting a better sense of the landlord’s financial status.

While paper proof isn’t an option, there is a way of establishing a comfort level through a few key questions. For example, if you’re going to lease a facility that requires some additional work after you take occupancy or you’re aware of some issues, such as HVAC units that are older than five years or a roof that will need replacing during the time of your lease, tenants can ask the landlord/management team:

  • Do they have specific plans in place for the repairs?
  • Do they have adequate reserves for the repairs?
  • Do they have access to financing to solve those problems?

The definitive solution for survival

Many states, including Florida, have detailed laws that explain a commercial landlord’s building management responsibilities. As a result, many commercial leases have a maintenance clause that stipulates that responsibility, and the consequences if the landlord fails to address those issues.

That’s why it’s always a good idea to work with knowledgeable professionals in the commercial property – zombie and otherwise – leasing business; professionals like the team at Morris Southeast Group.

For a free consultation or to learn more about our CRE investment opportunities and/or other services, including finding a great lease or property management, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

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