Tenant screening and evaluation have been long-established practices in both multifamily and commercial properties. But in the wake of Sept. 11, the goal of screening is distinctly different.
“It used to be that the ability to pay was the only major criterion for a tenant. Now commercial owners have to take a harder look at what companies do and any limitations or risks that may pose,” says Sal Lifrieri, president and CEO of Protective Countermeasures and Consulting Inc., and former director of security and intelligence operations for New York City’s Mayor Rudolph Giuliani.
Unlike financial institutions, commercial real estate owners and managers are not responsible for implementing a Customer Identification Program or for meeting other anti-money laundering provisions of the USA Patriot Act. However, real estate professionals are covered by Executive Order 13224, which prohibits any business from entering into business relationships with SDN entities listed on the Specially Designated Nationals and Blocked Persons list (www.ustreas.gov/offices/eotffc/ofac/sdn/).
Restrictions also prohibit those on the SDN list from benefiting from properties they already own by receiving rents or other payments. Because real estate is a highly interactive business, commercial real estate professionals may want to periodically check the SDN list to ensure that they are not dealing with restricted entities. An SDN check is often included as part of a personal credit check, but larger commercial companies may find it desirable to purchase special interdiction software for this type of screening.
In conducting an SDN check, finding what appears to be a match does not necessarily mean that a company or person is sanctioned. If a match appears, further investigation with the Treasury Department or other government agency should be undertaken, however. Although not required by law, commercial owners and managers may also want to check the citizenship or immigration status of residential tenants and company principals.
A good first step is to require photo identification in the form of a driver’s license, federal- or state-issued ID, or foreign passport. (See sidebar on the right for screening tips.) Recognizing legitimate identification is further complicated by the presence of various versions of the same ID card, all of which are valid at a given point.
For example, in the wake of Sept. 11, the U.S. Department of Justice redesigned the “green card,” its standard identification for lawful permanent resident aliens, to incorporate such security features as an optical memory strip that laser imprints photos, fingerprints, and other critical information into the card’s surface to prevent alteration. A holographic image has also been added to prevent forgeries. However, older, but still valid, cards may not have these features.
Another critical piece of identification that commercial owners and managers should require of every prospective residential tenant is a Social Security or Individual Tax Identification number, which are available to both U.S. citizens and resident aliens legally entitled to work in the United States. ITIN numbers, which are issued by the Internal Revenue Service, are available to non-citizens who need to report income for tax purposes, but are not eligible for SS numbers. Social Security numbers—but not yet ITINs—can be verified electronically through such major credit reporting agencies as Equifax and Experian.
“By requiring that all prospective residential tenants have either an SSN or ITIN and a driver’s license or passport, you’re able to do what I call ‘verification by proxy,’” says Robyn Guidara, director of training and corporate development for Registry- SafeRent in Rockville, Md. “Because— at least in principle—state and federal issuing agencies will have verified immigration status before granting these documents, you have some assurance that a tenant’s citizenship records and identity are correct,” she says.
In the case of residential tenants, it’s also important to ensure that a company’s identification verification policies don’t violate Fair Housing regulations, warns Guidara. Apply the same procedures to every applicant as a protection against charges of discrimination. Remember that refusal to rent on the basis of national origin is unlawful.
Also review Department of Housing and Urban Development regulations (www.hud.gov) that define what types of documents are acceptable. Commercial concerns The wide variety of commercial office and warehouse tenants makes screening challenging, especially when it comes to smaller and startup companies, says Christopher Falkenberg, president of Insite Security in New York City.
Falkenberg suggests looking at a new company’s articles of incorporation and other corporate documents and confirming them with the state of incorporation. If the company isn’t established enough to have a Dun and Bradstreet rating, obtain permission to check the personal credit history and backgrounds of principals, even those who won’t be on the lease, he adds.
The “headers” on credit reports, which contain basic contact information such as name, address, date of birth, and Social Security number, also provide data that may assist you in screening. Many of the same practices you’d use in hiring an employee, such as checking references and recent or pending lawsuits, can also provide valuable information on commercial tenants, suggest Lifrieri.
When doing this type of screening, the landlord must consider whether a company might be a likely target for terrorism or violent demonstrations. A good overall manual is Preparing for Terrorism, published by IREM. ($40 plus tax & shipping at 800/837-0706).
Managers should also ensure that the products and workers who come onto their properties have been carefully screened, says Nick Pacitti, senior consultant with the Cleveland office of The Staubach Company. Big industrial and warehouse users who get products from all over the globe and receive deliveries from multiple carriers are particularly vulnerable, he notes.
Construction workers in the building should also be carefully screened since they are often hard to track once inside a property. “Suppliers should do pre-employment screening and periodic background checks of workers. Larger companies have tighter security, but smaller ones may be more lax,” Pacitti warns.
Any odd behavior should also trigger concerns. “If you’re leasing to a company that would normally operate 9 to 5, and they’re asking you questions about access at 2:00 a.m., it should raise a red flag,” says Lifrieri.
Ultimately, the most important element in successful tenant screening is to be concerned. “The rule is, ‘Don’t hesitate to make the call,’” says David Cid, president of Salus International. “It may be nothing, but in the post-9/11 era, the government will take you seriously.”
