Hello All,
I would like s***estions on how to structure a lease that we are currently negotiating with the local Packie or Packy (ABC Board - Alcoholic Beverage Control). Packie or Packy (ABC Stores down South) are set up by the Town/County and run by an independent ABC Board – no assets, no money, basically just future sales.
We feel good about the long term potential and are considering this even though our building will need major upfit for the ABC Store. Our main concern is how to structure things to protect against the possibility of high inflation over the long term loan repayment and the actual terms of the lease itself. This concern is coupled with the need to protect the long term viability of the ABC Store, providing for long term stability of the lease.
Background Info
We have some leverage since the town approved the ABC Store in 2009, and the ABC Board has not found a location that will work until now. (Small town, we are on the “drive home” side of the road, have an existing building, etc.) Building a new store was cost prohibitive for them (not enough sales volume to buy the land they were looking at in addition to the cost to build).
We will potentially be lending the money for the upfit, and possibly for the fixture purchase if we can find a way to structure it to our mutual benefit. It is a concern that if everything goes wrong there is no second source of repayment.
Tenant upfit will be approximately $100,000 (The ABC Board has no money at this time. The Town cannot lend money to the ABC Board. The ABC Board will be able to get some bank loans against future sales to purchase inventory and possibly fixtures (if we do not help finance this cost.)
Miscellaneous Information
• The State ABC Commission estimated that the location would produce sales between $800,000 and $900,000.
• This is a 4,000 square foot metal building (100 ft wide, 40 ft depth), 180 ft road frontage with two curb cuts for ingress/egress.
• We are looking at a 10 year lease.
• They want to start paying rent in March or April of 2012. (I don’t like this idea and we will have to compensate for the rent somehow!)
• We could loan them the upfit money and amortize the repayment over the term of the lease at 6 - 8 %, possibly as high as 9 % interest. Any other s***estions . . . besides the amortization of the upfit?
• So far we presented a base rent amount plus taxes and insurance to be paid by the tenant. We have not discussed terms of the upfit, % rent, etc.
Main Questions:
• How do we structure the upfit repayment for the best chance of success for them to stay in business long term, provide stable and optimum rental to us, and to protect against inflation for a long term loan.
• How do we structure to protect ourselves for the possibility of high inflation in the coming years and to optimize our rent payments.
o Variable rate
o Fixed rate with higher rent or % of sales
• How best to structure the lease?
o Lease Term – 10 years
o % rental over natural break
o CPI increase each year for base rent
o Security Deposit
Would appreciate any ideas about how to approach this leasing challenge (at least it is a challenge for us). Thanks in advance! Also, please know we are open to ALL s***esions!
Thanks very much!