Single Tenant QSR lease rate

[Aushrif Jason Javeed]

Looking at a new single tenant restaurant deal - new construction. Building was built specifically for tenant, 20 year absolute net lease with personal and corporate guarantee, 1.5% yearly rent escalators, two 10 year options.

My problem though is rental rate is significantly above market - like double market rent on per sq ft basis for that area. Probably because developer is amortizing TI over 20 years. However, that leads to value problems at end of lease. I.e. I would effectively take a bath on property value even if property reverted back to market rates at end of 20 years.

My questions are:

1. Is it common for rent to be so high relative to market rents for new construction QSRs? And should I really be paying a cap rate on amortized TI?

2. How common is it for QSRs to actually continue to accept above market rent at end of 20 years when exercises their options? We would still likely be talking 120% of market rent on per sq ft basis.

Thanks,

Jason