10-Year Commercial Lease - How to Project Rent
I own a multi-unit mixed unit in Trenton, NJ. Three apartments and a downstairs bodega on the first floor. There's also a garage in the back. The lady who runs the store has been there before I bought it in 2020. She had 10 year lease before and I renewed on with her with only a minor increase because she was struggling to get by. She has faithfully paid me since I've owned the place. I edited it on time since then in 2022 when she wanted to add a name to the lease and made it another 10 years. So now in 2024 we are two years in, 8 years to go on the current lease.
Now she is saying that she is struggling to stay afloat and wants to partner a man to convert it to a restaurant. He is going to put the capital in to make the necessary upgrades in the place. He also wants his name on the new lease. He is asking for 10 years so he can recoup his investment.
The problem is that the rent is currently lower than market ($1475/month vs $1850). So initially I proposed only a 5 year increase knowing that I did not want to have a 10 year lease with rent so low especially if I go to sell the building - it would be an unattractive investment.
The new partner proposed to have no increase in the first year, then $50 after every year for the remaining 10 years.
I am uncertain how to project what rent will be for over the next 10 YEARS! and do not want to have such a low rent that it would be an unattractive purchase to someone else if I decide to sell. What advice do you have for figuring out what to charge for in rent over 10 years/