The Risks of Leasehold Deals - The Good and The Bad

[Richart Ruddie]

Investment Info:

Retail buy & hold investment in Walnut Creek.

I purchased a leashold deal at the Walnut Creek Broadway Plaza in the Bay Area back in 2014. Now 7 yeas in there's good and bads about the deal. Original tenant was Starbucks after they purchased Boulangerie. They guaranteed the loan as they divested from the "Panera" of the bay area. The location has since been taken over by Southern California chain Lemonade. The other location used to be a Comedy Club and bar but due to covid has now been converted to a restaurant.

What made you interested in investing in this type of deal?

The good is it was producing roughly a 10% return a year with mailbox money. The bad is when one of the tenants a restaurant closed we were building up reserves. A week before Covid took over in March 2020 we had a comedy club where we received a percentage of the sales. That was interesting and intriguing until it wasn't feasible.

How did you find this deal and how did you negotiate it?

My family is involved in the commercial real estate industry so they bring me deals. This was a good deal at the time of purchase but in hindsight buying bitcoin and sitting on it would've dwarfed this return.

How did you finance this deal?

I own a business that produces income that I use to finance this real estate deal in 2014.

How did you add value to the deal?

I have only acted as an investor in this deal. Starbucks tried to back out of their guarantee and not pay the rent for Lemonade during the pandemic. Not surprisingly after receiving legal letters and as the pandemic subsided Starbucks decided to pay the rent money that they owed.

What was the outcome?

Other investments have been better and the latest real estate purchases like the Tru Portfolio have much better ROI outlooks. I'll update at some point either here or on my Richart Ruddie blog.

Lessons learned? Challenges?

You can't control the future and it's good to dip your feet into a deal, learn about commercial real estate investments, and continue to optimize for future deals. This year I've now closed on more than $45 million worth of real estate between Washington, California, and Florida. It's good to start somewhere.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Working with experts is a key. My speciality wasn't real estate but learning from those who work in it every day is a great way to get started. Follow the trust but verify motto..

-Richart Ruddie