Joel,
Thanks for getting back to me. Very helpful. My answers are in bold italics
So these restaurants are not free standing but in a mall correct??
Its a historic mall with stores on both sides.
You are not buying the business just ownership of the 2 restaurants correct??
No. Buying the property 6000 sq ft. Nothing else. Business ventures inside will pay rent.
Are these NNN leases, NN leases, ground leases etc.??
NNN. Landlord only responsible for roof and outside brick walls.
Both for 3 years with 2 yrs left on lease. They both want to extend with long term leases when property changes ownership.
2. Are both concepts owned by the same person/company??
No. Independent.
4. Are the restaurants per the lease require
3. Who is guaranteeing the lease??
Best to Worst typically for general security:
National Chain corporate guarantee, subsidiary of corporate, large franchisee, small franchisee, independent non-franchisee mom and pop concept.
Both are independent very successful restaurants. No franchise (McDonalds).
One tenant is pulling 2 mil in revenue and paying only 7,000 per month in rent. Great opportunity for rental increase when lease expires.
Typically we want to see 10% or below sales to rent. So if they are paying 72,000 a year in rent then we want to see 720,000 in gross sales or higher. Ideally a 4 to 7% rent ratio to sales is the sweet spot.
If this is a national chain we want to know what sales does the average store do nationally and is this store below average, average, or above average??
5. How old is the equipment in the restaurants and do they need a re-image?? Books can look good but then the restaurant needs a makeover that creates a "capital event" of a few hundred K or more putting them at risk if they have not saved and allocated for it.
Don't know.
5. With the 2 restaurants if one goes dark you are already at occupancy of 50% and likely throwing money at the mortgage each month to stay afloat. This versus a retail strip center with 8 tenants where a few can be dark but you are still cash flowing.
Great point.
6. What rent increases does the leases have if any and how long left on the primary term before the options kick in?? The lender will only count the guaranteed income stream in the primary term for loan purposes and risk.
If this is a national chain and rent goes up 2% a year but goes up in 3 year blocks at 6% a time then it's not that big of a deal. If it's mom and pop or a small franchisee you want the increases every single year for 2% versus 6% every 3 years because they could go out after year 2 and you never see that 6% bump in rent.
Rent increases of 3 percent per year.
I could go on and on. Hope it helps.
