All Forum Posts by: Nico Fricchione

Hello everyone-  I am currently working on negotiating lease terms with a restaurant franchisee for a redevelopment project. It is important that we protect our investment with the proper guarantee and we create a "sellable" lease for a potential buyer if we ever decide to sell the property after completion. Of course getting a corporate guarantee from the franchisor would be best case scenario but like many franchisors we will not be able to obtain this type of guarantee. The other option is to try to obtain a corporate (store) guarantee from the franchisee - by store guaranty I am referring to a guarantee backed by the current stores that the franchisee is operating. So if they have 9 stores the guaranty would be a 9-unit guarantee.  We would ultimately like to bundle the guaranty with all of their current stores, however each store is an individual LLC and so it would seem that there would be somewhat limited value to have this type of guaranty - for example, is there anything keeping the Tenant from selling those businesses? What happens when the Tenant's other leases expire? What other assets, do those entities own beyond the business? Sometimes the franchisee will have an umbrella entity that holds under it all of their other individual store entities. This particular franchisee does not. They will give us a personal guarantee for a number of years but we ultimately would like to get the most lease strength as possible. The current lease term negotiated is 20yr triple net. I am trying to determine the extent of the guarantee needed and how best to structure the guaranty to include the additional stores as collateral. Any advice is greatly appreciated. Regards, Nico

Hello everyone- 

I am currently working on negotiating lease terms with a restaurant franchisee for a redevelopment project. It is important that we protect our investment with the proper guarantee and we create a "sellable" lease for a potential buyer if we ever decide to sell the property after completion. Of course getting a corporate guarantee from the franchisor would be best case scenario but like many franchisors we will not be able to obtain this type of guarantee. The other option is to try to obtain a corporate (store) guarantee from the franchisee - by store guaranty I am referring to a guarantee backed by the current stores that the franchisee is operating. So if they have 9 stores the guaranty would be a 9-unit guarantee. 

We would ultimately like to bundle the guaranty with all of their current stores, however each store is an individual LLC and so it would seem that there would be somewhat limited value to have this type of guaranty - for example, is there anything keeping the Tenant from selling those businesses? What happens when the Tenant's other leases expire? What other assets, do those entities own beyond the business? Sometimes the franchisee will have an umbrella entity that holds under it all of their other individual store entities. This particular franchisee does not. They will give us a personal guarantee for a number of years but we ultimately would like to get the most lease strength as possible. The current lease term negotiated is 20yr triple net. I am trying to determine the extent of the guarantee needed and how best to structure the guaranty to include the additional stores as collateral. Any advice is greatly appreciated.

Regards,

Nico

Steve Olafson I would agree- unrealistic sellers. Perhaps better opportunity in surrounding markets although I believe anything in a 3mile radius of the university will always be rented.

@Steve Olafson  The school is a huge catalyst to the growth - all of the office development will bring a lot of new employment that will start to change the demographic. It is a very dynamic market. I have contemplated looking for some investment opportunities around the area. 

@Steve Olafson  Yes the single-tenant properties are definitely a vehicle for capital preservation- just a nice pace to park some money for the long-term. Depending on the caliber of the tenant occupying your property i.e. investment grade tenants, the ability to reposition those assets for a new tenant can be strong. Investment grade tenants like walgreens, starbucks, chipotle etc. do a lot of analysis before opening a new site location.

I can certainly see the potential in your value add model for the apartment market- have you looked for any property in Tempe area? I have lived in Tempe for 7yrs now and it has been fun to watch the growth these past 2yrs.

@Omar C. It is hard to give an accurate price without understanding the scope of the project and the type of materials used.

@Steve Olafson what do you think about single-tenant NNN properties as a way to diversify into a more secure asset class so that the economic cycles are not as harsh? Seems like a lot of apartment investors have been repositioning their equity into less management intensive assets with predictable cash flows.

Hi @Gabrielle Woodard - I live in Tempe and am a licensed agent. I would be happy to talk with you anytime. Happy New Year

@Jessica Yau The net lease market is seeing extremely high demand for assets with long-term, NNN leases due to the predictability of cash flow and lack of maintenance with the property. Because of this high demand and lack of supply in the market CAP rates have become compressed to to anywhere between 4%-6% for new construction with investment grade credit tenants. You can see these CAPs increase as lease terms start to expire and leases are structured NN. There is a property in Big Rapids, MI that you may be interested in that I can think of off the top of my head. I would be happy to connect with you and discuss your 1031 and investment strategy moving forward. I specialize in the management of single-tenant net lease portfolios. Have a great day

@Liam Goble I would be happy to connect over the phone. Will send a PM. Best