All Forum Posts by: Nikolas Engel

@Ronald Rohde and @Ryan Seib

Thank you both! You really are great support!

@Ryan Seib and @Ronald Rohde

Thank you Ryan and Ronald. We come from the MFH side of business and I appreciate you both sharing your knowledge to help me get this retail project off the ground. With all you both said, what is real added value for a landlord to write options into the initial lease contract? It seems like a gesture to the tenant that there is willingness to stay together for a longer time - which I find is good - but at the same time it can be so limiting for the landlord. 

In my example, in order to establish base rent for the option, I propably suggest to include the clause "2.5% or FMV whichever is greater". That should give the underwriting a floor of at least 2.5% increase from rent amount in last year of initial lease. My hope would be that this is attractive enough for a new investor in case we decide to sell within the initial 10-year term. If we decide to hold, the FMV should give enough room for market rate growth.

@Don Konipol

Thanks for your analysis! We are dipping our toes into small storefront retail space right now.

@Drew Sygit

Hmmm, interesting idea! That would address the dire need for housing and turn those empty spaces into something useful. For sure a big empty box would provide for a huge courtyard in the middle. Maybe with a skylight dome? 

@John McKee and @Joel Owens

Thank you both for highlighting the importance of a valid exit strategy. Although we are just acquiring those retail spaces I already think about the exit. That's why the only part that is not agreed upon is the length of the lease guarantee. Everything else looks good, long term, high $/SF, decent TI. 

@Ronald Rohde and @Ryan Seib

Thank you for sharing - good points and food for thoughts!

But here is another question: How would you structure the options? Right now, we agreed to an initial 10-year term with two 5-year options. Should we run the annual rent increase of 2,5% through the entire length of both options, basically defining the annual increase for the next 20 years? Or should we say we go with FMR when it comes to the option? I understand that FMR can go both ways. What makes most sense, also with regard of planning the exit already at this point. Any experience and/or thoughts on this?

@Don Konipol

Thank you Don!

@Don Konipol

That would make perfect sense. 

But now I am curious, would you happen to know how a deal between buyer, traditional lender and Angel Investor is usually structured? 

@Ronald Rohde

Thank you Ronald, really great help from you. 

@Anthony French

Out of curiosity since I have never worked with an Angel Investor, could you explain the deal structure, especially who holds title and who is on which position on the lien. How is risk mitigation distributed among you, bank and Angel Investor?

@Garry Scott

Nice project - thank you for sharing! Will follow your updates.

@Chris Seveney

Thank you for your thoughts and words of caution! Can you tell me more about how a situation like this, when the lease gets assigned to the operator and LL needs to give approval, usually plays out in real life? Doesn't it put the franchisee in a weak position as his sale to the operator is contingent to the LL approval of the lease assignment? Or in other words, isn't the LL in a strong position to demand a guaranty from the operator and the franchisee?