Need advice on an exit strategy for a commercial property

5 Replies

Hello BP community,

I'm looking for some advice from any commercial investors out there that may be able to help me with a creative EXIT strategy for a restaurant business.  

My family has a commercial property / restaurant that we purchased about 7 years ago thru seller financing.  Since then, we have closed the business, and had several other hardships that have made it difficult to be able to make the monthly payments to the seller.  We have the property listed for sale with a local realtor, but have not had any luck getting the property sold in the last year.

We have quite a bit of equity that we are not willing to just let the owner take the building back, and lose everything, but unless a buyer comes along soon, I don't know how we will make the monthly payments.

Are there any investors out there that would have any creative strategies to get out of the property, partner with someone, or anything that would help us get out of the payments without losing our equity.

Any good FREE listing services that perhaps our realtor is not using.  

Any help is greatly appreciated!!!!   Thanks so much!!

Hi Bryan,

Before my 14 years in commercial real estate I was in the restaurant business in all facets.

I am a retail developer these days and also a principal commercial broker.

First question is if you own the business alone that was financed or was it the building and the land??

If you do not own the building how is your lease structured for early termination? Just shutting a business down does not usually remove obligations off of a lease. The landlord in some cases can change the locks and consider left over equipment their property. It's all about what is in the lease and what parts of it are enforceable by law or not. Sometimes items in a lease are not enforceable. What does the lease say about assignment rights?

If you do not have a lease then you need to look at what you do have. Restaurant equipment and build out is almost worthless maybe 10 to 15 cents on the dollar. Restaurant warehouses resell to new businesses starting out or expanding as used equipment for maybe 30 to 40 cents on the dollar. Former business owners often attach an emotional component to a failed business and assign sweat equity value to numbers for build out and equipment that doesn't exist. Something is worth what the market is willing to pay for it.

I specifically know someone that watches retirees take a IRA and do a 200k build out for a Subway. 6 months in they are desperate to sell and he comes in and pays about 100k for a brand new store and puts his systems into place like he has for his other 20 stores already. I do not like new build outs as it is very expensive and you do not know how sales will be for a baseline over a few years yet. I like solid businesses throwing off incredible numbers where the seller is selling for partnership split, retiring, health reasons, moving out of the country, etc. The business itself has been open for decades and you have multi-generational customers eating there such as grandpa,dad,and his son etc.

So now that you know the equipment is almost worthless what could have value is the building itself and also the land. You need to know the traffic counts that go by your business daily. You can get that from the state department of transportation online usually. A (void analysis) is looking at your site and seeing what the highest and best use would be.

Without knowing your address and if you own the building and land it is hard to comment further. If you are on a lease you might try and get out of it and see if they will just let you go and terminate. If not maybe sell the equipment inside if it is paid for and negotiate a settlement to break the primary term of the lease early. The landlord will generally want a break fee to cover their lost rent while it is vacant, the next tenants anticipated tenant improvement credits, and estimated leasing commissions. This way the landlord is at a neutral position when they release the space again.

If you own the land then you might want to sell it off to an end user a national,regional,or local brand, or to a developer.

Good luck. No legal advice given.

      

I do not know what agent you are using but this is a highly specialized field with retail. It makes a big difference working with a specialist with a high degree of problem solving skills.

What is the as is value of just the real estate? What do you owe on the property? What is your mortgage payment and the terms of your loan? How much would it cost for a new user to upfit the building and open up? How much are the taxes and insurance? If you will answer these questions, then I can give you a handful of options.

Like others have said, really need to take a look at the controlling documents. If you have good equity in the site, then you may be able to find a partner to take 50% of that equity for injection of more capital to make it a profitable location.