Ground Lease Process for Vacant Land

[Jean H.]

Hello - I'm looking into buying an unimproved vacant lot and putting a fast food/QSR restaurant as well as a coffee shop on two pad sites. I'd like to have the tenants enter into a ground lease agreement rather than a build to suit. I already have a couple of interested tenants.

I would like to get some input on the typical ground lease process for national retail tenant(s). I would obviously like to get my tenants secured and locked up in writing as soon as possible but issue is I don't have formal land use permits as of yet nor have I started the process - all I know is that QSR/coffee shop/drive thrus are allowed according to the zoning code. So at what point would I enter into a lease agreement with my tenants - before or after I get land use permits? I don't want to be in the situation where I spend a substantial amount of money, get the land use permits and then ultimately have my tenants back out...

Any input would be greatly appreciated! 

[Joel Owens]

Commercial attorney that is familiar with retail and negotiating leases.

The QSR you need to know their model and what the average store does per year in sales. There is a certain health ratio for restaurants after food and labor costs.

You need to figure out what you want the ground rent to be based on all the costs involved and how long you want to hold the property.

Generally the longer the primary ground lease the more value it can have for resale unless the tenant want given a sweet heart deal with little to no rental increases.

What tenants often want is FLEXIBILITY in termination clauses and short primary terms with options. What owners want for stability of the cash flow stream and resale is SECURITY in longer primary term commitment and parent corporation guarantee.

Lot's of other layers into it.