All Forum Posts by: Mike Giudici

I would dump Boost Mobile.

You should notify him as a courtesy, but don't forget to check the lease one final time for an exclusivity clause before proceeding.

Is the prospective T-Mobile deal good? 5+year deal, Market rent + NNN, corporate guarantee, etc?

Why do so many third parties contact landlords wanting to buy out existing cell tower leases? Speculation?

I would check existing lease one more time for a non-exclusive. Personally I would pass on the two cell phone stores unless one of them was a Boost Mobile, Metro PCS or other undesirable provider. I would opt for two tenants with different businesses and improve the Tenant mix.

If you place the t-mobile store, start marketing the other space because someone is not going to make it...

You could structure the lease around a 2-3 year rent to own scenario, but be prepared for a hefty rental increase so there is extra money coming in for the owner to set aside for your down payment. 

If it were up to me, I would just sign a new lease with a right of first refusal to purchase the building clause so you get the first opportunity at buying the building over any other potential buyers and talk to your companies CFO about coming up with a plan to fund the down payment in 2-3 years. 

If you do a build to suite, do the work for them, or give them a TI allowance. Discounting the rent will impact your NOI and will reduce the value of the building.

TI costs fall below the NOI.

One advantage of doing the buildout for them is you know it is done correctly. A tenant that does their own buildout can unknowingly create a (potentially large) liability for you.

A few questions:

1. Is the property NNN or gross?

2. Does the current owners company have a lease in place and if so, do they pay rent?

3. If he sold the building would he continue to have his company occupy the space and sign a 5 year lease at market rent.

4. What are current operating expenses? I estimated $7.50/SF. ($92,250/ year)

5. Are there any capital improvements needed, if so, what are they?

Assuming the current owner would continue to occupy the building minimally at your current rental rate of $14.42/SF, the upstairs space would bring in an additional $9,373/month making the total annual income for the building $181,692.

Income: $181,692

OpEx: $92,250

NOI: $89,442

Cap Rate: 7.75

Value: $1,154,090.32

Of course these are assumptions without knowing anything about the subject property. If you can provide some additional details we can probably help you with the best play.

Is 45-55% of the ownership entity an LLC?

As mentioned above, we need more detail.

Just let your lender know. Many times as long a certain percentage of your Tenants sign the estoppels, there won't be an issue. Especially if this is a small Tenant.

If you're unable to reason with him, it may be wise to send the Tenant a formal default notice as well to document the incident for the lease file, even if you don't act on it.

I have had Tenants do this before, all of them have been small outfits who don't understand the document they are being asked to sign.

Good luck.

Yardi is one of the best commercial softwares available. How many commercial properties and tenants are you currently managing?

This property is set up the same way.  We sub meter and resell utilities and pass through all  expenses. 

The idea of switching to gross leases was brought up because it would be easier to handle administratively and from an accounting standpoint. I agree with that, but I feel that by making the switch you suddenly become exposed to fluctuations in operating expenses. In addition to loosing the ability to pass through traditional operating expenses, we also loose the ability to pass through staff and certain capital improvements to the property. 

The unexpected fluctuations in operating expenses in a gross lease scenario can reduce the properties NOI and negatively impact property value.