All Forum Posts by: Russ Kitzberger

I am a CRE and Business broker; What you are describing is a risk concern for one party in a business sale (you as landlord), usually landlords are worried on of the opposite, making sure a tenant will stay/succeed.

As the landlord, you will want to underwrite the lease transfer as you would any similar deal, and the broker should be working with you and all the parties to facilitate.

Working as an intermediary capacity (what you describe as both sides) is typical in BB; That is why business brokerage(s) charge more than CRE brokers, it is a less common skillset.

External influences or unconfirmed competitive businesses might not be required disclosure in your state and your injecting accusations about the sellers motives might be interfering with a business contract (ask legal counsel if you can be held liable) or might violate your agreement or any NDA or confidentiality agreement you have with the tenant. 

If you want a successful business in your location, not across the street, consider shifting your focus on stopping competition.  Maybe it is a good time to sell your property, a competing landlord is trying to open up across the street?

Contacting your own attorney is the best idea.

If operating: Bar/Restaurant is not Real estate, it is a business brokerage deal.  You need to ask business brokers or a banker who underwrites these sorts of deals regularly what risk/underwriting is reasonable.  

If not operating, then Henry's comments are the same ones you will get from a bank underwriter for a business startup, which are the same ones you should ask yourself. Plus, as yourself are you ready to be an entrepreneur?

I will say that to get the best locations and best chance at success, buying a business rather than start one.  It is often less risky and has a faster and higher return than opening a competitor nearby and splitting market share.

I am an IBBA registered bus broker and this sort of main/lower middle market business is in my wheelhouse.

Quote from @Chris G.:

 The cost of having that done doesn't make sense on our end based off the rent we'd be getting/ properties value.

So now it's pretty much impossible to rent, does the city ever make exceptions to certain properties or exempt properties from these changes? Any other advise or options to look at would be helpful. 

Feasibility is an issue in most reuse-redevelopment scenarios. 

Cory is right, you may have a difficult time and will have to be creative or willing to pay for advice/help.  I recommend clients who want to redevelop a property or have a different use than zoning allows to speak with an attorney that specializes in that exact Cities zoning and land use law.  A few thousand in consulting legal fees can really open your eyes to what the process will be and how long/much it will take.

Providing you examples to what would comply probably is prohibited in the city permit examiner employee's job description (practicing law), a city will generally hand you a document, but they are not going to give legal advice. As far as the process to appeal, again, that is in the attorneys area of specialty.  In one City I practice in, you have to make the application and get denied to apply for the variance.  That means, that you apply for the use permit ASAP so you can apply for the variance.  Getting denied is just part of the process, you hope it happens fast so you can apply for the variance.  A good attorney can tell you that for a few billing hours.

Cap on medical office is most markets is higher because the ability to leverage is lower than MF. MF has lower interest rates on loans vs CRE investment loans. Dentists can get better loan terms for their own buildings than an investor can, so investigating why they are not buying the building may be important, particularly if NNN and if they are operating long term. Dr's Leasing back to their practice has made many Dr's very wealthy.

Concur, a NNN location is a generally passive asset. The management of NNN dental office will be less work daily, but more work and investment at time of tenant turnover. The skills to price and re-lease are different than MF and you may have to hire a broker or others to handle that process when the time comes.

Quote from @Kent Parks:

Quote from @Russ Kitzberger:

Quote from @Kent Parks:

Quote from @Russ Kitzberger:

Quote from @Kent Parks:

Quote from @Ronald Rohde:

Quote from @Kent Parks:

Quote from @Ronald Rohde:

Sure, we handle them.

I have been researching ground leases for over a year now and have learned that there is more then one way to structure the rent. What has been the most common method used in your experience?

 annual base rent

 How is the rental rate established?

Ideally, through comps.  However, you can capitalize through a standard Direct Cap if there is data available or run a DCF based on investor or market return expectation/rate.

 How do you obtain comps?

1. You can purchase research database subscriptions like CoStar, CREXI, etc. 
2. Locate (through records or research) and interview participants in the market IE; investigate.  

You can hire a broker or appraiser to help.

 1. How will Costar and Crexi have access to ground lease contract rents? 

2. Asking neighbors about their ground rent has so far ended up with rejections.

3. How is a broker or appraiser going to be of help? Unless they have access to signed ground leases and are willing to share it. So far all the attempts I have made to contact brokers about this has not been returned and the last appraiser I spoke to said he was not aware of any ground leases in my whole state Lol....and by the way, that appraiser came HIGHLY recommended! smh

1.  They track listings, some users report sales to them.

2. Sometimes people aren't willing to share and it takes a long time to develop effective interviewing skills, keep practicing!

3. Yes, if they agree to engage with you, they would share their opinions and data.  You got a bad referral.  You basically are looking for the equivalent of a specialist in a small niche of commercial real estate, that isn't going to be easy to locate and might be expensive to engage.

Quote from @Kent Parks:

Quote from @Russ Kitzberger:

Quote from @Kent Parks:

Quote from @Ronald Rohde:

Quote from @Kent Parks:

Quote from @Ronald Rohde:

Sure, we handle them.

I have been researching ground leases for over a year now and have learned that there is more then one way to structure the rent. What has been the most common method used in your experience?

 annual base rent

 How is the rental rate established?

Ideally, through comps.  However, you can capitalize through a standard Direct Cap if there is data available or run a DCF based on investor or market return expectation/rate.

 How do you obtain comps?

1. You can purchase research database subscriptions like CoStar, CREXI, etc. 
2. Locate (through records or research) and interview participants in the market IE; investigate.  

You can hire a broker or appraiser to help.

Quote from @Hamp Lee III:

Welcome to BP!

Thanks for reaching out on the forums.

I would recommend a couple of things.

1. Contact your local chamber of commerce. They may have groups, businesses, or programs that can help. Networking is always good.

2. Check out the Small Business Administration. There are SBA programs and grants for women. Check out SCORE as well. They provide courses and mentorship opportunities.

3. Look for grants. As an African-American woman, there are grants for helping with business startup. Here’s an example of grants for women: https://www.nerdwallet.com/art...

4. Gain valuable and complimentary experience. Getting experience in this space might be helpful to building your knowledge base and helping get your first start.

5. Be ready for opportunities. Your networking may find someone that wants to sell one. Their costs and or may be such that you can get started.

6. Don’t despise the days of small beginnings. Your ending will not be your start. If you start small, be thankful. Where you are today…where you start…is just the beginning. Keep going.

There are programs to help you. You can build your own table. Keep knocking on doors. The right one will open.

I wish you all the best!

 This is great advice.

Purchasing an existing business is easier, you just need to work with a business broker. Feel free to reach out, I have lenders and teammates in that area to locate and close deals.

If you do go the startup route, SCORE is an excellent resource.  Also you have business startup center in KC: https://www.kcsourcelink.com/

This sort of business is a great use of SBA funding combined with grants or special programs available to you in your local area.  A little time finding these programs will save you alot of money.  You likely don't need to take this to private investors who will likely want higher interest rates than a SBA program. 

Quote from @Kent Parks:

Quote from @Ronald Rohde:

Quote from @Kent Parks:

Quote from @Ronald Rohde:

Sure, we handle them.

I have been researching ground leases for over a year now and have learned that there is more then one way to structure the rent. What has been the most common method used in your experience?

 annual base rent

 How is the rental rate established?

Ideally, through comps.  However, you can capitalize through a standard Direct Cap if there is data available or run a DCF based on investor or market return expectation/rate.

Direct Cap rate analysis won't work for your scenario.  When you have uneven cash flows like a large rent increase or major one time expense, you need to use a discounted cash flow analysis. Then you can isolate the interim value (in your case detriment) amount during the discounted lease term.

This is where a commercial broker can help you save money and time; When you interview any broker, confirm they have CoStar, CREXI, Catylist, their local MLS and Commercial MLS, are members of the local Commercial REALTOR council, and receive other brokers IDX feeds. You will find lots of Carpetbaggers trying out commercial from residential as the residential markets shift. It takes $14-20k per year to participate fully in datasources for most markets plus hours per week to see all the listings and movement. Finally, if you want a broker to be fully committed, consider retaining them in an exclusive agreement.