Help Needed...What Would You Do?
I've found a commercial property listed in a small downtown setting. The property is 4000+ square feet, good condition, 2 story with an apartment upstairs. Right now there is a restaurant downstairs which is run by the owner of the building. He's old and is looking to get out. Asking price seems like a steal to me - 70% FMV. The apartment is currently rented, and the tenant is looking to stay. The owner has also agreed to leave all the restaurant equipment and everything else would be included in the sale. Only thing is he stops running the restaurant after the sale which means no paying tenant. I barely have enough money for a down payment let alone holding costs for this thing, but I think its a great deal and don't want to loose it. I also have no desire to run a restaurant, nor do I have the time. What would you do in this situation?
70% of FMV ... sounds good; you might need a partner on this one. What kind of time frame on this deal do you have?
In addition, you might want to look into lease optioning the restaurant ... the Reise company, owners of Friday's and some other national chains.
Good Luck
Where are you? I have associates seeking "ready" space for restaurants - however...
check on "EPA" testing which is required in my state (IL) and very expensive... also a thorn in your side if you want to sell.
EPA wants to ensure that ground water below has not been contaminated and demands owner to always keep testing cost in liquid account at all times
Possible that Illinois is weird - proceed with ambition and caution
Good luck!
Caterina
Oops - forgot to mention that the financing may be tricky because the Lender cares about how much rental income the property generates as opposed to your own borrowing power.
Thus - with the space empty, the property ends up a liability.
Why does the tenant want out?
Last time - promise...
Stan is right - check into franchise tenants.
Darden Group owns Olive Garden and Red Lobster.
Tenant wants out because he's old and ready to move one. Has owned the building and run the business since 1977 and is just ready to go. I'm in Cincinnati if that helps. One problem is coming up with the cash for a down payment. I could come up with 10% pretty easily but that's about it. Also, I'm thinking that apartment could rent out for more, but the lady (who is a waitress downstairs) has lived there over 5 years and he's giving her a break.
Is the gentleman whose selling and the owner of the restaurant moving?
Many times he's tired, but, he has a great following and the regulars LOVE HIM! IF you by at 70% FMV and he leaves, what value is his GOODWILL? Many restaurants stay in business due to the carismatic personalities of the owners.
If he's not moving, as him if he'd like to hang out and act as a greater or mentor and still show up at the business. Restaurant owners work 70 +/- hours a week, he's beat! If he can come in at 10 leave at 5, sell the building an have no headaches with free food for lunch and dinner, that might be enough to keep your 70% FMV a true number. As he ages and phases out of the business, you'll develop your own style and the regulars (lifeblood) will conform to you and your style of business over time (1-2 yrs).
Restaurants are finicky. KEEP HIM AT ALL COSTS!
Jay
The guy is old and leaving the business. I have no desire to run the restaurant, I just want to own the building and lease out the spaces. This brings up a good point:
How hard is it to find a new tenant to take over a restaurant? The restaurant itself is pretty small, and in fact something like a Subway would be ideal. How would I go about trying to convince a big franchise to put in a location?
Personally I would sell the restaraunt business as it is with out the building. Set up a lease that you can live with and include it in the asking price for the business. Then you have a tenant and some cash in your pocket. If you need to fund the business as well you will just increase your cash flow by carrying a note for the business and a lease. Ask what the NOI of the business is per year, and multiply by two years to get a rough estimate of what it would sell for without the real estate. If you can set up the sale before closing you will have cash flow and cash at or just after closing.
Good Luck,
Kyle
Selling the restaurant business will surely be the way to go. Question: Once the business is sold, how much do I charge for the lease per month? Any quick ballpark calculations to figure this out? Perhaps a certain dollar amount per square foot?
Jeff,Talk to the owner and see if any of his present employees are interested and capable of taking over the restaurant. Much of the success in having a restaurant is keeping as many of the present employees as possible. Ask the owner if he would hold the financing. It will help him delay paying a big tax bill.
Here's a problem. Lenders take into account the income producing power of the business not my borrowing power correct? Well if the owner of the building also owns and runs the restaurant and is selling the business with the building how do I convince the lender to give me money? There's no way I would be leasing that business to myself? I don't want the business, but I'll be happy to sell it. Anyways, it has to be able to be done.