commercial building lease

[terryt]

i ve got some commercial land and I have a company that wants me to put up a 5000 sq foot building that they can lease. It s a farm equipment dealer who wants to open up shop in my town. I ve got the land but not too excited about building and renting for 5 years. I m looking ahead and do not want to be stuck with an empty building. Wondering if there s anyone out there that do these sorts of projects. Would need some feedback. thanks

 

[MaximeValmont]

There are so many things you can do. But it all depends of your situation. It all comes at the end about your "opportunity cost".





First of all, why don't they buy the land and hire a builder to build it?



Are you a builder?



Building a commercial building juste to please some company that want to rent the building might seems like a crazy idea at first, but it might be a good idea too.



First of all, in that kind of deal you must make sure the company is healthy. Are they rich? Or are they going to go banckrupt in two months? You've got to understand the balance sheet and the financial statements, Seek an accounting advice if necessary.



You can have a contract with them saying they will rent the building once the building is done. That is not the problem. The question is can they Pay? If yes, then It might be a good idea to build it.



If you see they are NOT rich, it might be a good idea to build it too. If you see on the balance sheet that they have lots of assets that you could get if they go banckrupt, Why not do the deal even if you know they'll go banckrupt? You've got to make sure you can get access to the assets though; Then bank will want to get paid, and they'll get paid before you. Do only this kinf of deal if you really know how this work.



Now, Let's say they are rich.



There are so many way you can make this work.



-They could Rent the land to you , pay a % of the construction cost of the building( that you would build), then YOU are going to lease the space to them.

-You could sell the land to them

-If you have enough money and there is a big demand for commercial in this aera, Build it and then rent it to them.

- If you see their credit rating is not really good. And from what you see on the financial statements and the balance sheet it's only going to get worse, you can make them finance a part of the construction of the building, and it will say in the contract that you will rent the building to them after, But you add a condition that says that their credit rating must be at a specific level. If they don't have it when the building is ready, Too bad for them! And rent it to somebody else.



There are so many ways you can do this deal. It all depends of what both of you guys want exactly.

 

[terryt]

Well , The company is pretty solid I suspect but I would really do my homework on this part . They have I think 4 or 5 locations around the country. They want to lease and not own, that s the way they work. I can do the project myself but would consider a partner if anyone would be interested. Location is exceptional, its along highway 2 with great visibility. I know the banks are not too excited to finance this kind of project so there would have to be a lot of money down on this. I ve got the land as collateral which would cover a good part of the down payment. The only thing that I don t like about it is being left with empty building at the end of the lease.

 

[MaximeValmont]

Ya, make sure to do your homework. The size of a company has nothing to do with a healthy Balance sheet.









And the reason they don't want to own the building is they don't want real estate on their balance sheet.









Like you said, banks don't really like this kind of project. But if you bring them a real estate developer that has lots of experience, they'll do it. They will also make their own market research to know if there is a market for this.









What you need to know is how much it would cost to construct this thing, and how much you are going to be able to rent it after.









What about this : -You negociate with them and make them realise that you are going to build this just for them, so they will have to pay for all the market research. And probably a part of the cashdown.




-You try to bring the bank in the deal. You give them a % of the deal.




-You try to make the lease as long as possible.














Valmont

 

[terryt]

thanks for the help