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TOPIC: To Lease or Build...That is the question.

To Lease or Build...That is the question. 12 Oct 2003 09:31 #6522

  • KingJoe
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On the road to preparing my business plan, there are many twists and turns. Living in a small place, very few people are in the film industry. There is one mega-chain and three independents. While talking to one of these independents, he told me he wishes to purchase a twin in another province and wants to sell his single.
How nice for me...I want to start a theater, and he wants to sell one. Good thing for me I decided to read all of the old posts to find out about this sort of thing. Someone said 'never buy a theater from someone with cash up front' for obvious reasons.
I askd this owner 'would you consider leasing with a purchase option?' At first he said no, that he would rather sell the place to move on to his new project. That made me kind of nervous. So I get a call the other day from the owner to discuss the option to lease....

Now, my problem is: I like the leasing option since it is a proven business with an established clientel and fully functioning equipment. Of course there are issues: repairs and upgrades need to be done. The building is 137 years old and needs help. The roof dosen't leak, but the place needs some TLC to look original. There is also the issue of town size. There might be 2000-5000 in the area.

My planned project is in another town of about 15000 total area, restoring the old cinema, new(ish) sound and equipment, as well as any re-designing that needs to happen.

After all of this typing (and reading), my question boils down to....What is my best option? Keep in mind that the nearest competition is between 45min and 1.75hrs away. There is no other theater in either of these towns.

My thought....do BOTH! But then again, I am probably mental


The king

'The King is only as wise as his Jester'
'The King is only as wise as his Jester'
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Re: To Lease or Build...That is the question. 12 Oct 2003 11:58 #6523

  • Large
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Each situation is different. Mike bought his first theatre. He leased his second theatre.

We couldn't afford to build here in California. But there was an existing theatre that we leased.

We will probably never own land in California, because that is a different business than running a movie theatre.

Mike's theatre works for him because he doesn't have to pay a landlord a monthly lease.
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Re: To Lease or Build...That is the question. 22 Oct 2003 11:31 #6524

  • BECKWITH1
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I agree with Large that each situation is different. There are a good many advantages to leasing especially when you are new to the business:
1. You will have less money sunk into the business if you are leasing and find out that if just doesn't work for you either personally or financially.
2. You don't have to unload the real estate for a specialized business that doesn't work at that location any more.
3. If any other theater company comes into your town and builds over you, it will still be easier for you to leave then if you owned the place.
Keep in mind that commercial leases are VERY difficult to exit financially unscathed unlike personal residence leases. Much of the time you will either be responsible for the rent until the lease runs out or the space can be rented again or you will have to leave your equipment in lieu of rent money which makes the space easier to get a new tenant for. If I understand your situation correctly the equipment will be leased also but you plan on putting money into the building which you will probably not be able to take out with you when you leave anyway. Realize that at the outset and you will know how much you can afford to spend/possibly lose in this situation.

I personally do not recommend running two locations unless you already have dependable people who can be trusted to run the second location for you without being a drain on your energy. It is already a tough assignment to run one theater well without having to worry about 2 locations especially with both being new to you. (Note of personal experience here. We knew that we were going to close our single screen when we bought the 4 screen. They were only 5 miles apart and it was a near nightmare trying to run the 4 plex which was falling apart AND keep everything running at the single screen. We did all the booking, buying, advertising, bill paying, etc for the single. Our manager, a family member, was dependably present every day but didn't always see the operation the same way that we did. Some details slipped as we knew they would. Our exit strategy depended on either leaving at the end of our lease (7 months) or finding a new tenant. God sent us a new tenant(a church)who signed and took over the building 4 months early and guaranteed the condition of the building so that we could get all of our equipment out without fear of damage bills. We left them the old seats and sold them the screen, masking and speakers. We were lucky and we know it.)

Single screeners are great places to start. They are cheaper (for good reason) can often be run by 1-2 people needing help only on weekends or busy periods, much more intimate with your customers, cheaper to upgrade as you only have one screen to worry about and great places to learn all about the business without the risk of making too many mistakes. People will tell you what you are doing right and wrong. When you are comfortable, pass it on to the next guy who wants to start and promote yourself to the bigger place.
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Re: To Lease or Build...That is the question. 22 Oct 2003 18:01 #6525

  • outaframe
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In this situation, there isn't much to really think about if your population figures are correct... You HAVE to go with the larger population location... These are both one screen "Mom and Pop" operations which you will HAVE to DIY to make fly, and you can't be in both places at the same time... If you DIY one and hire the other crew, it'll most likely sink both... You're going to have enough on your plate with either one, especially being a neophite, and although the risk of buying the larger is higher, so is possibility of success because of the population... Averaged over 10 to 20 years, the cost of owning -vs- leasing will probably be about the same for either location, anyway...
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