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TOPIC: Determining Lease Price

Determining Lease Price 08 Apr 2013 21:19 #39891

  • BPC4life
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Hello,

I'm looking into leasing a facility for this 5 screen theater. The property manager asked that I tell him what I'd like to pay per square foot and lease terms.

I was told the theater is 28k square feet. This seems exaggerated since I estimated the 1st floor to be 12k sq ft. The second floor has a hallway, 4 theater balconies and a 5th theater. The 3rd floor has a projection booth.

The retail locations next door are available for $2.75 sq/ft.

Now the current tenants have old equipment, bad presentation and rarely exceed 100 people a day. At $10.75 a ticket with a $3 concession sales per person. There's now way they could be paying $77k/mo.

Can someone suggest a price per square foot I should offer and the terms?

Thanks
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Determining Lease Price 08 Apr 2013 23:05 #39893

  • Mike
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I do not like the property managers position. First one to say a number loses. It really is impossible for us not knowing the property, location, condidtion, etc. etc. to judge this one. I believe that would've been @ a yearly lease. Be careful.
Michael Hurley
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Determining Lease Price 09 Apr 2013 12:48 #39897

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BPC4life wrote:
Hello,

I'm looking into leasing a facility for this 5 screen theater. The property manager asked that I tell him what I'd like to pay per square foot and lease terms.

I was told the theater is 28k square feet. This seems exaggerated since I estimated the 1st floor to be 12k sq ft. The second floor has a hallway, 4 theater balconies and a 5th theater. The 3rd floor has a projection booth.

The retail locations next door are available for $2.75 sq/ft.

Now the current tenants have old equipment, bad presentation and rarely exceed 100 people a day. At $10.75 a ticket with a $3 concession sales per person. There's now way they could be paying $77k/mo.

Can someone suggest a price per square foot I should offer and the terms?

Thanks

My research has shown that a starting point for rent for a theater is 50% of the average retail in the area.

$2.75 is a pretty high rate per month. You say these spaces are available. How long have they been empty? Have you verified what rent is being paid by any nearby tenants?

One factor against you is that the theater space is currently occupied. But, the property manager is talking to you that should indicate that the current tenants do not want to be there. So the people who know the most about operating a theater in that spot do not want to be there. I would be careful in thinking that you can do a better job.

You say less than 100 people a day. How have you verified this? You should talk to a movie booker to find out for sure what their numbers are. Give Larry Thomas a call (you can search for him on this forum).

Is there any equipment that would come with the space? How does the space stack up against other theaters within 15-20 mins away. (I am assuming a bigger metro area due to the lease rates). No digital equipment? If you were to start a theater from scratch would a new theater look even remotely like this? How old are the seats? Slope or stadium? How does the carpet look? Have you done a SWOT analysis on this location? Have you looked at online reviews?

28,000 sq ft does seem high for 5 screens. Have you seen any blueprints of the space? Most theaters leases I have seen just count the main floor space.

How much is the CAM?

You should ask the property manager to show their cards first.
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Determining Lease Price 09 Apr 2013 20:32 #39898

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“$2.75 is a pretty high rate per month. You say these spaces are available. How long have they been empty? Have you verified what rent is being paid by any nearby tenants?”

$2.75 is what I noticed. He didn't tell me this price. They have many occupants currently. 1 office and 3 retail units are currently available. 1 more retail unit will be available in June. The retail units available are priced at $2.75 sq/ft and $1.07 for the office unit. All the lease types are NNN with 48 month terms. Not quite sure how long they have been vacant. I can drop by and ask their neighbors. Does this mean I should offer $1.38 (rounded up) a sq/ft based on your 50% assumption? Maybe a little lower since he’ll try to raise it’? Do you feel 48 months is too long or too short for a theater lease?

“One factor against you is that the theater space is currently occupied. But, the property manager is talking to you that should indicate that the current tenants do not want to be there. So the people who know the most about operating a theater in that spot do not want to be there. I would be careful in thinking that you can do a better job.”

I have a little inside information having worked for the company in the past. This theater is only 1.3 miles from another megaplex (under a different brand) they own. The company has been selling off theaters to build more of these high end theaters under its different brand name. It’s the only theater they have that I’m aware of that hasn’t gone digital. Due to the low attendance I’ve been told the company doesn’t want to invest the money. They’ve already closed down a similar theater after building a new high end megaplex down the street from that theater.

“You say less than 100 people a day. How have you verified this? You should talk to a movie booker to find out for sure what their numbers are. Give Larry Thomas a call (you can search for him on this forum).”

Former coworkers would tell me these numbers a couple years ago when they’d come into my location. I’ve watched two movies there last month and didn’t see more than 5 people in the theater with me each time. After watching a movie where any writing on the screen was blurry (even after bringing it to the manager’s attention) I can see why people would pay $5+ more at the theater down the street. But I’ll take your advice and look for Larry Thomas.

“Is there any equipment that would come with the space? How does the space stack up against other theaters within 15-20 mins away. (I am assuming a bigger metro area due to the lease rates). No digital equipment? If you were to start a theater from scratch would a new theater look even remotely like this? How old are the seats? Slope or stadium? How does the carpet look? Have you done a SWOT analysis on this location? Have you looked at online reviews?”

I don’t believe the equipment would come with theater. Going into this I’ve already planned to go with newer equipment. Everything there is film and out dated. I’ll need recliners, digital projectors, etc. I didn’t see anything particularly wrong with the carpet but I wouldn’t be sad to see it go. The current theaters setup has balconies and a sloped bottom floor. I’d like to turn this into stadium seating. He won’t allow me to bring in a contractor in to get some estimates until the owners are okay with the numbers. Given the area, competition and smaller size of the theater, I plan on turning this into a full Dine In Cinema. There’s not a theater within 15-20 minutes offering that. I haven’t done a SWOT analysis. I'm guessing it's in my best interests to complete one of these asap. I’ve seen the online reviews. Some people say they like the theater because it's not crowded. Others complain about the cleanliness, seats and presentation.

“28,000 sq ft does seem high for 5 screens. Have you seen any blueprints of the space? Most theaters leases I have seen just count the main floor space.”

He hasn’t shared anything with me to this point, except for the “square footgae”. I’ll inquire more about the square footage but I feel like he’s going to hold off on sharing the blueprints and until he gets the numbers from me.

“How much is the CAM?”

I’ll give him a ring and ask him about the CAM.
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Determining Lease Price 09 Apr 2013 21:02 #39899

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The CAM is $0.60 sq/ft give or take a cent. This is paid quarterly.

When asked again about the sq/ft he told me he hasn't measured it but that it what the lanloads are telling him.
Last Edit: 09 Apr 2013 21:03 by BPC4life.
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Determining Lease Price 11 Apr 2013 04:14 #39904

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Mike wrote:
First one to say a number loses.

Completely wrong. The first one to say a number sets the upper or lower boundary of reasonable numbers. This is a relatively new understanding of negotiations, but it is pretty well conclusively proven that you are more likely to get what you want if you put a number down first.
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Determining Lease Price 15 Apr 2013 17:21 #39911

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So, at $77k, and average percentages, you're looking at having to gross (with concessions) a little over $8,800 out of each screen each week BEFORE you factor in everything else... CAM, maintenance, insurance, taxes, payroll, utilities, YOU.

Then, you're looking at having to put digital into the place within the next year or so?... and seats?

Don't see how you could possibly do it and have the time to build an audience, assuming your location isn't challenged.

Gotta say... if my pockets were that deep, I'd find some other market to invest in.
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