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Approached for Ground Lease... unfamiliar.

Cluelessman22

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Hi Everyone,

We just got approached by a Car Wash company (Conveyer Tunnel) for a ground lease of our land on a corner. The company currently has 40 locations opened and over 70+ under construction. It is on a main street that is growing, with the City Hall 2 blocks down the road and a neighborhood walmart across from us. The land is at a light, flat, but currently holds a 11,000 sqft vacant building in good condition. We have just kept it and not advertised it for lease or sale, we don't plan to sell it.

This being known, how do I calculate what a ground lease rate should be... knowing they will tear down the existing building?
The main street is 20,000 ADT (2020) and the land is just shy of 2 acres.

Thanks!
 

traveler17

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Can’t speak exact numbers b cause only you know your location but if wal-mart likes the area so do others. I’d talk to a broker to get some comparables on similar properties in your area but what I know is always start high !!
 

HeyVern

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You can either talk to a commercial broker who is familiar with the area or tell them to make you an offer and negotiate from there. The broker will want a commission on the deal. If the existing building is in good condition, I would just look for a tennant rather than let somebody tear my building down. If they are trying to build that many washes at one time, I would be concerned they are overextending their self and will be bankrupt and leave you in possession of a vacant car wash and unpaid rent.
 

Rfreeman

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A good knowledgeable commercial real estate broker would be a good place to start or ask for any potential lease comparables.

2 potential big issues with ground leases, 1. Property taxes. Here in TX property taxes are a big deal and in ground lease situations the owner of the dirt would still be responsible for their taxes. The local assessor establishes an Improvement only account to assess the value to the building since the building and land have 2 different owners. Typically in ground leases a good lease will pass this liability onto the tenant. 2. Liability make sure the lease has a clause to hold you 1000% harmless in case of any issues. Also the lease should have a indemnity clause in it to protect you.

If done right ground leases are true "mail box" money. I know someone who purchased 6 small frame houses leveled them all and replanted/ rezone the property commercial and has ground lease with a AAA national tenant paying $25,000 a month! The lease is also a 50 year lease with escalation clauses every 5 years!
 

Greg_T

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If done right ground leases are true "mail box" money. I know someone who purchased 6 small frame houses leveled them all and replanted/ rezone the property commercial and has ground lease with a AAA national tenant paying $25,000 a month! The lease is also a 50 year lease with escalation clauses every 5 years!
Where do I find one of those deals!
 

Cluelessman22

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Thank you all for your reply! All of the replies gave me great insight.

We will contact them this week to see what their offer is.
The part that intrigues me is that the building market value only, vacant on city tax records is about $700,000. To tear this down (which could be many things, such as retail, office, etc) is the part that I don't like. At the end, it will only be a car wash, no other uses, unless someone tears it down again down the road.

Unless they pay for the building value of the building they are tearing down and then build a car wash that would match the $16,000+ a month income, I don't see it happening.

Just curious... would car washes even pay this much per month to use the land?
 

Rfreeman

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I don't know where your located and the states laws. Here in TX we are a non disclosure state so their assessed values are way under the actual market value.

If your current bldg has a potential gross rent of $16K a month I would lease it it up...approx $17.45/sf.

The good news is sounds like you have a solid piece of real estate with a great location.
 

Cluelessman22

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Thank you! We are in a disclosure state.
I agree. I believe overall we have much better options, especially with national accounts that won't tear the building down, but will enhance it.
 
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