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Time to pull the plug on start up project? Help Please

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Pazzo_di_Pizza

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As many of you know/read I am in the middle of a start up project for Pazzo di Pizza. I recently sent the following counter lease offer followed by the response I received back. I have mixed feelings on this project at this time. The monthly lease of $5810 is a tough one to swallow. With total monthly expenses estimated at $21-26K I am having serious doubts about this project. I hate being in the position after countless hours, meetings, sleepless nights. etc. Maybe it is time to call it quits.

What do you think?

My Counter Offer:
  1. Move handicap parking spaces 3 stall towards the West (towards college) away from front of my space
  2. No compete clause so we are the only pizza place
  3. Do not install a drop ceiling, leave open with flat black paint similiar to Starbucks
  4. Rent abatement until we receive certificate of occupancy
  5. $35 sqft for permanant Tenant Improvements inside space
  6. One parking stall in front of store with signage stating 15 minute parking for take out only
  7. 5 year lease with 5 3-year entension options
  8. Authorization for installation of remote compressor on roof for walk-in cooler
  9. Clause stating if we are unable to receive permits for our restaurant the lease agreement will be voided
  10. Hardwired smoke & CO2 detectors in space
  11. Install electrical drops for lighting in leu of the standard 2x4 recessed lighting
  12. Monthly lease of $25 sqft plus triple net since desired end unit is not available
    Response:
  13. This would have to be decided by the developer. We do not know yet at this time.
  14. No. We are currently in negotiations with restaurants who serve pizza among other foods.
  15. Yes, however, the cost is the same.
  16. Rent starts when you open for business. The lease will require you to obtain a certificate of occupancy within a certain amount of days.
  17. No. The average TI’s paid out have been between $3.00 and $7.00 per square foot within the Olhava Development.
  18. That is possible, we will ask the developer.
  19. 1 five year option only.
  20. This will be subject to agreement between both parties, this will be up to the developer.
  21. No. It is your responsibility to get everything in order with the city or county.
  22. That would be your responsibility.
  23. We will look at the costs on this.
  24. $28.00 per sq ft nnn.
 
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walk away…

w/o 2-5yr extentions, its a poor investment, in addition 2 the non-compete clause & the high rent…(will you gross 15K/week?)

look for another opportunity…

let them come back 2 you…
 
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Thanks Patriot

I have the same feelings, its as if they are being combative with me. Especially #5 only 1 lease agreement no extensions that just seem crazy at least they could have countered with a "no but…

This just stinks! 😦
 
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No chance. Walk away from this. The lack of lease options is ridiculous.
Do no make this deal.
 
Pazza di Pizza,

This kind of response (pardon the French) pisses me off. I’d walk away from the deal just because the landlord’s an asshole. Are you kidding me? Why even pursue something like this after first talks?
  1. Why in the Hell would you open a business with no parking in front? Are you telling me all the handicap parking for the entire strip is in front of YOUR store? That’s freaking ridiculous.
  2. Talking to other places that also offer pizza? That right there would have me telling him to go get bent.
  3. No ceiling tiles but cost is the same? What’s wrong with this picture?
  4. fine
  5. Greedy friggin landlords. $3.00-$7.00? That’s between $7.5k and $17k. Okay, that’s a damn bathroom or two.
  6. fine
  7. You pay for the entire buildout and they get to keep it after 10 years. Awesome!
  8. fine
  9. fine (nice try)
  10. fine (again, nice try)
  11. should’ve gotten an agreement
  12. I wouldn’t pay more than $18… and there’d better be a good reason for me to pay that much. I’ve got one store at $6/ft, the other’s at $12.40/ft.
Don’t walk… run.

-J_r0kk
 
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j_r0kk:
Pazza di Pizza,
  1. Why in the Hell would you open a business with no parking in front? Are you telling me all the handicap parking for the entire strip is in front of YOUR store? That’s freaking ridiculous.
    -J_r0kk
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Thanks for replying, I was hoping you would chime in on this one. Not that it really matters but on the plot plan 2 of the 4 handicap parking stalls happened to be right in front of my front door. I don’t if there is code saying they have to be located in certain spots and distances from each other. There is front curb parking, just slightly to the sides of the front.

I have a couple other places in mind I am going to check out today at lunch but they both have parking issues.
 
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j_r0kk:
Pazza di Pizza,

This kind of response (pardon the French) pisses me off. I’d walk away from the deal just because the landlord’s an a*****e. Are you kidding me? Why even pursue something like this after first talks?< < < SNIP > > >
  1. I wouldn’t pay more than $18… and there’d better be a good reason for me to pay that much. I’ve got one store at $6/ft, the other’s at $12.40/ft.
Don’t walk… run.

-J_r0kk
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Wow :shock: Iam sorry to hear you got this sort of rebuff. I see two options. 1. Walk, Don’t Run . . . . 2. Play hardball and send back an assertive restatement of those things you gotta have. Accept the ones you know are gonna be inconvenient, but not deal breakers. Lean on the ones you gotta have, like the lease extensions and parking space crap and the lease amount. Worst that can happen is they tell you to take a hike. All this while looking for a decent landlord.

If they don’t come off of the lease renewal, the bail. The reason I got hosed into this relocation by surprise is that the landlord I had refused more than a 1-year lease, and was a putz. . . got his personal boxers in a bunch and booted us. Our current lease is a 1-year that ballons into our buying the place in Feb 2008 . . . and half our lease is applised to the purchase price. We have exclusive right to purchase until that date. Best we coudl do, but we will own it. sure the property owners deal the cards, but you don’t have to play a dead hand if you don’t want to.

I have a 5700 square foot space plus a 1100 sq ft space that I am paying all buildout costs for, and $800/month rent ($1.68/foot). I have a potential subleassor for the smaller space for June. Next year, when my real estate investment company buys the whole develpment, my rent will ramp up to $1800 for 5700 ft . . . $3.79/foot.

I grant you that when I took possession, it was in rather crappy condition, and now there is a restaurant built in there . . . with more on the way. It took hard negotiation and lots of patience . . . and 4 months . . . to get it to this deal. If it ain’t right, walk away. It’s the only real power you have. and with rat bastards dealing with a competitot at the same time, I do believe that even if they give in to your requests, they are too mercenary to risk dealing with.
 
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Thanks Nick

I agree with your thoughts as I was thinking the same thing. Send one last counter with the must haves. I think the 3 major isues I have are these:
  1. More money for the TI’s. Even though they include one bathroom (ada) in the lease, bduilding another or code and acid staining the concrete will more the eat up the TI’s they are offering.
  2. Some type of renewal option for the lease. It seem very unrealistic to not have an option to renew after 5 years. Why would they not want to keep a good tenant assuming they are paying on time etc.
  3. Break on the sqft price. At $28 it is the highest in town, another place is asking $18 but they don’t want me as I would compete with the Italian restaurant at the other end of the building. This is a tough one as I have no leverage. All the spaces are filled in the last two buildings. If they had sat empty for a while I could make a better play for this one.
As for them talking to other places that sell pizza. The rest of the land in this area are lots for sale. A restaurant is marked on one, but they have given no information. The obviously know who if they know what menu items they have. I guess I can only ask for a non-compete where the strip mall is concerned, not the lots for sale.

Hey Nick your place is coming along nicely, great job by the way.
 
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Pazzo di Pizza:
  1. Break on the sqft price. At $28 it is the highest in town, another place is asking $18 but they don’t want me as I would compete with the Italian restaurant at the other end of the building. This is a tough one as I have no leverage. All the spaces are filled in the last two buildings. If they had sat empty for a while I could make a better play for this one.
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Sounds like the place you cannot go to is the sort of landlord you’d rather have!! I’m starting to get indigestion thinking too much about what the developer/realtor/marketing people are doing. I hate it as a way to dea lwith a landlord, and dispise it as a way to do business in my community. Gives me some flashbacks, too.
Pazzo di Pizza:
Hey Nick your place is coming along nicely, great job by the way.
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Thanks. We should be good next week. all we need is health department sign-off!! Pizza for dinner Wednesday night 😃
 
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  1. Definitely Red flag: Need to know “who” it is. Maybe its just a bagel shop that has a little bagel pizza. Probably can live with that. With the kind of investment and overhead you are talking about you should absolutely have a non-compete clause unless they give you a “specific” exclusion like my above example. Deal Killer.
  2. Last build I did the “open” ceiling was actually more expensive. Its dependent upon the current setup but a drop ceiling is not more expensive just because the open does not have the tiles and rail system. Open ceilings = more expensive vents, painting, cleaner electrical runs, cleaner support systems, etc . . .
  3. Most landlords will cap it at something, usually two or three months. Seems that is exactly what they are doing.
  4. $3 to $7 is not necessarily bad in my area. You can verify this by asking the other tenants. If that is what they are doing with other tenants then the only way you are going to get a better deal is by giving in on something else. Normally only the “big” guys get concsessions here.
  5. Red Flag: In my experience options are usually in 5 year increments. Would not even consider a new build out without 2 five year options. You need time to build the business and have enough time left on the lease to have the option of selling it. Deal Killer.
  6. No landlord would do this. You need to get all your “use” clauses cleared with the city first. Normally the landlord can provide you with what is approved. Get it in writing.
  7. Don’t understand this. Your rent is $28 sq ft? $5810/28 = 208 sq ft?
We all learn as we go, but some of this stuff should have been the first order of business. I.E. no exclusive on pizza, just walk away . . . Even ethical landlords/developers sell their property to unethical people and there where are you when Chuck E Cheese wants to move in.
 
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Clarification on space

33x65=2145sqft
2145x$28sqft+triple net $4.50 so it is actually 2145x$32.50/12=$5810 a month.

All this and I just got the layout figure out yesterday where is nearly perfect. I guess that is how life goes.

I will give it one shot on a counter of the “must have or we will fail as a business” and see what happens. I think I will call for an face to face on this as well. An expresion is worth a thousand words.
 
Pazzo,

Seriously, why on earth would you give it a shot? Even if you were to talk the landlord down by $10/square foot you’re still paying over $22! That’s insane. I don’t care how nice this place is you simply won’t make money… period. You seem like a nice dude and I hate to see bad things happen to nice people. You do this and you’re broke. Even if you do $20k (which is probably 3 times more than you’ll probably do at first) you will barely earn enough profit to scrape by.

I’m going to give you a little advice on how I find a location.
  1. Go to your Dept. of Transportation website and find the page that contains traffic count information. Here’s my state: http://www.ksdot.org/burtransplan/maps/ … Cities.asp
  2. Find your city. Print it out and place in front of you on your desk.
  3. Find the intersection that has the highest traffic count, circle it. Find the second highest and third highest, then circle those.
  4. Get in your car/truck/van/SUV and drive out to the #1 intersection and look for (1st choice) free standing buildings that were previously restaurants, (2nd choice) free standing buildings, (3rd choice) strip centers with empty spaces previously used as restaurants, and (4th choice) strip centers with a vacancy.
  5. If you get no results with step 4, repeat the process with your second highest traffic count intersection and then your third highest traffic count intersection.
  6. If you have no luck with steps 4 and 5, find a cluster of fast food restaurants and look for an available space there.
  7. If this fails, go back to your map and circle the top 3 streets with highest traffic count and look there.
I’m sure, with due diligence, you’ll find at least one space that fits your needs at, or around $12-$15 / square foot. That’s where you need to be. Everyone has champagne taste. Most of us have beer budgets. Don’t live above your means or you’ll pay dearly.

My philosophy in opening a restaurant is to ensure the break-even is at or below $6k/week. With this strategy in mind, success comes a little easier. Ask paul7979… you don’t need a million dollar space to do a million dollars a year in sales. You need a good space in a great location. That’s your “wheelhouse”.

-J_r0kk
 
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j_0rkk

Thanks for the slap in the face with cold water, I really needed that. You are dead on as usual. With the long weekend I will get it done and see what comes up.
 
I don’t think you should even figure in triple net in addition to 28$/sf. You’ll never see a profit to matter unless you were a pizza joint/strip club.
 
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