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Topic: Reasonable leasing terms

Hank McCalmont
Film Handler

Posts: 3
From: Mountain Home, Ar. USA
Registered: Jul 2008

posted 06-30-2013 12:18 PM

Does anyone know how to figure what a reasonable lease amount is for a theater that you are going to have to provide seats, screens, all projection and sound equipment, popper, ice machine etc. It has 5 screens with sloped floors with seating of 82, 97,101,160 and 162. The current owner plans to renovate the bathrooms and extend the front of the building. Population is approx. 12000, but the draw is about 20,000.
Can anyone help with the best way to figure a reasonable lease amount and term length?.

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Frank Cox
Film God

Posts: 2234
From: Melville Saskatchewan Canada
Registered: Apr 2011

posted 06-30-2013 01:51 PM

I think that there are so many variables that you'll never find a formula for calculating what a lease should be. Since this place was apparently a theatre in the past, look at their books from when it was open and determine how much you could afford to pay based on that. If you can't get ahold of their books, try asking questions in the neighbourhood and see what you hear that way. Five screens packed every night is a very different situation than five screens with three people watching a movie.

Also, question why the current owner wants to lease it instead of operating it himself or with a staff and a general manager.

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Louis Bornwasser
Film God

Posts: 4441
From: prospect ky usa
Registered: Mar 2005

posted 06-30-2013 02:08 PM

I am NOT being a wise guy.

Free rent to cover all you spend getting open. In this case, it might be 5-7 years.

Many, many takeover cinemas get free rent always just to get the traffic count up for the rest of the shopping center. (A closed cinema will kill a center.) Landlord makes additional money from the other tenants since the cinema runs up the traffic count.)

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Mike Frese
Master Film Handler

Posts: 465
From: Holts Summit, MO
Registered: Jun 2007

posted 06-30-2013 03:42 PM

A good starting point is 50% of what good retail space is getting (actually being paid not what is being asked for by property managers).

If the space has been empty for over a year, you should at a min. get free rent until you open for business. If it has been empty for longer you could expect some additional free rent after you open.

I like the population IF you are the only game in town. If there is another theater in town. Run away from this.

Is this theater the Carmike Village 5 in Mountain Home, Ark.?

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Jeff Taylor
Jedi Master Film Handler

Posts: 601
From: Chatham, NJ/East Hampton, NY
Registered: Apr 2000

posted 07-04-2013 02:55 PM

I did a lease with a major theater operator in 2000 for a 66,000+ sf theater--16 plex attached to a mall. We built the building and the basic interior improvements, the operator provided seats, equipment, and decor. The rent was $18 per square foot (approx $1.2 million annually) triple net, i.e. tenant to pay utilities, taxes, landscaping, snow removal, repairs and maintenance, etc. There is competition in the marketplace, and it's a slow growth, older area. FWIW, there was no free rent, but there is a percentage over a fairly high base which I don't recall. Helpful?

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David Zylstra
Master Film Handler

Posts: 432
From: Novi, MI, USA
Registered: Mar 2007

posted 07-04-2013 09:13 PM

In my opinion there are 3 ways to go:

If you are responsible to re-equip the building 100% then get free rent for the first few years to help you ramp up the business and start paying back your investment, include an out clause so you can walk away before rent kicks in if the business level is not good enough to pay the bills (and make sure you retain rights to the equipment).

Along the same lines as the first one work it out that rent is paid out of the profits if there are any - i.e. guarantee that you cover expenses first along with a management fee for yourself, then rent is a percentage of what is left over.

If you have to pay rent from the start then it should kick in only after you complete the refit/renovations but the landlord should kick back a sum of money to help pay for the equipment (on one of our major remodels the landlord kicked in about 10% of our remodel costs - we paid for a full remodel including stadium)

Is the population of 12,000 right? and you mention a draw of 20,000, is that what the estimated trade area is of the mall? note that theatre trade areas and population are different than retail - any nearby competition affects your potential.

I would strongly suggest that if the theatre is older that you get the landlord to either agree to maintain both the roof and HVAC or provide you with both a new roof and new HVACs - both these items can be money pits to maintain. The landlord should also pay for any expenses to bring the building up to code if required by the city.

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Mike Frese
Master Film Handler

Posts: 465
From: Holts Summit, MO
Registered: Jun 2007

posted 07-04-2013 10:07 PM

quote: Jeff Taylor
I did a lease with a major theater operator in 2000 for a 66,000+ sf theater--16 plex attached to a mall. We built the building and the basic interior improvements, the operator provided seats, equipment, and decor. The rent was $18 per square foot (approx $1.2 million annually) triple net, i.e. tenant to pay utilities, taxes, landscaping, snow removal, repairs and maintenance, etc. There is competition in the marketplace, and it's a slow growth, older area. FWIW, there was no free rent, but there is a percentage over a fairly high base which I don't recall. Helpful?

This was a brand new build to suit scenario? If so totally different situation.

Plus I believe this theater in question in the OP is currently being operated by a decent size theater circuit. Looks like they get whatever the other theater (a 6 screen-locally operated) does not want.

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Andrew Thomas
Master Film Handler

Posts: 273
From: Pearland, TX, USA
Registered: Jun 2012

posted 07-06-2013 05:45 PM

We found a 4 screen that had been closed for 4 years after a hurricane blew the roof off. Town of about 30,000 with no cinema within 15 miles of any direction. Another 50,000 people live within 6 miles of the theater.

We got them to give us a TI allowance of $150,000 on a 5 year lease (with years 4 and 5 being a tenant option) paying out a total of $300,000 in rent with most of that being on years 4 and 5.

Why? Because since the cinema closed, the shopping center went from 95% occupancy to 40%. Just us signing the lease and being able to sell the cinema as an anchor for the shopping center got the place back to 85% occupancy before we even opened the doors.

BE AGGRESSIVE. The worst they can say is no!

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