14 Oct It’s 3 A.M., and Sally is Face-Timing you. Fortunately, you were up slugging away at your coursework and tying up some loose ends for the project. After receiving the Marketing Study for the
It's 3 A.M., and Sally is Face-Timing you. Fortunately, you were up slugging away at your coursework and tying up some loose ends for the project. After receiving the Marketing Study for the property in Boca Raton (PDF)
Download Marketing Study for the property in Boca Raton (PDF), Sally asked if you could review the market study immediately because it looks like a hot property and will probably not be on the market for long. She instantly jumps in, saying, "Look! I found a whole bunch of stuff that we need to review.
Sally specifies that she has read the material and has a better idea of analyzing the ROI. The luxury building is in a great location and has had an extensive renovation. The current restaurant tenant operates 24 hours a day, seven days a week. Sally points out that it's a free-standing building with a total of 7,615 square feet and 6,000 square feet has air conditioning. Also, there is a 1,615 square foot outdoor covered patio and deck for outside dining. The property can seat 259 inside and outside, 93 parking spaces, and covered patio seating with a full bar and wine case setup.
There is even a dining room kitchen with a hood, a separate chef's kitchen with a hood, and the mainline kitchen with an on-demand hood. The hood is critical because it contains fire suppressant equipment. Sally states that the three kitchen locations are an added benefit that will permit high-end customers special catering for her inner circle dining parties on the dining room floor. Having the hoods already installed saves a lot of money and may avoid major inspections by the city. If the fire hoods are not functioning correctly, the startup costs could skyrocket and delay the opening. Sally wants us to add that issue to the list to discuss with the owner. She also suggests we determine the effect of the current tenant deciding to hold over beyond the term. The broker was, after all, not too definite about the move-out date, and he only stated that the building was under lease by the restaurant tenant until July or August of this year.
She also points out that the market study specifies that the purchase price is $5,995,000. Sally states that there is also an option to lease the building under an NNN lease arrangement at $35,000 monthly rent plus $4,200 in property taxes monthly. Sally wonders out loud whether there was a potential for incurring other charges.
The broker provides you with three possible agreements: Contract for Sale of Commercial Property, Commercial Lease Agreement, and Triple Net (NNN) Lease Agreement. Analyze the terms and conditions of each agreement and their impact on your business plans. Redraft clauses based on changes you would like to make to your business plan's long-term goals; fill in missing or blank sections and information; change any term or add clauses to match your goals. Make a list of the issues to discuss with the broker to negotiate favorable terms in the revisions you suggest. You will need this list and any changes for future assignments.
Review and complete the following agreements using all of the facts available and your understanding of the three transactions' effect on your plans as presented in the case study. Complete all documents using the facts from the case study. Make all changes using a contrasting blue font.
- Contract of Sale of Commercial Property (DOCX)
- Commercial Lease Agreement (DOCX)
- Triple Net (NNN) Lease (DOCX)
Your research has produced the following information to analyze options in property transactions. Review the following for information and general references:
- Considerations for the Terms Needed in the Sale of a Commercial Property (Baker Donelson)
- The Purchase and Sale Agreement (Clark Wilson) links to an external site. – addresses various contract paragraphs and types of revisions available.
- Digital Commons Contract Tips (University of Tulsa)
REAL ESTATE SALE CASE STUDY
1424-1450 N FEDERAL HWY,
BOCA RATON, FL 33432
Sale Type Investment
Cap Rate 7.01%
Sale Conditions Lease Option
Property Type Retail
Property Sub-type Restaurant
General Retail Freestanding
General Retail Storefront Retail/Office
Building Class C
Lot Size 1.36 AC
Gross Leasable Area 7,615 SF
No. Stories 1
Year Built 1970
Parking Ratio 10/1,000 SF
Zoning Description B4
APN / Parcel ID 06-43-47-20-15-001-
Date Created 5/29/2019
ID#: 16181065 Last
Total 7615 Sq. Feet 6,000 Square foot Under Air, with a 1,615 square foot Outdoor Covered Patio and deck for outside dining.
Local 24-Hour always open 30 year old diner chain currently in three locations
Walking distance to Downtown and Mizner Park and the Museum. Additionally, the IPIC Theater is just within half mile
Property can seat 259 combined inside and outside, 93 Parking spaces and a covered patio seating with a full bar and wine case set up
Located on the FAU (Florida Atlantic University) corridor on Federal Hwy just north of Glades Road with a B-4 Zoning
Current tenant in building is relocating by August 31st, 2019 meaning this is a wonderful owner/user OR investment opportunity
Strategically positioned along heavily trafficked North Federal Highway with a Vehicle Per Day count of over 34,000 cars
Free-Standing Restaurant Building, For SALE at $5,995,000 OR NNN Lease for $35,000
monthly, plus $4,200 in property taxes monthly Current Tenant Relocating by July 2019 or
August 2019. The property is offered for Sale or Lease By the Owner. Half A Mile North of
Mizner Park, Boca Downtown Museum, and IPIC Theater. Free Standing Luxury Building
recently renovated in 2013, In and Out. The current tenant operates 7 Days a Week, 24 Hours.
Tenant scheduled to vacate in July or August of this year, per request. Exterior covered Patio
and partially uncovered with Fire torches and Water Fountain. Full Bar and Wine Cabinet
Display area. Dining room Kitchen with Hood, separate Chef's Kitchen with Hood and Main Line
Kitchen with On Demand Hood.
Brokers Representation of Property owners position
1) The Owners position: What do they want? Why?
The Seller would like to capitalize on his most profitable real estate holdings. Selling the
property at maximum return is the Owner's ultimate goal, and she realizes that the age
of the building is eventually going to present problems in any future sale, even though
the building was recently completely renovated. The building owners' interest is to sell,
preferably within the next two months, before or on the date of the current lease
terminates. If not, the Owner's carrying cost increases since the building may go vacant
until she identifies a new leaseholder. A sale solves all of the Owner's issues because
the price includes the Amortization of the building renovation costs in the asking price,
including a six-month lease recovery premium in the event the building was to remain
vacant until a sale. The Broker has stated that that the Owner would consider a lease
arrangement either a straight term or a Triple Net lease. There is also the option for any
variation such as a Net or Net-Net Lease with terms such as taxes, utilities,
Amortization of the renovation costs, and rent-plus percentage based on Gross income
from the Restaurant.
The property owner believes that the property fits well within Sally's plan to establish a
new Restaurant. Great location, floor setup, lots of parking. The current tenant has had
an exceptional long-term reputation in the area, and the customer base should help
establish and carry over to the new Restaurant.
The though is that If the purchase price is too top-heavy, maybe they will consider the
NNN Lease options. There may be some room for negotiation on the purchase price,
but that depends on Sally's costs model. There may be a slight margin based on the
carryover of the tenant or discounting the lease price if Sally assumes the final lease
period any holdover pass the lease period. Also, the cleanout costs are high, and
maybe if there was an assumption of that responsibility, there could be adjustments
An assumption probably would make sense if Sally wants to get in early to renovate to
the floor plan and set up the kitchen and dining floor and start ordering and stocking
The Owner believes that his walk-away alternative is that he will not go over a 20%
discount on all pricing terms. He is willing to carry the property until a buyer comes
along within, at least the end of the current tenant lease expires.
The Owner will discount the price of the sale by as much 30% net thirty-days if offered a
cash buyout and not have to wait for financing to take place.
The Owner realizes that the best solutions for both parties would be to reach a
reasonable price reduction with incentives to close early and turn lease period revenue
over to the buyer.
FINANCIAL SUMMARY (PRO FORMA – 2019)
Gross Rental Income
Annual Per SF 55.15
Annual Per SF –
Annual Per SF –
Effective Gross Income
Effective Gross Income
Annual Per SF 55.15
Net Operating Income
Annual Per SF –
[1 Mile /]
$0K – $35K 32% $35K – $75K 34.4% $75K – $100K 10.2% $100K+23.4%
$0K – $35K 1,775
$35K – $75K 1,910
$75K – $100K 564
0 – 1920.1%20 – 2913.6%30 – 3914.8%40 – 4912.4%50 – 6420.8%65+18.4%
0 – 19 2,869
20 – 29 1,934
30 – 39 2,113
40 – 49 1,763
50 – 64 2,962
1 mi 3 mi 5 mi
[15 Min Drive /]
1 Mile 14,259
3 Mile 74,783
5 Mile 177,827
1 Mile 9,942
3 Mile 57,482
5 Mile 153,525
1 Mile 15,710
3 Mile 81,307
5 Mile 190,006
1 Mile 15,760
3 Mile 84,516
5 Mile 171,639
1 Mile 2,191
3 Mile 8,493
5 Mile 15,527
Average Household Income
1 Mile $96,376
3 Mile $110,391
5 Mile $98,696
Median Household Income
1 Mile $59,231
3 Mile $74,611
5 Mile $65,969
Total Consumer Spending
1 Mile $163.57M
3 Mile $936.46M
5 Mile $2.2B
1 Mile 41.2
3 Mile 47.1
5 Mile 48.7
1 Mile 6,325
3 Mile 32,447
5 Mile 81,325
Percent College Degree or Above
1 Mile 25%
3 Mile 27%
5 Mile 26%
Average Housing Unit Value
1 Mile $498,302
3 Mile $547,651
5 Mile $460,971
MAJOR TENANT INFORMATION
SF Occupied 7,615
Lease End Date July 2019
Signage Monument Signage
Collection Street: N Federal Hwy
Cross Street NE 15th Ter, SW
Traffic Vol 34,622
Distance 0.14 mi
Collection Street: NE 5th Ave
Cross Street NE 16th St, N
Traffic Vol 6,578
Distance 0.18 mi
Collection Street: Glades Rd
Cross Street N Federal Hwy, E
Traffic Vol 22,699
Distance 0.24 mi
Collection Street: Glades Rd
Cross Street N Federal Hwy, E
Traffic Vol 22,744
Distance 0.28 mi
Collection Street: NE 20th St
Cross Street NE 4th Way, NE
Traffic Vol 15,308
Distance 0.28 mi
Boca Raton Commuter Rail (Tri-County
Drive 9 min
Distance 4.1 mi
Deerfield Beach Commuter Rail (Tri-County
Drive 13 min
Distance 5.5 mi
Palm Beach International Airport
Drive 37 min
Distance 25.7 mi
Fort Lauderdale–Hollywood International
Drive 38 min
Distance 26.7 mi
WALK SCORE ®
TRANSIT SCORE ®
CONTRACT OF SALE OF COMMERCIAL PROPERTY
This Contract of Sale of Commercial Property (the “Agreement”) is made and effective [DATE],
BETWEEN: [YOUR COMPANY NAME] (the "Seller"), a corporation organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at:
[YOUR COMPLETE ADDRESS]
AND: [PURCHASER NAME] (the "Purchaser"), an individual with his main address located at OR a corporation organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at:
In consideration of the covenants and agreements of the respective parties, as set forth below, Seller agrees to sell and convey to Purchaser, and Purchaser agrees to purchase and take from Seller, the real property situated in [CITY], [STATE], and particularly described as follows:
[SET FORTH LEGAL DESCRIPTION]
together with all improvements on the property and appurtenances to it, and the articles of equipment and other personal property listed in Exhibit A, which is attached and incorporated by reference. The real and personal property described above is referred to as property.
Transfer to Purchaser shall include all right, title, and interest of Seller in and to all streets, alleys, roads, and avenues adjoining the real property, and shall further include any award for damaging or taking by eminent domain by public or quasi-public authority, of the real property or any part of it.
The purchase price for property is [AMOUNT], payable as follows:
[DESCRIBE TERMS] .
2. TITLE; TENANCIES
A. Conveyance of title to property shall be by warranty deed with full covenants, executed by Seller [IF APPROPRIATE, ADD: ACCOMPANIED BY A DULY CERTIFIED RESOLUTION OF THE BOARD OF DIRECTORS OF SELLER, AUTHORIZING THE CONVEYANCE], to Purchaser or Purchaser’s nominees. Title to be conveyed shall be good and marketable, subject only to [SPECIFY ACCEPTABLE LIENS, ENCUMBRANCES, RESTRICTIONS, EASEMENTS AND OTHER BURDENS].
B. Property is presently occupied by [NUMBER] tenants under month-to-month tenancies or leases, as set forth in Exhibit B, which is attached and made a part of this agreement. Transfer of title and possession to property shall be subject to those tenancies, but all right, title and interest of Seller in property shall be transferred to Purchaser or its nominees at the time of conveyance of title.
C. Conveyance of title shall be made and sale closed within [NUMBER] days after the date of this agreement. Title shall be evidenced by a standard form title insurance policy issued by [NAME OF TITLE COMPANY], insuring title to property to be in Purchaser or its nominees, subject only to the matters set forth in this agreement
If, at the time of transfer of title, property or any part of property is subject to an assessment or assessments payable in installments, all such installments not due or delinquent at the time of transfer shall nevertheless be deemed to be due and payable at such time and as liens on the real property described above, and all such assessments shall be paid and discharged by Seller.
4. ESCROW; PRO-RATION
A. Escrow shall be opened with [NAME OF ESCROW COMPANY]. Such instructions as the escrow company may require, not inconsistent with the provisions of this agreement, shall be signed and filed by the parties.
B. The following items shall be prorated as of the close of escrow: rentals, real estate taxes due but not delinquent, prepaid insurance premiums [ADD OTHER ITEMS, AS APPROPRIATE].
C. Escrow shall close when the escrow company is in a position to record all documents required under this agreement, make all disbursements, and [ISSUE OR SECURE] a title insurance policy.
5. RISK OF LOSS; MAINTENANCE; TRANSFER OF POSSESSION
A. Risk of loss or damage by fire or other casualty to property or any part of property prior to close of escrow shall be the risk of Seller. In the event of such loss or damage prior to closing, this agreement shall not be affected but Seller shall assign to Purchaser all rights under any insurance policy or policies applicable to the loss. If action is necessary to recover under any casualty policy, Seller shall grant permission to bring the action in Seller’s name.
B. Improvements and personal property described above shall be maintained in their present condition prior to the close of escrow by Seller, wear from normal and reasonable use and deterioration excepted.
C. Possession of property, subject to the leases and tenancies referred to above, shall be transferred at close of escrow.
6. COMMERCIAL ZONING
Seller warrants that property is zoned for commercial purposes and that all existing uses are lawful and within such zoning. Purchaser plans the use of property for [DESCRIBE PURPOSES]. Purchaser intends to apply for a [BUILDING PERMIT OR AS THE CASE MAY BE] for such additional use, and for appropriate amendments to the existing zoning plan for the area in which property is located. Seller will cooperate fully with Purchaser with respect to the contemplated plans. If Purchaser is unable to proceed with the described project because of any adverse decision of [CITY], or any board, commission, or officer of [CITY], Purchaser shall [STATE AGREED REMEDY, SUCH AS: REMIT [AMOUNT OF THE PURCHASE PRICE BY CREDITING THAT AMOUNT ON THE PURCHASE-MONEY MORTGAGE TO BE EXECUTED BY PURCHASER IN FAVOR OF SELLER].
7. BROKER’S COMMISSION
A commission of [AMOUNT] has become due from Seller to [NAME OF BROKER] by reason of the sale provided for in this agreement. That amount shall be paid to broker at close of escrow directly, from cash payable on close to Seller.
Within [NUMBER] days after the date of acceptance of this contract, the Seller will provide and deliver to Buyer or Buyer’s Attorney, a new spotted certified survey having all corners staked and showing all improvements upon the Property.
9. EXAMINATION OF TITLE AND TIME OF CLOSING
If the title evidence and survey as specified above disclose that Seller is vested with fee simple title to the Property (subject only to the permitted exceptions set forth above acceptable to Buyer), this sale shall be closed and Buyer shall perform the agreements made in this contract, at the office of Buyer’s Attorney, on or before [NUMBER] days after acceptance of this contract. If title evidence or survey reveal any defect or condition which is not acceptable to Buyer, the Buyer shall, within [NUMBER] days, notify the Seller of such title defects and Seller agrees to use reasonable efforts to remedy such defects and shall have [NUMBER] days to do so, in which case this sale shall be closed within [NUMBER] days after delivery of acceptable evidence to Buyer and Buyer’s Attorney that such defects have been cured. Seller agrees to pay for and clear all delinquent taxes, liens, and other encumbrances, unless the parties otherwise agree. If Seller is unable to convey to Buyer a good and insurable title to the Property, the Buyer shall have the right to demand all sums deposited by Buyer and held by or for the Seller. At the same time, Buyer shall return to Seller all items, if any, received from Seller, whereupon all rights and liabilities of the parties to this contract shall cease. However, the Buyer shall have the right to accept such title as Seller may be able to convey and to close this sale upon the other terms as set forth in this contract.
10. DEFAULT BY BUYER
If Buyer fails to perform the agreements of this contract within the time set forth herein, Seller may retain, as liquidated damages and not as a penalty, all of the initial deposit, it is being agreed that this is Seller’s exclusive remedy.
11. DEFAULT BY SELLER
If Seller fails to perform any of the agreements of this contract, all deposits made by Buyer shall be returned to Buyer on demand, or the Buyer may bring suit against Seller for damages resulting from the breach of contract, or the Buyer may bring an action for specific performance. Buyer’s remedies are cumulative and not exclusive of one another, and all other remedies shall be available in either law or equity to Buyer for Seller’s breach hereof.
12. ATTORNEY FEES AND COSTS
If any litigation is instituted with respect to enforcement of the terms of this contract, the prevailing party shall be entitled to recover all costs incurred, including, but not limited to, reasonable attorney's fees and court costs.
13. CONDITION OF THE PROPERTY
Seller agrees to deliver the Property to Buyer in its present condition, ordinary wear and tear excepted, and further certifies and represents that Seller knows of no latent defect in the Property. All heating, cooling, plumbing, electrical, sanitary systems, and appliances shall be in good working order at the time of closing. Seller represents and warrants that the personal property conveyed with the premises shall be the same property inspected by Buyer and that no substitutions will be made without the Buyer’s written consent. Buyer may also inspect or cause to be inspected the foundation, roof supports, or structural member of all improvements located upon the Property. If any such system, appliance, roof, foundation, or structural member shall be found defective, Buyer shall notify Seller at or before closing and Seller shall thereupon remedy the defect forthwith at its sole expense (in which case the time for closing shall be reasonably extended as necessary). If the costs of such repairs shall exceed [%] of the total purchase price, Seller may elect not to make such repairs and the Buyer may elect to take the Property in such defective condition and deduct [%] from the purchase price or Buyer may, at his/her option, elect to terminate this contract and receive the full refund of all deposits and other sums tendered hereunder. In addition, Seller agrees to remove all debris from the Property by date of possession.
Seller shall deliver possession to Buyer no later than the closing date unless otherwise stated herein. Seller represents that there are no persons occupying the Property. Seller agrees to provide true and accurate copies of all written leases to Buyer within [NUMBER] days after the date of acceptance of this contract. Said leases are subject to Buyer’s approval. Seller shall provide such letters notifying tenants to pay rent to the buyer after closing as Buyer may reasonably request. Seller warrants that any rent rolls and other income and expense data provided to Buyer are complete and accurate, all of which must be acceptable to Buyer.
Any notices required to be given herein shall be sent to the parties listed below at their respective addresses either by personal delivery or by certified mail – return receipt requested. Such notice shall be effective upon delivery or mailing.
16. BINDING EFFECT OF AGREEMENT
This agreement and the covenants and agreements of it shall bind and inure to the benefit of the parties, and their respective heirs, personal representatives, successors and assigns. Unless the agreement otherwise requires, the covenants of this agreement shall survive the transfer of title.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. [NUMBER] duplicate originals of the agreement have been signed.
Authorized Signature Authorized Signature
Print Name and Title Print Name and Title
IMPROVEMENTS, APPURTENANCES AND EQUIPMENT
COMMERCIAL LEASE AGREEMENT
This Lease Agreement (the “Agreement”) is made and effective [DATE],
BETWEEN: [YOUR COMPANY NAME] (the "Landlord"), a corporation organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at:
[YOUR COMPLETE ADDRESS]
AND: [TENANT NAME] (the "Tenant"), an individual with his main address located at OR a corporation organized and existing under the laws of the [State/Province] of [STATE/PROVINCE], with its head office located at:
1. DESCRIPTION OF PREMISES
Landlord leases to Tenant the premises located at [ADDRESS], [CITY], [STATE], and described more particularly as follows:
[INSERT LEGAL DESCRIPTION].
2. GRANT OF LEASE
Landlord, in consideration of the rents to be paid and the covenants and agreements to be performed and observed by the Tenant, does hereby lease to the Tenant and the Tenant does hereby lease and take from the Landlord the property described in Exhibit "A" attached hereto and by reference made a part hereof (the "Leased Premises"), together with, as part of the parcel, all improvements located thereon.
3. LEASE TERM
a. Total Term of Lease: The term of this Lease shall begin on the commencement date, as defined in Section b) of this Article 3, and shall terminate on [DATE].
b. Commencement Date: The "Commencement Date" shall mean the date on which the Tenant shall commence to conduct business on the Leased Premised, so long as such date is not in excess of [NUMBER] days subsequent to execution hereof.
The parties hereto may elect to extend this Agreement upon such terms and conditions as may be agreed upon in writing and signed by the parties at the time of any such extension.
Page 10 of 19
5. DETERMINATION OF RENT
The Tenant agrees to pay the Landlord and the Landlord agrees to accept, during the term hereof, at such place as the Landlord shall from time to time direct by notice to the Tenant, rent at the following rates and times:
a. Annual Rent: Annual rent for the term of the Lease shall be [AMOUNT], plus applicable sales tax.
b. Payment of Yearly Rent: The annual rent shall be payable in advance in equal monthly installments of one-twelfth (1/12th) of the total year