Franchise opportunity or lease trap..

Yesterday I was contacted by an Extreme Pita Franchisee dealing with a Real Estate company with an interesting proposal: sign a lease in my Power Center and I will build your Extreme Pita for you with tenant allowance funds, reducing your investment by about  $70,000 in the project. My eyes lit up, my ears were red hot and I thought my client had won a small lottery...Then I analysed what he was saying..

The more I thought about the deal the more troubled I became and my initial enthusiasm gave way to the reality of what he was saying. Some more facts: it was a Power center with 3 anchors and a great food court and 50 other retailers. He wanted $8000 per month for the rent and CAM, 5 year lease with a 5 year option. But what he failed to tell me was that one anchor was going to leave in Jan after the Holiday season sales, and the economy the way I saw it was going to see to it that potentially 10 out of the 50 others would also be forced to close their doors in Jan/Feb. So the center occupancy and traffic would be down once he was in the center and committed to 5 years. A good deal ?

No! Run, I said to him.

Knowing the occupancy would be down, he would have to have a clause in the lease that would vary the rent according to different levels of occupancy. He said "NO WAY" - the landlord would never put that in his lease and never has. Red Flag alert!

Should you sign a lease for a location that you know will be down in traffic and sales next year unless you are locating there for strategic reasons and for future positioning? it will affect your break even point, the cash flow for the store, it will take much more effort to build up the business, your banker will not like it, and you will lose any built in business from the anchor and his employees. Until they fill up the center again. Can you wait that long?

Rethink your analysis and business model and put it in perspective with the new facts about the location and the economy.

That is sound advice.

I slept well that night. I hope my client did too.

Bounce your ideas off mrfranchiseman via e mail fayaz@mrfranchiseman.com or call 800-401-6424