Land Owner Counter Received

outdoor billboard investment forum
1

I offered the landowner 20% of gross rent with a 15 year lease and 15 year option to renew. They came back saying they wanted 25% of gross rent and they indicated that they wanted an increase in the rate of 3% every two years or 7% every five years.

So, are they saying that the dollar amount percentage should go up 3% every two years or the actual gross rent percentage should increase by their desired amounts? So for instance if they received $1,000 in gross rent in 2013, they would receive $1,030 in 2015? Or would it be 25% of gross rent in 2013 and 28% of gross rent in 2015?

Do you think the landowner’s request is fair? Which option would you choose? My strategy is to flip the lease so it is essential that the lease be desirable for a big billboard company to purchase.

This is my first potential deal so any help is greatly appreciated.

Thanks!

2

I’m guessing that they mean that the base adjusts upward to pace inflation (or their guess of inflation). I’ve never heard of a percentage adjusting. You’ll have to determine if that is a good deal, as it’s all going to be based on the market ad rents and how good your sign ranks against the competition in visibility, size and location. If you’re sole goal is to flip the lease, then you should consider having a “out” provision in the lease, in case the bigger company does not like the terms of the lease, so you can get out of it.