Real estate keeps getting harder for brands large and small, prompting more concepts to put serious resources and deep thought behind the real estate support team.
One key part of that support is lease negotiation, a dreadfully dull and arcane topic to most people. So it’s easy to see why excited franchisees tend to gloss over the fine print as they hurry toward opening day. That, of course, is not the best idea.
“It’s surprising, the lease is often an afterthought, it’s all about location or sales or positioning, yet the lease is a potential time bomb waiting to go off if it’s not addressed,” said Jim Haslem. Haslem, a real estate consultant and CEO of CS Advisors, spends a lot of time renegotiating leases after they’ve gone sour.
The important work of getting the lease right, he told Franchise Times, should start long before a location is even open.
Burn Boot Camp, a boutique fitness concept built around fast, high-impact workouts starts the process early with “a hand-in glove” approach, according to Jolene Purchia, VP of franchise development. She said real estate support is an especially important part of the model because much of her franchisee base is new to business ownership. She said there are a lot of little things that those new owners might gloss over from the verbiage in the letter of intent (LOI) to the construction timeline.
“Initially, my team reviews LOIs rather than a lease term sheet as an attorney is the only one we recommend to negotiate an actual lease,” said Purchia. “An initial piece we look to review is the tenant improvement payback installment period. Typically, a landlord repays TI once the tenant is open for business. One point of differentiation for our brand is that we look for reimbursement during the construction period. This is critical for cash flow of the franchisee.”
She said the company also helps negotiate around construction timelines in the target market. Anyone building today knows that these timelines can be brutal in growth markets, negotiating free or reduced rent during construction instead of an arbitrary date is just one way avoid undue hardship ahead of opening day.
To get the negotiations started on the right foot, Purchia said the company sends along it’s own offer package directly to the landlord.
“This package includes details on the Burn concept and information on the specific franchisee vying for the space as well as a detailed LOI. This helps us in negotiating a higher TI allowance out of the gate,” said Purchia.
The company also gets construction bids and timelines at that stage to further help with negotiations.
She said the protocol of getting that market-level data and getting negotiations going fast has been instrumental in opening 187 locations since it began franchising in 2015.