Solving for Multiple Leased Locations

searcher profile

March 27, 2024

by a searcher from University of Texas at Austin in Seattle, WA, USA

I am evaluating a retail business with 9 separate leased locations and concerned about successfully transferring all the leases in a transaction. All the locations are in strip malls with landlords that run the gamut, all the way from an institutional nationwide REIT to local mom & pop ownership. Has anyone worked on or closed an SBA deal that overcame this issue? I also foresee some difficulty with the lender, as I understand that an SBA lender will want lease terms to sync up with the debt maturity. I would imagine this issue is common in franchise transactions, so if there are common practices in that domain, they may be applicable here.

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
I agree with Deb, it can be very difficult to manage this process. As a rule the SBA wants the lease term to match the term of the loan. In general, this is in your best interest as well. However, you do not need to actually extend the leases. So long as you have leases with options that get you to the loan term, that will work as well so long as the option is a tenant option. The biggest issue is going to be timing, but in general I have found retail landlords are desperate for their own lenders to keep tenants in place, so to get extension options or just extensions done is not the end of the world. However, you do run the risk that you might not be successful with every location.

A lender that wants to do your deal might still do it if you are not successful with every location if you have some time and can prove their are other available spaces you could relocate the business to if you had to. But they might discount the cash flow some to take that risk into account. But we have gotten deals done when a client cannot get the term extended by proving the ability to relocate the business and including an adjustment in cash flow to cover that cost.

Happy to discuss in more detail at any time at redacted Good luck.
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Reply by a lender
in United States
Navigating the waters of strip mall acquisitions requires a strategic approach, especially when it comes to lease agreements under the SBA's guidelines. Often, strip mall landlords operating through third-party services can prolong the approval process for new owners. This delay not only affects the acceptance of lease terms but can also hinder loan closings.



My advice ^redacted‌? Hit the ground running to sidestep these delays. Moreover, aligning lease terms with the SBA's SOP loan duration is crucial. Ensure a lease agreement offers a renewal option that mirrors the SBA's ten-year loan term—think of a 5-year initial lease with the choice to renew for another five years or a 3-year with the option to renew for seven more years. This structure is essential. It safeguards both the business owner's stability and the lender's investment.



A sudden eviction by a landlord could derail the business's revenue, jeopardizing the SBA-backed loan repayments. Planning with precision protects your interests and ensures smooth sailing through the acquisition process.
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