Creative Lease Ideas?

[xenvar]

I currently have one Coffee Bar - literally, we sell Espresso and Beer... 8) , and have an opportunity to open a 2nd location. The trick is, I think the 2nd location has great potential to be a slammin' spot in 2 or 3 years (it is in a newly developed and speedily growing touristy area) but right now the traffic is not there. The lease rate is ridiculously expensive - ~$45/sf for a bit over 1000 sf, but looking ahead 2 or 3 years, I think this will be a great spot. So my predicament is, do I jump on it now while there is still a space, or do I let it slide by and possibly miss a fabulous opportunity? Of course, if I jump on it now, I would have to negotiate a better lease, and I am thinking percentage lease might be a better way to go. Anyone currently have one of those here? I would love to hear any pros and cons, besides the obvious being that the landlord knows exactly how much money is made and decides not to renew my lease and instead open their own coffee business...

 

[John P]

It depends...

Places asking for percentage rent are, in essence, charging it based on the HUGE amount of traffic/sales their location will provide. Percentage rent should only apply after you reach some specific benchmark, such as $60K per month. It should start at say 3% and have increases at say $85K and $120K up to 6%--or something like that.

If the deal were structured right, I may consider it, but probably not. I would negotiate a per sq rate that was fair and leave it at that.