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Module 2A - Real Estate (Crunch DEV Foundations )

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Transcript of Module 2A - Real Estate (Crunch DEV Foundations )

FACTORS IN SITE SELECTION
MODULE 2A:
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COLORFUL PHOTO OVERLAYS
ICONS/ GRAPHICS
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REAL ESTATE
D E V E L O P M E N T
REAL ESTATE
& SITE SELECTION

FUNDAMENTALS

OVERVIEW
CRUNCH REAL ESTATE SUPPORT
Primary support provided by Brian Kunkel, VP of Real Estate

Develop and implement a comprehensive real estate strategy
for each new franchisee’s market

Recruit, train and manage the commercial real estate brokers assisting franchisees

Demographic and competitive analysis

Guide franchisees through LOI negotiations
ALL NEW SITES AND LOIs MUST BE APPROVED
REMEMBER….It's Not Rocket Science!
It's All About That Old Saying…
DEMOGRAPHIC
ANALYSIS TOOLS
We use state-of-the-art
demographics analysis tools

Intalytics by Site Intel
DEEPER DIVE ANALYTICS
We analyze the true population base
through Drive Time Analysis and
Area-Polygon Analysis

93,000 people living within a
10-minute drive of the site

BUT, it also captures people living
across the bridge in Oakland too
DEEPER DIVE ANALYTICS
Analyzing the true target population
through an Area-Polygon Analysis

81,000 people living within the
polygon area, representing our
true target population
Minimum population of at least
50,000 people
living in a
3-mile radius
(or a 7 to 10 minute drive time), and
75,000

in a
5-mile radius
(or a 12 minute drive time)

Ideal age groups between
35-55 years old

Median household incomes of
at least $60,000

The Crunch Brand appeals to
all ethnicities

DEMOGRAPHIC
CRITERIA
DEEPER DIVE ANALYTICS
Standard analysis historically has
been looking at the 1, 3, & 5 mile radii

Alameda Island example in Oakland

The population in a 3-mile radius is
161,000 people

Doesn’t represent a true capture of the
target population
Shopping centers, retail plazas, malls and
stand-alone buildings in high traffic retail areas

Close to “daily needs retailers” – grocery stores, pharmacies,
dry cleaners, coffee shops, wine/liquor stores, etc.

Highly visible and easy to get in and out of

TONS of parking (min. of 130 spaces)

Good signage on the building and near the street

LOCATIONAL
CRITERIA
Minimum population of at least
50,000 people living in a 3-mile radius
(or a 7 to 10 minute drive time),
and 75,000 in a 5-mile radius
(or a 12 minute drive time)

Ideal age groups between 35-55 years old

Median household incomes of at least $60,000

The Crunch Brand appeals to all ethnicities

COMPETITIVE ALYSIS
16,000 to 35,000 square feet (SF)

22,000 to 25,000 SF is our sweet spot for having an ideal club layout

High open ceilings – minimum of 14 feet

Open ceiling everywhere except locker rooms, tanning and
hydro-massage rooms, and private office area

Electrical: 800 - 1,200 amp

Plumbing: 2” fresh water line and 4” sewer line

Required HVAC capacity will vary based on region from
2.5 tons to 4.0 tons per SF of leased club space

SPACE CRITERIA
3-Mile Radius vs. Area-Polygon Analysis
DEEPER DIVE ANALYTICS
MARKET ANALYSIS
POPULATION
TRAFFIC
PATTERNS
ZONING/
ORDINANCE
BUSINESS
CLIMATE
GROWTH
SAFETY
CHARACTERISTICS
MARKET
Collect demographic data
about the area
Are the local residents
potential customers?
Are there enough potential
customers in the area to
support your facility?
Find out traffic counts and patterns
How and where do people in the area travel?
Is the site located within or near those traffic patterns?
Contact the local Department of Transportation, Department of Public Safety to find out more
Investigate local restrictions on products sold, operating hours, building codes, and uses of the property
The local zoning commission or chamber of commerce has zoning maps, development standards, and copies of city ordinances
Familiarize yourself with the zoning appeals process in the area
You will need to obtain a “Conditional Use” permit for the operation of a gym/health club
Speak with a city planner to understand this process, the associated costs, and the likelihood that the permit will be granted
Is business in the area growing?
One way to determine this is to look for “Coming Soon” signs and new construction
Growth indicates potential clients and revenue sources
Keep an eye out for negative aspects of growth Construction may alter driving and shopping habits, which could result in declining sales
Consult the local planning commission or chamber of commerce to find out about new development
Investigate any situations
in the area that might pose
problems for your business

Contact local employment agencies
or the chamber of commerce about
employment conditions
Contact the local police department and chamber of commerce about the crime statistics in the market area
REAL ESTATE
NEGOTIATIONS
Submitted to potential landlord
at beginning of process

Outlines terms for potential lease

Several rounds of negotiation will follow

Crunch MAY conduct a site visit before approval

Once LOI is approved, broker submits it to landlord

Crunch RE must be kept in the loop along the way
Negociation & Lease Process
1
Identify potential site & review demographics

Submit LOI & enter into negotiation with landlord

Landlord drafts a lease when/if business terms are agreed to on the LOI

LL's attorney & franchisee's attorney go through many rounds of lease revision, while Crunch works on equipment layout plan

Attorney's are done with their lease revisions & the lease is ready to be signed. Franchisee working with architect to complete drawings
2
3
4
5
RE: LETTER of INTENT
PREMISES
16,000 to 35,000 SF
The size and position shall be mutually agreed upon
All based on architects final measurements
ALWAYS HAVE THE LANDLORD PROVIDE A FLOOR PLAN IN A C.A.D. FORMAT
LEASE TERM
Initial term needs to be 10 years
10 year lease lines up with 10 year F.A.
Minimum of two 5 year options to renew
Obtain 20 years of secured term overall
OPTION RENT
The rent to be paid during the "option" periods
Prefer to limit rent increases to a 10% increase every option period/5th year

Very important to have the amount defined

Avoid "T.B.D."" or "at the then market rates"
The "option" periods = the renewal periods
LEASE RATE EXAMPLE
Lease rates and NNN expenses vary greatly around the country

Annual lease rates from high single digits to upper teens

Annual NNN expenses will range
$3.00/SF up to $10.00/SF

Local property taxes are the largest variable influencing NNN expenses
TYPICAL LEASE RATES & NNN'S
Prefer a minimum of
6 months free
from club opening,
or
10 months
from when LL provides possession

Can get creative and
accept 3 months free,
followed by 6 months at half the rent

Some LL want to provide additional free rent
in place of providing a construction allowance

Typical free rent ranges from
6-12 months
Free Rent
A MUST HAVE ITEM
Rent is quoted at:
$12.00/SF/Yr
NNN Expenses (Estimated at $3.27/SF/Yr)
+
Gross Rent of $15.27/SF/Yr
Square Footage (20,000 SF)
x
Annual Rent = $305,400/Yr
or $25,450/Month (ALL IN)
POSSESSION/ LEASE COMMENCEMENT DATE
The date the landlord ("LL") provides keys to the space for Crunch to start our construction.
The Possession Date is also called the "Turn Over Date"
Possession Date:
The lease start date.
Commencement Date:
Is after the lease commencement (start) date, and is the date that Crunch starts paying rent
Rent Commencement Date:
LEASE/ RENTAL RATE
Lease rates are quoted on a dollar amount per square foot (SF) per year
Most retail/shopping center leases are structure on a "Triple-net" or "NNN" basis
Crunch pays the NNN expenses IN ADDITION TO the quoted lease rates
The "NNN" = Property Taxes, Property Insurance & Common Area Maintenance (or "CAM")
The actual T.I. amounts we see vary from
NO T.I. and lots of free rent
, all the way up to our ask of
$35/SF

Amounts given by LL's varies based on region and the desirability of the shopping center

Typically see T.I. being offered in the range of
$15.00 to $25.00

A franchisee's financials will influence how much T.I. a LL will be comfortable providing
Targeted T.I.
We ask for a $35.00/SF T.I. allowance
PERMITTED USE
Needs to be spelled out clearly in LOI
Full service health club to includes activities such as UV-tanning, personal training, spa services (hydro massage), etc.
Negotiate so Crunch has the exclusive fitness use for the shopping center
Be sure that the lease is null and void if the city/town doesn't approve of fitness use
TENANT IMPROVEMENT ALLOWANCE
Commonly referred to as "T.I" or the "Construction Allowance"
Is the amount of money the LL will contribute towards constructing your club
The Tenant Improvement Allowance is
IN ADDITION TO
the work that we require a LL to do to clean up an existing space.
T.I. is addition to the Landlord's work required through Crunch's Work Letter
Crunch Work Letter defines the work the LL needs to do to the space in terms of HVAC, electrical, plumbing, store front, fire & life safety systems, sprinklers, demising walls, etc.
CO-TENANCY
Protects Crunch in the event that a shopping center loses a major retail-anchor after we open
Tied-to the largest retailer (anchor) in a shopping center
Grocery stores, Kohl's, Target, Walmart, Burlington Coat, etc.
STOREFRONT/ ENTRANCE
Push to have LL construct a large pop-up storefront
Create façade for building signage
Include vestibule entryway
Co-Tenancy Clause:
"If at any time during the lease the shopping center vacancy increases above 35%, Crunch can either terminate the lease or pay 50% rent"
SIGNAGE
Signage is so very important and is your biggest free marketing
2 primary types of signage
The shopping center's signage located next to the street
Pylon Signage
Storefront Signage
The signage on the building above the club entrance
PRESALE SPACE
Used to conduct club presale activities to market the club and enroll members before it opens
Presales typically last 60 - 90 days
Negotiate access to free "presale space" to use anytime after lease signing
Vacant space in the shopping center next to where the club is going
Smaller space of approx. 1,500 to 2,000 SF
PARKING
PARKING IS ONE OF THE MOST IMPORTANT FACTORS
Need a Minimum of 130 parking spaces for a stand-alone building
Access to 200 parking spaces is more ideal
Need to include protective language restricting the LL from reducing parking
Best method is to negotiate a "protected parking field" in front of the club
NON-DISTURBANCE AGREEMENT
VERY IMPORTANT IN THIS RETAIL ENVIRONMENT
A "Non-Disturbance Agreement" is also known as a "Subordination Non Disturbance and Attornment (SNDA) Agreement"
An agreement between a tenant and the landlord's lender to ensure the tenant will remain in possession of the leased property, despite any foreclosure action against the landlord.
The parties agree to honor the lease even if the property is foreclosed on
PROTECTED
Parking Field
SUBLEASE & ASSIGNMENT
Need the ability to sublease our spaces if need be
Authorized to "assign" the lease to a buyer if you decide to sell the club
The ability to assign the lease to another party with minimal interferences or oversight from LL
LL will always want to approve of the assignee, but can't unreasonably withhold approval"
BROKER COMMISSION
Broker commissions vary based on market
ALWAYS PAID BY THE LANDLORD!
Brokers get large commission... so, don't feel bad making them work for it.
LOIs are Non-Binding
LOI's are the framework for the lease document

LOIs are non-binding, which is good and bad

The Deal is never done until the lease comes back signed!"

LOI / Lease Signing
Signing The Development Agreement
This section will take you through the critical
steps between:
Location
Location
Location
LETTER OF INTENT (LOI)
the first step in negotiating a lease.
work with your local broker and Crunch RE Dept. to submit the LOIs
Franchisee signs lease & architect completes working drawings
WHAT IS A LOI
Letter of Intent
Is the document used to negotiate all of the business terms for a lease

Typically a 3-5 page document

Many rounds of back and forth negotiating

The agreed upon terms go into the lease document

Typical shopping center/retail leases are 30-60 pages
LOI
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