Advice on first time leasing(lessor) on Commercial Property
My small business is currently considering being acquired by a large billion dollar company who's objective is to buy our "business"(customers/book) for a price and also lease, long-term, property for that company to develop and grow on. The company is stable, have been in operation for over 40 years and have rarely closed a location.

We have a few locations that might fit their specs, from undeveloped farm land to mostly developed commercial lot with building. They are initially asking for a 10, 15 or 20 year lease with a purchase price built in to the end of lease. Triple Net and the rep said that a CPI and cap rate would be set.

NOW...for my questions.

1. How do we set valuation on our property to come to a lease price? Is an appraisal usually completed for this and is it paid for by the lessor or lessee? What can we do to get a higher appraisal?

2. Our attorney and accountant says that a 10% cap rate is standard for commercial property in our area. (real estate value is way low being we are in the rural south) The interested company says they usually set cap rates at 5% which sounds like a low ball bullshit approach. How do we formulate or negotiate a market cap rate? Are there comps?

3. If cap rate is negotiated below 10%, what lease length should we shoot for. The acquiring company really seems accepting of any lease length as long as they don't get kicked from the property and have guaranteed option to purchase at lease end.
THANKS!
[{"id": "d4k2rus", "text": "Hello,\n\nUsually leases are set using either an areas comparable leases or on a financial earnings basis also depending on what cap rates properties have sold for in your area and reverse engineering the lease out of that taking into account what your property is valued at. I've never heard of anybody using an appraiser for a lease. \n\nAs far as cap rates go, I'm assuming this is for the purchase at the end of the lease. If so then a 10% cap rate actually values your property at half of the value of a 5% cap. A 10% cap rate means that you would sell your property to them at 10x the net operating income, whereas a 5% cap rate values it at 20x the NOI. ", "replies": [], "depth": 1}, {"id": "d4kwr1o", "text": "1) Leases are typically best negotiated with a leasing broker that knows the area and is familiar with other similar leases that have been signed. They do however get a commission. \n\nIf they want a long term lease, give them a 10 year lease with annual 2-3% rent bumps. Add on two 5-year extension options. This is a pretty standard lease from my area, but calling an appraisal firm and having an abstract conversation would not hurt.\n\nThe more creditable and solid the company is, the more a lessor will be willing to come down on rental rate to accommodate them since there is less risk in the deal.\n\n2) As a property owner you want as low of a cap rate as you can get. You usually calculate a cap rate via an appraisal and comparable sells in the area.", "replies": [{"id": "d4l3fzt", "text": "Ok, so i might need to clarify or maybe im just so new(stupid) about this, that I must be misunderstanding.\n\nI own the property and am being approached by a big, low risk corporation to lease the property.  They prefer a long (10, 15, 20 year) lease with a purchase at the end of lease.  They almost always purchase the land they lease at end of lease and have completed several hundred of these acquisitions.\n\nI thought Cap rate is essentially the % of that value/purchase price that gets set and that % is what the lessee pays in rent for the year.  So, if the property values at $500,000, a 10% Cap rate is $50,000 in rent annual.\n\nSo, why wouldn't I want the highest cap rate possible with a long term lease?  Isn't that more cash over the term?\n\nMaybe i need a ELI5, sorry!  Are there any primer videos / reading you might suggest?", "replies": [{"id": "d4l6w8z", "text": "Capitalization rate (cap rate) is used in the income approach to value in order to value the income that your property will produce through time into a property value. \n\nOnce you calculate your net operating income (gross income minus property expenses but not including debt service or capital expenses) you take that number and divide it by the cap rate.\n\nIf your NOI is $100k and you have a 10% cap rate, the value is $1m. If you have a 5% cap rate the value is $2m.", "replies": [{"id": "d4l889q", "text": "So this must be one of those odd circumstances that doesn't exactly apply.  \n\nThe property that the corporation wants to lease &amp; purchase from our company is not the same piece of property where we currently do business.  The prospective property is partially developed, much larger than where we currently reside and is not producing anything at the moment.  \n\nOn top of that, I wouldn't know what the acquiring corp's net operating income would be once they took possession, developed the property further and instituted there business model.\n\nIt seems it would be in there best interest to keep those numbers low or hidden?  \n\nWould it be normal to  try and estimate the NOI or to require the lessee to provide data on their NOI so i can calculate the property value?  ", "replies": [{"id": "d4mb87h", "text": "Its the NOI of the real estate itself, not the corporation or tenant that occupies it. \n\nSo income is lease income plus any expense reimbursements. Expenses are any real estate related operating expenses (non-recurring maintenance, security, landscaping, management fees, administrative fees, etc) property taxes, and property insurance.\n\nThat gives you the real estates NOI.\n\nI see purchase options all the time in leases. They typically don't have a set cap rate. What is most typical is to see language saying that the lessor and lessee will negotiate a cap rate. If the two parties cannot come to a conclusion, then they use something called the 3 appraisal method, where they get three appraisals from separate companies and use the average concluded cap rate.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "d4lospa", "text": "This worked really well on the last question that popped up similar to this... I actually had a chance to chat a bit with u/whattodo-whattodo and got into some things that were hard to communicate over text on the web...\n\nI would be happy to help give you a few pointers on what to be aware of on a commercial lease (I cannot nor do I want to be your agent). If you want to chat PM me and I will send my contact info your way. I can talk anytime M-F during PST business hours. I would post but there are so many variables that it results in a wall of text that just leads to more questions. ", "replies": [], "depth": 1}, {"id": "d5cvxf2", "text": "Not sure I would take your attorney and accountant on cap rate advice... ", "replies": [], "depth": 1}]