Fast-Food &amp; Bank Commercial Property investment
Good morning everyone,
I've been looking around for some commercial investment opportunities and came across quite a few fast-food chains and banks that offer property investments, the likes of chick-fil-a, McD and so forth and so I have a few questions. If somebody could answer the questions that I have, it be much appreciated. Please have actual experience in this type of industry. General info can be found online, but I'd like to know the specifics from somebody that has first hand knowledge.

- Most of these investment properties are Ground Leases (GL) - Does that mean one would effectively be purchasing the land the building is erected on?

- If so, how long are these ground leases. I understand the leases go anywhere from a 30 to a 100 years, however, from your experience, how long do they tend to be when dealing with large chains? (I presume 50  years)

- What happens to the building once the lease ends? (Again from experience, I understand that the building can either be reverted back and/or removed)

- In such case, does the ownership of the building increase by a certain percentage as the years go by or does the landlord receive immediate ownership of the entire building once the lease ends?

- How does the landowner go about ensuring that the building remains in good condition, if he/she has no stake in it? Contractual stipulations?

- Most leases have rent escalations every 5 years with a certain number of renewal options. How realistic is it to expect a bank or a fast-food chain to pay up the (in my view unrealistic) rental increase?

- Some agreements have 10 (ten) 5-year renewal options at a 10% increase each. How many burgers can you sell to justify this logic? Where is the cut-off? Won't they likely just sign a new lease and/or move on? Check out the chick-fil-a link. The lease escalation would bump the rent up to $ 321,000 p.a. Some are even more unrealistic with 10 escalations going into the $500,000s. What am I missing?

- Also, (again from your experience) what happens after the lease ends? Do chains renew leases or do they just move on, considering it's a decently profiting operation? Can the landlord expect a rental decrease when it comes to renewing the lease? 
 
- How tough are these corporations when it comes to renegotiating? I can only imagine that large chains will have contractual agreements geared mostly in their favor.

- Now that the landlord owns the entire property, will these companies even consider renewing the simple fee lease? In other words, do companies only look to renew ground leases over simple fee leases?

- Assuming, I own the building at the end of the lease, will the company expect me renovate it (what's the common procedure)? What would be the process? I can only imagine - their architect, their designer, their contractor, their pricing.

- What happens when the franchisee defaults on the agreement and can't pay up? Although these types of properties have corporate guarantees, I can't help but feel that one would likely have to take the legal route to get the money back. What's the usual route a large chain takes when its franchisee defaults?

- Land cannot be depreciated, are there any tax loopholes one can utilize to maximize profit?

- MOST IMPORTANTLY, What do I stand to gain from such an investment (GL) and what do I stand to lose from it? Why look for fee simple absolute investments over ground lease investments? (Buildings can be depreciated, I'm aware.)

Lots of questions, I know! Unfortunately, most realtors I spoke to, can't even properly explain to me how a ground lease works WHILE BEING IN THIS EXACT BUSINESS. Some don't even speak English. One guy even stated that "You own everything in a GL" - he lost his credibility right there. I can't seem to find a competent realtor. So, please only answer if you can give me concrete information and not general info, I already found plenty online. I'd like to know the specifics and from your experience only. I am aware that each property has varying agreements and it all really depends, but I am hoping someone on here has actually had dealings with the likes below and can tell me roughly what to expect.

Thank you so much y'all. Appreciate any input.


Bank:
http://www.bouldergroup.com/media/pdf/PNC%20Bank%20(GL)%20-%20Chicago,%20IL%20-%20OM.pdf

Chick-Fil-A:
http://www.bouldergroup.com/media/pdf/Chick-fil-A%20(GL)%20-%20Atlanta,%20GA%20-%20OM.pdf

McD:
http://www.bouldergroup.com/media/pdf/McDonalds%20(GL)%20-%20Hudson,%20MA%20-%20OM.pdf

Chase:
http://www.bouldergroup.com/media/pdf/Net-Lease-Chase-Bank-For-Sale.pdf

Wells:
http://images3.loopnet.com/d2/8w1hQ4ewIKiDiwRGlBSX5y9jHiXXkkX5lpf7DPSdUSM/document.pdf
[{"id": "dpkvymg", "text": "Ok so only had time to look at the chic fil a. You would be buying the land and would be entitled to recoup the rent paid by the tennant(chic fil a). I think the brokers used the term ground lease jnccorectl unless I am unaware of different language in different areas. From what I gathered this seems like a  triple net lease (NNN) so the tennant is legally responsible for completely maintaining the property. All you would do is collect a check every month.  The rent increases are listed correctly as that is how most retail leases work. Whoever developed the property signed the lease with chic fil a so they are legally required to pay for the entirety. If the business does well they will resign. Much easier and cheaper to resign a lease than develop a whole new store. And remember these chic fil as on average do about 3.5-4.0 million a year in sales. Chic fil a consistently has some of the best real estate in the QSR market and this property looks solid. High traffic and incomes. The cap rate on this is very low which is normal for big national credit Tennant's but I would dig into the market and see if you can find any other similar stores and see where they are trading. Again not completely sure on the ground lease language but this is what I got from it.  At the end of the term if they choose not to sign you would be able to sign a new Tennant or knock it down. Whatever you want ", "replies": [{"id": "dplmnhm", "text": "Ground lease means, you don't own the land you own the building. You're leasing the land from a land owner and chic fila is leasing the building and land improvements from you. Eventually the land owner will get the land and building. Mcds and chicfila tend to do this a lot because it lowers the cost of the land. They can't pay rent for a $2million piece of land, but $400k for a ground lease? Sure! That many less burgers they have to sell and in 40years that building will be worthless to them so they'll redevelop elsewhere", "replies": [{"id": "dplmy0d", "text": "Ok that makes sense.  But why would anyone buy this for a 4.23 cap if they were only going to collect rent and not own the land after. You can go out and buy say a Starbucks on a half acre at a 4.5-5.0 cap and also own the land.  That's why I assumed it must just be a NNN ", "replies": [{"id": "dplofkt", "text": "It's NNN still, but some people have millions of dollars collecting only 1% in the bank, so they take the 3% increase and pretty much assume they'll collect that for the next 30-40years. It's mostly for REITS, I'll never understand it. Personally I'd buy a pet resort facility with great financials for a 6-7cap, if I was in that situation. ", "replies": [{"id": "dplpd59", "text": "Wow that blows my mind. So there is no way to recoup their initial investment besides hoping the business operates long enough to do so", "replies": [{"id": "dpmgkct", "text": "Yes, pretty much, we haven't been able to make the numbers work on our end as developers, but typically that kind of cap rate means it's a brand new building with 20year of lease term left and lots of renewals that they most likely will renew because it will be much less to renew that re-build in 20 years.", "replies": [], "depth": 6}], "depth": 5}, {"id": "dpmf965", "text": "Funny you say that, I've been looking at that option as well. ", "replies": [{"id": "dpmgoec", "text": "Yeah, if you can find the right business that has a good corporate guarantee and a cap rate over 5.5 with a long term lease in place a win/win if you're just looking for a better than bond return.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "dpmfj7u", "text": "Some of the deals listed don't even recoup your money even at a 3% cap simply because the leases are about to expire (that is, to the tenant, perhaps not the gl). So, why on earth would anyone invest in this? ", "replies": [{"id": "dpmgt3l", "text": "I'd be really surprised to see a cap rate below 4 with less than 15 years left. I know some starbucks list for 3.75 with 10 years but they almost 99% of the time renew that 2nd 10 year option unless for some reason that location is terrible. Just make sure you do you're homework before making a purchase of this kind. I personally invest in residential properties in ok neighborhoods with 11-15cap rates, the work i have to put in, i tell myself is being paid back by the better investment.", "replies": [{"id": "dpplkh6", "text": "I presume you own multi-family properties?", "replies": [{"id": "dpqdrdq", "text": "Yes, 6 I self manage them all. 47 apartments in all.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "dplbsjr", "text": "Talk to a commercial owner's rep through a commercial property firm, not a single family realtor, if that is what you have done so far. If they dont know you and your balance sheet, they may not want to waste their time with you though. The guy that told you you own everything is probably technically right, you own whatever is there after the lease matures or defaults.\n\nI wouldn't touch a bank land lease unless it was an aggressive return because branches are being abandoned for smartphones and ATMs. \n\nA lot of your questions are answered in the offerings (lease maturity) you posted or can only be found by reading the lease documents. In commercial property, there is not a standard lease or agreement. \n\nMcD or CFA are probably going to be negligible returns if you are buying an operating property not part of a development. These assets are usually going to be held by people looking to protect wealth, developers create outlots like these to flip, not hold onto. \n", "replies": [{"id": "dpldwra", "text": "The guy actually focuses on commercial properties, but he primarily deals with leases, not sales.\n\nOh boy, and I thought banks were the safest bet, considering the liquidity (corporate guarantee) and the long duration of the agreement (primary lease term; found a few in the 20+ year range).\n\nWell, I've been eyeing this property here, which is still under development, but it really comes down to the seller's flexibility on price. A 3.85% Cap Rate is rather low and the agreement is only 15 years with 8 (eight) 5-year extensions including escalations. The upside, another CFA a few miles further south is jam-packed and this area has seen steady growth over the years.\nhttp://images3.loopnet.com/d2/LP8U-WPOMYZyc94q3csZsN1ReyC_aDAVZp1MWZIUQTk/document.pdf\n\nThank you for the advice.", "replies": [{"id": "dple594", "text": "You have a point on the guarantee, but the lease likely has some sort of buyout. ", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "dplt8zh", "text": "I could answer all your questions, but honestly do you want to take the word of an anonymous Reddit user?  \n\nThese are all questions are better answered by an experienced investment sales broker.   Look one up from a reputable firm and they will be more than happy to walk you through the selection process, as there is a commission check from the seller in it for them.  In most states it would benefit you to ensure they are your \u201cagent\u201d and not a \u201cduel agent.\u201d   This will help make sure they are looking out for your best interests as they will legally be bound to do so as your fiduciary.  \n\nGood luck! ", "replies": [{"id": "dpmggju", "text": "I hate to say it, but the incompetence and lack of knowledge of some realtors has me worried. Realtors are also in the business of making money and if they can push a 3 million deal on someone who is new to this business, they just may. I will take their advice, but with a grain of salt. Obviously, I'll hire an attorney to go over the details, but I'm more concerned about the longevity of the deal and the 'actuals' once a lease ends. My biggest fear would be drawing the short straw simply because of my own negligence. Hence, I'll gladly take advice from a fellow Redditor; that doesn't mean I have to follow it. Thank you for your input.", "replies": [{"id": "dpmh08h", "text": "I really suggest looking at find the local (CBRE, JLL, Cusk&amp;Wake) broker in your area that specializes in STNL's ( single tenant net leases). I have a ton of knowledge in it because I develop them for my company. ", "replies": [{"id": "dpmimrs", "text": "I'd throw Marcus and Millichap and SVN into the mix as well.  Lots of smart people at those firms.  And you are absolutely right about finding one that specializes in Single Tenant Net Leases.  If they won't answer your questions without pushing an investment on you, call the next guy on the list.", "replies": [{"id": "dpmjv0q", "text": "Agreed on all of this.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "dpv5wac", "text": "Agreed on the suggestions to talk with a good commercial real estate broker. As with any field, there are some unsavory characters out there, but find someone with a track record of similar buildings sold and ask to get references from purchasers they have represented in the past. A good broker will be interested in the long term relationship and not just the one-off transaction. Invest in a great CRE attorney - someone who really focuses on this stuff.  That can save you a lot of trouble!  Ground leases are the easiest to own but cap rates are really low because of that. Good luck!  I have been in the industry for 15 years and have seen a lot of people make a lot of $$; helps to have the right people on your side. ", "replies": [], "depth": 1}]