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earth2table: New Lease on Life
October 24, 2006

Stu Stein

October 24, 2006
“We are only tenants, and shortly the great Landlord will give us notice that our lease has expired.”—Joseph Jefferson, American actor, 1829-1905

As I mentioned earlier, my original location hasn’t broken ground yet but, as I also mentioned, I haven’t signed a lease yet, either. The fickle hand of fate has decided to bless me, and I have found a different location which has a large number of similar or better options and not many negative components.

The new location is 3500 Martin Luther King Boulevard (MLK) on the northeast corner of MLK and NE Fremont Avenue in northeast Portland. Literally, it’s three blocks east of the former location. It is a three-story retail/office building that has already broken ground. A slab has been poured and the structural steel frame is in place.

Almost as important is that the development is going to be LEED certified (Leadership in Energy and Environmental Design). LEED is a voluntary, consensus-based national standard for developing high-performance, sustainable, “green” buildings.

Off-street parking is available at the site, with additional off-street parking (owned by my developer) available a half-block north on MLK. Seven town homes will be located in the same development and are scheduled to be completed around the same time as the retail/office building.

My space is about 2,400 square feet on the first floor, with the main entrance facing the intersection of MLK and NE Fremont. The NE Fremont side is composed of floor-to-ceiling windows, with outside space available for sidewalk seating. This should put my opening somewhere around May 2007. See a drawing of the new building here.

For all of you that have been asking me about the specifics, Terroir’s lease is a five-year, triple-net lease with two five-year extensions and a 3% annual increase beginning the third year (for more information about different types of leases, see “Leases 101” below). I have the right of first refusal for the remaining retail space on the first floor. The landlord will provide me with a restaurant-ready space in regard to electricity, plumbing and gas rough-ins. Additionally, the landlord will provide tenant-improvement dollars equal to my year-one rent. All in all, not a bad deal!

I am also working with the Portland Development Commission to either get a cash grant through its Storefront Improvement Program or a low-cost loan for gap financing to purchase exterior signage and exterior glass French doors for the sidewalk seating area on the NE Fremont side of the building.

Leases 101 Let’s talk commercial real estate. I’m going to explain it to you like you’re a two-year-old (my apologies to Denzel Washington) because figuring actual cost of rental is not entirely straightforward. Gross Lease: Tenant pays only rent per square foot. The landlord is responsible for taxes, insurance, maintenance and other expenses relating to the property. Double-Net Lease: Tenant pays rent per square foot as well as property taxes and insurance (prorated if the space is shared by multiple tenants). Triple-Net Lease: Tenant pays rent per square foot as well as property taxes, insurance and common-area maintenance expenses (prorated if the space is shared by multiple tenants). Percentage Lease: Tenant pays rent per square foot, plus an additional amount that is a set percentage of gross receipts or sales. Of course, a gross lease is the best deal, but you’ll never find it for a restaurant space. Double- or triple-net leases are more common, but be careful to find out what exactly is being passed on to you. I would go screaming and running away as fast as I could from a percentage lease. The more you work, the more you make, the more you give to “the man.” I’ve seen and heard about more restaurants having to go out of business because they had percentage leases and couldn’t afford their occupancy costs. OK, school’s out.

And the journey continues.

Cheers!

Stu

Posted by Stu Stein on October 24, 2006 | Comments (0)