COMMON FACTS: Doug Developer plans to develop a neighborhood shopping center consisting of approximately 100,000 square feet, allocated 60,000 to an anchor grocery store and the balance to smaller tenants ranging from 2,000 to 8,000 square feet. He has commitments from small tenants totaling approximately 40,000. The commitments are all subject to the shopping center procuring a grocery store as the anchor tenant. The leases as negotiated are all triple net with full expense pass through. Expenses are estimated to run approximately $6.00 per square foot.

Gails Groceries has been actively looking for a location in the submarket where Doug plans to develop. Gails is a small locally owned chain with about 8 locations. Gails has retained Bill Broker to assist them with their search. Their agreement requires that Bill be compensated by the property owner and not Gails.

Bill has brought the deal to Doug and Doug has agreed to pay a leasing commission equal to 3% of base rent paid over the term of the lease, payable upon execution of the lease.

The submarket is highly desirable and there are several developments in process. One of Gails major competitors has announced plans to open a store in the area.

Grocery stores typically pay approximately 1%-2% of sales as rent. Industry statistics show grocery store sales average $12-$15 per square foot per week.

Early in the negotiations Doug has made it clear that he needs a 20 year lease term to satisfy his lender.

DEVELOPER FACTS: Doug is extremely anxious to get this deal. All of the leases he has signed contain a contingency allowing the tenant to terminate the lease if there is no grocery store. Doug has his financing in place, subject to producing an executed grocery store lease for a term of not less than 20 years with base rent of not less than an amount necessary to provide a DCR of 125.

Doug has a fixed price contract for construction and total project cost will be $150 per square foot. That cost does not include tenant improvements for the grocery store. It just includes a vanilla box. He has negotiated a loan for $11,000,000 for 15 years amortized over 25 years at an interest rate of 5% per year. In order to meet the lender requirements he will need to recoup the cost of Tenant Improvements and Leasing commissions on the Grocery lease over the term of the lease in addition to meeting the DCR requirement.

Doug has also raised equity of $4,000,000. He needs to pay 8% per annum to the equity holders plus a split of profit upon sale.

The 40,000 square feet of smaller store space has been rented for an average of $22.00 per square foot for base rent plus full pass through of expenses.

Doug is aware that another developer is also pursuing Gails. That developer, Carl Competitor, has a reputation for providing retail tenants with a turn-key store, all tenant improvements are included as part of the construction.

GROCER FACTS: Gail really wants this location. She has been offered another opportunity but the location is inferior and it would be a free standing store because the location is limited to 55,000 feet total. Gail feels there is some synergy in having compatible tenants nearby. Projected rent at the other location would be $12 per square foot including expenses.

Gails projected sales are approximately $14.00 per foot per week. Gails estimates the cost of tenant improvements to be approximately $20 per square foot. Gails has a contractor that they like to work with for tenant finishes.

The management of Gails is a little nervous about making a long term commitment. A competitor is opening a store in the same submarket and that store is on a faster track for construction and is likely to open 6 months before Gails. Gails would like to be able to terminate the lease after 5 years in the event sales goals have not been achieved.

ASSIGNMENT: Some where there is a range where this lease will be negotiated. For example if the most the tenant can pay is $11 per square foot and the least the landlord can accept is $10, base rent must fall between $10 and $11. Based on the information provided find the range. Also suggest at least 5 non-economic term that the parties should consider. An example of a non-economic term would be hours of operation.