Case Study – Understanding, Evaluating, and Drafting Commercial Real

It’s 3 A.M., and Sally is Face-Timing you. Fortunately, you were up slugging away at your course work and
tying up some loose ends for the project, so you didn’t mind the break. She instantly jumps in, saying, “Look! I
found a whole bunch of stuff that we need to review. After receiving the Marketing study for that property in
Boca Raton (PDF),Preview the document Sally asks if you could review the market study immediately because
it looks like a hot property and will probably not be on the market for long.
Sally specifies that she has read the material and has a better idea of how to analyze our ROI. The luxury
building is in a great location and seven years ago went through an extensive renovation. The current
restaurant tenant operates 24 hours a day, seven days a week. Sally points out that it’s a free-standing building
with a total of 7615 square feet, with 6,000 square feet having air conditioning. Also, there is a 1,615 square
foot outdoor covered patio and deck for outside dining. The property can seat 259 combined inside and
outside, 93 parking spaces and covered patio seating with a full bar and wine case set up.

There is even a dining room kitchen with hood, separate chef’s kitchen with hood, and Main Line kitchen with
an on-demand hood. The hood is critical because it contains the fire suppressant equipment. Sally states that
the three kitchen locations are an added benefit that will permit high-end customer special cratering for her
inner circle dining parties on the dining room floor. Having the hoods already installed saves a lot of money and
may avoid major inspections by the city. You inject that if the fire hoods are not functioning correctly, the startup
costs could skyrocket and also delay our opening. We should add that issue to the list to discuss with the
owner. Sally agrees and suggests we may want to determine the effect of the current tenant decides to
holdover beyond the term. The broker was, after all, not too definite about the move out date. He only stated
that the building was under lease by the restaurant tenant until July or August of this year.
She also points out that the market study specifies that the purchase price is $5,995, 000. Sally states that
there is also an option to lease the building under a NNN lease arrangement at $35,000 monthly rent plus
$4,200 in property taxes monthly. Sally, wonders out loud if there was a potential of incurring other charges.

Analyze the property options available to you and Sally in establishing the location and type of agreement that
best fits your long-term goals. Sally received the transaction documentation from the Broker to facilitate a
review of the offered terms and proposed agreements that the Broker would use to complete the deal.
Review and complete the following agreements using all of the facts available and your understanding of the
three transactions presented in this case study.
You are required to complete:
Contract for Sale of Commercial Property.
Commercial Lease Agreement.
Triple Net (NNN) Lease Agreement.

Sample Solution