Corporate Subway - Absolute Net - 15 Year Sale Leaseback

REVISED
Drive-Through - Corporate Subway - Absolute Net - 15 Year Sale Leaseback

New 15-Year Lease Term at Close of Escrow 


Subway Corporate Guarantee; Sale Leaseback 
Absolute Net - Zero Landlord Responsibilities
10% Increases Every 5 Years | 3, 5-Year Options
20 Year Operating History | Relocated to Adjacent Corner 
One of the Fastest-Growing Franchises in the World
Newly Built in 2013 With  Drive-Up Window, Concrete Parking Lot - No Maintenance


This is a great property with a good operator that has been in the restaurant business for 40 years with 11 Subway locations and 1 Sonic in Decatur which we just sold last week at a 6.15% cap on a 20 year lease. Seller is offering a personal guarantee with approximate net worth of $11m.

The property has a few unusual items that need to be understood.

1. This is a two tenant property.
2. This is a sale-leaseback.
3. The owner of the building is selling this as a single tenant with an absolute net lease for 15 years.
4. There will be 1 lease with the new landlord and the tenant will be responsible for all the rent and cam (no landlord responsibilities); he will sublease to the second tenant.
5. The second tenant is leased to Carolyn's Mega Slots. Gaming revenues are public. They are very profitable with Net Terminal Income of $75,313.55 in May 2021; location revenue $24,532/month; annualized $294,384. The annual rent for this tenant is $18,000. The seller/franchise operator is not concerned about the future rental income from this tenant.
6. Gaming licenses are not allowed to move; therefore this tenant cannot relocate. They are not issuing an more gaming licenses in this region.
7. Subway store sales average $428,553.42 a year. This is considered a good store. The sales at this location are outperforming the district area. 2020 sales (pandemic year) $478,505  https://www.restaurantbusinessonline.com/top-500-chains-2020/subway
8. The owner would like to sell the property in a brand new LLC. This will not effect a 1031 trade. The property is being sold in the LLC to control the real estate taxes from increases. The seller has a very low basis in the property and if he were to sell the property outside of the LLC the real estate taxes will increase approximately $35-$40,000.
9. Subway lease will reflect leasing 100% of the 4,000 sf building (Subway 2,300 sf & Carolyn's Mega Slots 1,700)
10. Subway annual rent $62,370 (Subway $44,370 & Carolyn's Mega Slots $18,000)
11. Sales for Subway $478,505 and Carolyn's Mega Slots $294,384 = $772,889. Rent to sales: 8.07% (Rent $62,370/Sales $772,889=8.07%)
12. The seller is using the proceeds to pay down debt.
13. Strong operator in the restaurant business for 32 years; first franchise was in 1989.
14. Strong historical occupancy. He leases a store across the street from this location for 15 years then built and opened this store in 2018.

1621 East Eldorado Street, Decatur, IL 62526
Request Offering Memorandum

Market Summary

Price                                   $924,999

Cap Rate                            6.74%

NOI                                     $62,370

Rentable SF                       4,000 SF

Price per SF                       $231.25

Year Built                            2013

Lot Size                               .55 Acres

Description

Marcus & Millichap is pleased to present exclusively listed property located at 1621 E. Eldorado Street, Decatur, IL.

 

The developer of the Subway building is also the Subway operator.  He recognized an opportunity to reposition (relocate) his successful store on the adjacent lot to his, then current location, which was in a strip center.  This new development added a drive-thru, expand his footprint, offered better access as it is located on a corner, improve the customer experience with outdoor seating and updated interior; plus having rental income.

 

This building was designed and built in 2013 as a two-tenant property.  Subway corporate would lease 2,300 sf with 1,700 sf available to lease to a multitude of other tenant options; currently leased to Carolyn’s Mega Slots.  This investment opportunity functions as a single tenant.  The developer/Subway Franchisee will leaseback the entire 4,000 sf building and will be responsible for all the expenses (absolute net lease)  plus manage the 1,700 square foot suite that is leased to Carolyn’s.  This offering has three-five-year options, no landlord responsibilities and to keep up with inflation, the rent increases 10% every 5 years.  Corporate Guaranteed lease by Subway for the 2,300 sf unit for the duration of lease.

 

Owning a property with two tenants, while having the luxury of it operating as a single tenant, provides flexibility and stability for the future of the building. As mentioned, the Subway's operator sub-leases 1,700 sf to Carolyn's Mega Slots for $18,000/year. The $18,000/year from Carolyn’s Mega Slots is included in the NOI of $62,370.

 

The developer/franchisee will sign a personal guarantee for the entire 4,000 sf.  He has 40+ years’ experience in the restaurant business and has developed many of his restaurant buildings.  He currently operates ten Subway stores with another under development/renovation and one Sonic restaurant.

 

This investment offers a higher return than other comparable Subways; at list 6.74% versus 5.25%-5.75% cap rate and a lower price per square foot of $231 versus $329+  per square foot.