Deal structure for private school tenant

Financing, Hard Money Lenders, Private Money
1

Hello all,

I was looking for thoughts on the following, and thank you in advance! Please let me know if more info is needed.

I am looking at a 40,000sf brick mill building for about $850K. I have a prep school owner who wants to put her high school there but can’t afford to both buy it and renovate it. However, she does want to own it eventually. She needs about 25,000sf to start, and will grow into the rest as the school grows.

My basic plan:

  1. Buy the building and make a few capital improvements (2 story elevator, window replacements, bathrooms, and a few other general improvements for a total of $250K).
  2. After the general improvement, lease 25,000sf as-is to the prep school with a five-ten year lease. All interior renovations (walls, etc.) will be up to the school.
  3. Build out studios with the remaining 15,000sf that I can rent to professionals/artists.
  4. Add the studio space to the school lease as the school grows.
  5. Cash out at some point when the school can buy it all, or possible retain some ownership.

Questions: general thoughts, as well as how to structure a deal where the school can eventually own or buy the building within 5-10 years (i.e., lease to own, etc.). I would like to come out of this with $500K or so in five years. I would ideally like to retain some ownership stake, but I am not sure how to approach the owner with that idea - I would be happy to plan on cashing out all of my ownership if that’s the best way to make it happen.

Thanks!!

2

First step is to talk to your insurance agent and make sure you can insure yourself as a landlord with a school building. I suspect that insurance is going to be expensive.

I also suspect that your tenant will be renting that building forever, or until they go broke, whichever comes first.

Not many private schools generate large fortunes.

Consider what other uses the building might have, in case your tenant goes bankrupt before she starts to generate enough income to support the business.