About Breaking Reatail Leases: Is Starbucks Paying to Get Out?
(post by Dee) Quick lesson in commercial real estate… Sorry – I’m being pulled back to the Starbucks closing 600 stores! Although they are closing retail locations to save money or “trim fat”, they still may have to dish out lots of money in order to get out of those commercial leases. Take a lease termination clause as an example. Starbucks is a blue-chip international chain and they are not going out of business, so they can’t simply bounce a rent check and tell the owner to have a nice life. Keep in mind that retail leases are typically 10-15 years long. Many of those leases contain clauses called “bail out” or “lease buy-out” Basically they are required - if the landlord’s agent and/or attorney were smart enough to negotiate this into the lease, of course - to buy out up to 50% of the remainder of their lease term. So, if they have 10 years left on a lease with, say an annual rental of $60,000 per year ($5,000 per month), then they will have to pay about $300K in one shot to get of the lease.
Now, multiple that by 600 stores in case of Starbucks… that’s about $180 million!!! And trust me, no Manhattan location is $5K. That would be some cost-cutting, huh? Now, I’m hearing predictions that more stores will close. I sure hope they didn’t sign too many of those “good guy” clauses because it they did, my free iced coffee Wednesdays will be no more!
My favorite Starbucks location in Midtown Manhattan - NOT CLOSING!
