NEW ORLEANS — As business owners, self-service laundry operators have many responsibilities, ranging from daily operational tasks to how they can grow and market their business.
Tending to your laundry’s lease is a key responsibility, advises Brian Wallace, president and CEO of the Coin Laundry Association (CLA).
“The [coin laundry] business can be somewhat forgiving,” says Wallace. “You can make mistakes here or there … but leases is one of those areas where if you make a mistake, they’re a pretty hard mistake to recover from.”
To assist in navigating the logistics of leasing, the CLA hosted an Advanced Laundry Lease Analysis panel at this summer’s Clean Show, featuring Brian Grell, executive vice president at Eastern Funding; Van Merrill, vice president of vended laundry development and sales at CG West; and Charlie Pasquale, founder of Pasquale Properties and BCC Payment Systems.
Leases are “an important asset” of a business for not only laundry owners who lease their laundry space, but property owners themselves, Wallace says.
“I think this has relevance for those of you who own your buildings, because at some point you might find yourself wanting to sell that laundry but keeping the real estate and becoming a landlord.”
ESTABLISHING DURATION AND CLAUSES
How can a prospective store owner negotiate other aspects of the lease such as duration and other clauses?
Regarding duration, Pasquale says, “I understand that it’s going to take a long time to repay the money back to [lenders] to have your equipment be your own. In companies that have a lot of mechanical [equipment], we’ll start 10 years with a good-credit tenant.
“On options, our policy is [to] match it; if it’s a 10-year lease, we make it a 10-year option.”
Grell advises prospective store owners to add certain clauses to their lease, such as a “dark clause,” for when other businesses surrounding the laundry go out of business, or “dark.”
“If you’re in a large shopping center, and you have an active tenant in there [like a large grocery chain] … If they go dark, it’s important that you can negotiate with the landlord to reduce rent,” says Grell. “I’ve seen … a tenant pull out, and all of a sudden the other businesses are suffering.”
Another sub-clause he spoke about was a ‘water clause,’ which would give the owner the full responsibility of paying the water bill themselves.
“Often … a landlord pays the water authority directly for the water bill [but] if your landlord doesn’t pay the water bill, [the water authority] can shut it down,” Grell says.
PITCHING THE BUSINESS TO THE LANDLORD
Perhaps one other obstacle that prospective store owners can anticipate is the industry’s overall “legacy issues,” according to Merrill.
“Our legacy issue is one where we have a lot of old laundries that are small [and] unattended,” he says. “What happens is that a lot of those old laundries that are still around [don’t] necessarily have the best appearance after a few years.”
Because of this, landlords have developed a bad impression of laundry businesses, he says.
“You have to overcome that,” says Merrill. “You have to really explain to the landlord [that] things have changed. … You’re going to have people coming to your great laundry from a long way away and they’re going to patronize other tenants in that shopping center.”
One other point to negotiate with your landlord—tenant improvements. The building’s infrastructure and utilities, including sewer, water, gas and electric lines, must be the responsibility of the landlord, not the tenant, Merrill explains.
“One of the things I want the landlord to do is … facilitate the space with all the utilities that I’m going to need.”
Such responsibilities should also account for needed improvements that could arise during the building’s permitting phase, he adds.
“For example, the driveway to the parking lot is not properly sloped … you’re the person that has to re-do the driveway,” says Merrill. “Another big ask is that you spell out that the structure, the common areas of the building … all that is the responsibility of the landlord.”
THE ART OF NEGOTIATION
When it comes time to lay a deal on the table, what tactics are there to employ? All panelists agreed on the importance of being reasonable.
“Try to be reasonable if you’re not using a professional and you’re doing it on your own,” says Pasquale. “There is a calculation to what real estate is worth and what the landlord needs to make his business function.”
“I modify so many terms by the word ‘reasonable,’” says Merrill. “It’s very important that you have on the assignment that you have that word … because you want to create a reasonable assignment fee, you want to have reasonable conditions.”
Grell advises consulting with a local distributor before making a deal. Merrill adds that reviewing the whole lease, and having an understanding of all the terms on the lease, should be part of a prospective owner’s “battle plan.”
“You have to have a strategy of how you’re going to go after that lease, and really give and take,” says Merrill. “Just like poker, you [have to] know when you’re going to give a little bit to get a lot.”