The Founder Real Estate Business Scene
THESSALONIAN31N
A long time ago I heard something about small business - you really want to own the land where your business operates. Whether you have a mortgage or a lease, you are going to be shelling out roughly the same amount of money each month. The only problem could be is if you are in an area that is going down the tubes, like Detroit is (was?), but you probably don't want to establish a business in that area anyway. In any case, once you have been in business for 20 years, if you bought the land, you will now have something of substantial value even if the business goes bust. If you are leasing the land, you might have a business that will pay your salary and the rent, but will not have as large a value as it would if you bought the land.
View From the Porch got me started:
E'rrbody talking about the Red Lobster bankruptcy is all "Hurr Durr Endless Shrimp", but you never have to read far into these articles to find the words "private equity": "The following year, Darden sold Red Lobster to Golden Gate Capital, a private equity firm, for $2.1 billion. To help fund the deal, Red Lobster spun off its real estate assets in a transaction known as a sale leaseback agreement. Red Lobster had long owned its own real estate but would now be paying rent to lease its restaurants."
Meanwhile, here in Hillsboro, McDonalds closed one location which was in a very congested location and opened a new one a mile down the road near the Sunset Esplanade.
Private equity has killed free enterprise. Buy a company, borrow a fortune against it and leave the company floundering in debt plus huge fees to the equity. Worse they are buying hospitals and medical urgent care centers.
ReplyDeleteWhen the government appointed reorganizers at GM offered the equity a generous profit to buy Delco back they said no, moved the whole operation off shore and laid off 25,000 Americans.
Even worse a lot of these ill gotten gains are going into Political PACs and lobbying against you.
xoxoxoBruce
Like what happened to Sears, not realizing the real estate value was based on its retail draw.
ReplyDeleteIt’s called asset stripping. Toys r us, sears just to name a couple. Romney was good at it while at Bain capital.
ReplyDeleteLeverage the purchase, saddle the business with the borrowed purchase debt, charge the business a management fee, close the business and sell the assets, Voila.