OOH…Here’s One Thing
by Jim Johnsen,
Managing Director, Johnsen, Fretty & Company
https://youtu.be/0Vo4lNb0w48?si=vJCBmd9Qmaj9MceT
Oh, I can’t take another heartache.
Though you say you’re my friend, I’m at my wits’ end. You say your love is bona fide But that doesn’t coincide with the things that you do, and when I ask you to be nice, you say
You’ve gotta be cruel to be kind in the right measure …Nike Lowe
Okay, a bit “smaltzy” for this generation, but still melodically significant for the British Invasion in the late seventies/early 80s.
Righto Johnsen, where you going with this?
Well, this conversation I once had with a real estate billionaire decades ago while I pitched him a deal keeps coming back to haunt me.
In our first meeting, he said, “So let me get this straight, you lease these locations from other real estate owners, and you keep 80 and give them 20?” I said, “Yes, more or less; that’s about it.” A look out the 60th-story window at Central Park and a long pregnant pause.
“Huh,” he said. “Sounds like something very similar to what Eddie Lampert described when he went long on Kmart and Sears.” “I’m sorry, sir, not exactly sure what you mean by that?” He produced a low sardonic chuckle. “Eddie Lampert always said the play for Sears and Kmart was their ‘in the money’ leases.” Meaning, while the business was shitty to fair, the long-term lease cost of being at that corner location was much better than market. After further conversation, he went on to say, “I get it, the entire outdoor industry is just a collection of ‘in the money’ leases. Needless to say, we got the deal done, but it was not with this gentleman.
But…I’d be a liar if I said I haven’t struggled with this moral dilemma more than once. Do we exist because we are perennially able to hoodwink our key supplier? Without that ability, our profitability would go to shit? Hey Johnsen, wake up and smell the coffee. It’s a zero-sum game. The more we give to our lessors, the less we take.
Please shut your mouth and move on. There is nothing to see here.
I hear ya boys and girls, and look, I am as much of a capitalist pig as the next guy…but I still wonder. Is there a world in which we treat our lessors like customers? Is there a place in which they get a Thanksgiving turkey every year? Is there a world in which we preemptively sit down at the kitchen table and discuss an increase after 20 years?
Damn Johnsen, you are as soft as a wet noodle. Have you lost your mind? We permitted the location and own the permit (or paid good money acquiring it). We have cap cost. We bring the marketing magic to keep it sold. It’s all us. Our lessors should be grateful for what we give them. The last thing we want is to give an inch and have a Glock at our head for a foot.
Two sides of the coin. Always fun to contemplate tails. Wishing you all a cool week.
JJ
jfco.com
Securities transacted through StillPoint Capital Member firm FINRA/SiPC