27-Oct-02
Sources of Bootstrap Capital
Exploiting your Lease for Space as a Source of Capital
1. A services business sub-lets  space from a large multi-national with surplus space in the tech
					downturn of the early 2000s.
2. They sublet a total of s.f.					15,000
3. They are paying per s.f. per year					$11	triple net
4. This is below the market rate which is per s.f. per year					$20	triple net
5. Their coach, RMB points out that they should have the dicsipline tocharge themselves market rates.
6. This is so they will make sure they price their services as if they were paying market rates.
7. term of this favorable lease is					10	years
8. Their coach says that they should go to their landlord and offer to pay market rates!
9. Their landlord, a large insurance company has a lower cost of capital than they do
					5.25%	pa.
10. Their cost of capital is					10.85%	pa.
11. Most coaches would have suggested subletting their space at market rates and pocketing the difference.
12. This is much smarter-- less disruption to their operations-- they don't have to move to benefit.
13. They can get paid the capital value of their favorable lease.
14. The Landlord will do this to have posted rates that are reflective of market rates.
15. Here is the capital value of the lease					$1,350,000.00	zero discount rate
			Year
			1		$   135,000.00
			2		$   135,000.00
			3		$   135,000.00
			4		$   135,000.00
			5		$   135,000.00
			6		$   135,000.00
			7		$   135,000.00
			8		$   135,000.00
			9		$   135,000.00
			10		$   135,000.00
					$1,029,893.46	5.25%	discount rate
					$800,071.85	10.85%	discount rate
16. The Landlord paid them $800,000 upfront for a stream of beneifits worth $1.29m to them.
17. So the Landlord made					$229,821.62
18. The services company got					$800,071.85	upfront capital!