View Full Version : what is fair?
jack0177057
04-06-2009, 08:35 AM
Bwahahahahah! OMG, you crack me up. Oh, that's a good one. ROTFL!!!
... Oh wait, you're serious?
According to this 2007 article -- http://www.nydailynews.com/news/2007/07/08/2007-07-08_the_naked_truth_about_strip_clubs.html?page=0
The rent at a 10,000-square-foot SC is $49,000 a month and gross profit margin on total revenues is about 35%, according to Troy Lowrie, CEO of VCG Holdings (public-held SC/GC operators). I'm sure this is for a top-of-the-line upscale club in a major metropolitan center. I'm guessing a nice, but smaller and more modest club in a second-rate city or suburb of a major city would run about $7,000 to $14,000 a month. So, back to what I said before - $150,000 should be enough to get started... let's say $60k for some tenant improvements and the rest, $90K for professional fees, salaries (keep your employees to a bare minimum and do as much work as you can yourself - like any new small business), rent and general operating capital, until the club becomes self-sustaining.
glambman
04-06-2009, 08:49 AM
Not going to get in between you two.
All niche businesses have some type of groups who will finance them, and it's not that difficult finding a broker to get financing for a SC. What it will come down to is the viability of the person seeking financing.
AFAIK SCs are largely 'small' businesses that are privately owned. I don't know how many are trading on the market, but we can pull several example that were/ are not good investments.
If you mean from a lenders perspective, the SCs here are down in business.
You can't always take the word of a CEO. Did you know Warren Buffett is warning of impending major terrorist attacks? Did you know he owns a very large insurance group? Maybe he is trying to get legislation passed in order to not have huge losses.
But as I said, in my experience, a 'down payment' is not enough to get the ball rolling. 150k, even if 10% of what you need, is not going to get you the club (by itself).
jack0177057
04-06-2009, 09:18 AM
You work in a law firm with a specialty in commercial real estate? What do you do there exactly?
My apologies but you seem fairly naive on the issue of financing a SC. Especially with a small ownership group vs a large corporation.
It's not the cash nature of the business or level of personal guarantee that prohibits these types of transactions. It's the public relations.
As someone who works on the legal side of commercial real estate, then you are aware that in most areas mortgages are recorded documents, and typically public record. It is because of this situation that very few insitutions are willing to lend on these types of properties. They do not want the public relations nightmare associated with being discovered as the mortgageor.
Whether they be insurance companies or banks, portfolio lenders have rating agencies and regulators that they have to answer to.
SBA is not really an option, because in their 504 program they need a bank to underwrite and provide the frist mortgage piece.
Even in the boom times of CMBS lending from 2004-2006, adult entertainment was it's own specialized nitche. CMBS backed by SC assets would most likely either get quickly downgraded or immediately removed from a securitized pool.
The few lending institutions who are willing to lend on these property types can be best classified as "hard money" requiring several points and a much higher than normal rate of interest.
If you really want to know, the best souce of capital for these types of properties are foreign investors. Again, you're most likely looking at hard money terms or "loan to own" transactions, so it's a lot like dancing with the devil.
Here, look at these -
http://www.gentlemensclubfinancing.com/
http://www.adultentertainmentfinancing.com/
http://mortgagegrapevine.com/thread/?thread=474453
Also, if you work with a SC broker, they can find you existing SCs for sale and I'm sure they know where to borrow money -
http://www.stripclubbrokers.com/index.asp
http://stripclubs4sale.com/
glambman
04-06-2009, 09:46 AM
In my experience, most owners made money in some other business, bar or otherwise, before investing in the adult entertainment industry, or they are a conglomerate of investors who come up with the total cost. I am by no means joining this debate, merely providing more information.
That reminds me of a great line....'The best way to make a million dollars is to start with 10'. ;)
verfolgung
04-06-2009, 10:31 AM
Here, look at these -
http://www.gentlemensclubfinancing.com/
http://www.adultentertainmentfinancing.com/
http://mortgagegrapevine.com/thread/?thread=474453
Also, if you work with a SC broker, they can find you existing SCs for sale and I'm sure they know where to borrow money -
http://www.stripclubbrokers.com/index.asp
http://stripclubs4sale.com/
Did you read what I posted? Just in case you missed it, here is what I said "The few lending institutions who are willing to lend on these property types can be best classified as "hard money" requiring several points and a much higher than normal rate of interest."
Now here is the program outlined in your first link...
http://www.gentlemensclubfinancing.com/
Real Estate Based Long-Term Loan
Loan Amount: $500k-$2.5mm
LTV: Up to 65% of the property's real estate-only value
Rates: 11%-14%
Term: 15 year / 25 year amortization (15/25)
Lender Fees: 2-5 pts
How does this contradict my point?
(Btw - Did you happen to notice that the loan is only up to 65% of the real estate value ONLY. Suffice it to say, the value of the SC bussiness is worth far more than an alternative use would provide. So even if you decide to go with this group, you can look forward to having to put down far more than 35% of the purchase price.)
jack0177057
04-06-2009, 11:38 AM
How does this contradict my point?
I'm not sure if I am contradicting you... or, for that matter,... if you are contradicting me... Maybe we both agree after all... :) If you're saying that it takes a lot of work to get it started, significant savings and that the interest rate will be high... That's not contradicting me... If it were easy and the interest rate was low... Everybody, their dog and their grandma would own a SC...
Obviously, dancers make a lot more money than the average college-grad professional,... (I might finally be making what a dancer makes at some of the upscale clubs after working many years as a lawyer)... A few dancers (I've always said, at least three) should have the potential to save enough money to do this in a matter of a few years.
High interest rate... So what?... If your rate of return-on-investment is twice (or more) as high as any other business... That more than offsets the high interest rate... Also, as was pointed out by the CEO -- the SC is the only business where instead of paying the talent/entertainment... they pay you... You've got 20 dancers, who for all practical purposes are working for your club and drawing all the customers into your club - but they pay you, instead of you paying them... That should offset the high interest rate... at least a little... Most businesses spend a VERY substantial portion of their earnings on employee salaries and benefits...
It's interesting... how we have flipped the dabate... First, it was about the SC owners being greedy bastards that were robbing money from the dancers... But, when I advise you to become a club owner... We end up discussing how hard it is on the other side,... To get the financing,... to pay the usurious interest rates by banks,... etc.
verfolgung
04-06-2009, 12:00 PM
... It's interesting... how we have flipped the dabate... First, it was about the SC owners being greedy bastards that were robbing money from the dancers... But, when I advise you to become a club owner... We end up discussing how hard it is on the other side,... To get the financing,... to pay the usurious interest rates by banks,... etc.
IMHO I don't believe the debate has flipped or that they are really related. My comments are based on the prospects of financing SC's, which in reality are predominately financed though private equity - not debt. That's the only point I was trying to make.
verfolgung
04-06-2009, 12:08 PM
According to this 2007 article -- http://www.nydailynews.com/news/2007/07/08/2007-07-08_the_naked_truth_about_strip_clubs.html?page=0
The rent at a 10,000-square-foot SC is $49,000 a month and gross profit margin on total revenues is about 35%, according to Troy Lowrie, CEO of VCG Holdings (public-held SC/GC operators). I'm sure this is for a top-of-the-line upscale club in a major metropolitan center. I'm guessing a nice, but smaller and more modest club in a second-rate city or suburb of a major city would run about $7,000 to $14,000 a month. So, back to what I said before - $150,000 should be enough to get started... let's say $60k for some tenant improvements and the rest, $90K for professional fees, salaries (keep your employees to a bare minimum and do as much work as you can yourself - like any new small business), rent and general operating capital, until the club becomes self-sustaining.
You're mixing apples and oranges if you are trying to compare a corporate ownership with a small group of private investors trying to purchase or lease their first one off club.
If I had to guess, and I admit that I do not know for a fact, than if they are paying rent at a location, it is probably from completing sale lease-back transaction.
Seriously it is a pleasure chatting with the many different minds here.
Had it not been for the wealth of knowledge here understanding both sides of the situation may have continued to be muddled, thanks for the input.
It's interesting... how we have flipped the dabate... First, it was about the SC owners being greedy bastards that were robbing money from the dancers... But, when I advise you to become a club owner... We end up discussing how hard it is on the other side,... To get the financing,... to pay the usurious interest rates by banks,... etc.
jack0177057
04-06-2009, 12:20 PM
IMHO I don't believe the debate has flipped or that they are really related. My comments are based on the prospects of financing SC's, which in reality are predominately financed though private equity - not debt. That's the only point I was trying to make.
If that is your only point, its not worth debating... I'll assume that you are correct on this, since like I said,... I have never worked specifically on SC real estate deals.... Based on what I've read, though, it appears that at least some banks are beginning (or were beginning, before the financial crisis) to venture into the niche SC industry. Also, like I said... there are a lot of "mom-and-pop" sexually-oriented-businesses when I live (Houston) - and I find it really hard to believe that they all got their start-up money from foreign investors... But, who knows...
jack0177057
04-06-2009, 12:34 PM
You're mixing apples and oranges if you are trying to compare a corporate ownership with a small group of private investors trying to purchase or lease their first one off club.
If I had to guess, and I admit that I do not know for a fact, than if they are paying rent at a location, it is probably from completing sale lease-back transaction.
I've seen SCs in shopping centers in the industrial sections of Houston and Dallas... I'm sure many SCs rent space just like any othe bar or nightclub... Why not? Its a good deal for the landlord - he can probably charge higher rent for SC use and the SC is more likely to succeed in the long-term and remain a paying tenant. Regular bars and restaurants have a high failure and turnover rate.
verfolgung
04-06-2009, 12:39 PM
I've seen SCs in shopping centers in the industrial sections of Houston and Dallas... I'm sure many SCs rent space just like any othe bar or nightclub... Why not? Its a good deal for the landlord - he can probably charge higher rent for SC use and the SC is more likely to succeed in the long-term and remain a paying tenant. Regular bars and restaurants have a high failure and turnover rate.
Are you talking about a SC being a tenant in a larger enclosed regional mall or a being part of strip retail center (no pun intended, heh)?
Are you sure the owner of the SC didn't own the retail center?
Landlords renting to SC's would have similar issues in obtaining financing as the owners of SCs. Unless the landlord has no intention of having a mortgage on their property, then having a SC tenant could pose an issue.
"the SC is more likely to succeed in the long-term and remain a paying tenant" ... Is this your assumption or is this a fact that you have evidence to back up?
jack0177057
04-06-2009, 01:41 PM
Are you talking about a SC being a tenant in a larger enclosed regional mall or a being part of strip retail center (no pun intended, heh)?
Strip retail center.
Are you sure the owner of the SC didn't own the retail center?
I don't know for sure... But, in some cases the strip retail center is very large and the club is small... So, I am assuming it is just a tenant...
Here is a NY Suffolk County SC for sale for $275k (business personal property only) with a monthly rent of $5475, that includes taxes and insurance with a cabaret license. (3600 Sf. New 15 year lease.)
http://us.businessesforsale.com/us/Adult-Gentlemens-Club-In-Suffolk-County-For-Sale.aspx
Here is a S. California SC for sale at $360k (Furniture / Fixtures and Inventory / Stock included) with an unspecified rent.
http://us.businessesforsale.com/us/Adult-Gentlemens-Nightclub-with-Live-Entertainment-For-Sale.aspx
There are a few more tenant-SCs listed at:
http://us.businessesforsale.com/us/browse/Retail/General/Adult-Shops-For-Sale.aspx
Admittedly, it does seem that most SC offered for sale include the real estate.
"the SC is more likely to succeed in the long-term and remain a paying tenant" ... Is this your assumption or is this a fact that you have evidence to back up?
Empirical observation... I've never EVER seen a SC/GC go out of business... (Though, I have seen a couple shut down by the authorities...) On the other hand,... bars and nightclubs come and go...
glambman
04-06-2009, 02:01 PM
Empirical observation... I've never EVER seen a SC/GC go out of business... (Though, I have seen a couple shut down by the authorities...) On the other hand,... bars and nightclubs come and go...
I have seen them go out of business. The first two were before I could even drive. I've also seen others that have fallen from being #1 to being a joke.
One of the reasons they seem not to go out of business is because of a limited supply.
jack0177057
04-06-2009, 02:28 PM
^^^^^^ I have seen a few go out of business due to lack of business/funds. Hell, I can name one on Bourbon Street that came close last year, and two more right now that are dangerously close to shutting doors.
During that same time, how bars and nightclubs have you seen fail?
Maybe Texas is just a better market for SC.
jack0177057
04-06-2009, 02:57 PM
I have seen them go out of business. The first two were before I could even drive. I've also seen others that have fallen from being #1 to being a joke.
One of the reasons they seem not to go out of business is because of a limited supply.
We probably have an oversupply in Texas... Yet, I have not seen any go out of business... I have seen a few that SHOULD go out of business, though... I guess we take our SCs seriously in Texas...
One time, my best friend from our Northeast college came to visit me in Dallas and he said - Dallas must have at least 1/10 of all its pretty young woman here employed in GCs, at one time or another, because there are so many GCs full of them... I live in Houston now, and GCs are everywhere here, too...
Winged Dinghy
04-06-2009, 05:07 PM
^^^^^^ I have seen a few go out of business due to lack of business/funds. Hell, I can name one on Bourbon Street that came close last year, and two more right now that are dangerously close to shutting doors.
Which ones? I'd really like to know. PM me if you don't want to say here.
Did Big Daddy's close last year? I saw something about closing in the Gambit.
Kellydancer
04-06-2009, 06:54 PM
^^^^^^ I have seen a few go out of business due to lack of business/funds. Hell, I can name one on Bourbon Street that came close last year, and two more right now that are dangerously close to shutting doors.
Almost all the clubs I worked at are long gone. That's why when people ask me about clubs, I can only name a few that are still around that I worked at. At one time (1993 or so) seemed like every street was practically getting clubs. The majority are long gone.
jack0177057
04-07-2009, 08:50 AM
Almost all the clubs I worked at are long gone. That's why when people ask me about clubs, I can only name a few that are still around that I worked at. At one time (1993 or so) seemed like every street was practically getting clubs. The majority are long gone.
But, are they gone because they went out of business of for some other reason,... like the owner died, retired, moved or got divorced (and had to sell the club and split the proceeds)? What happened to the building? Did a new SC move in or did some other business make use of the building? Was the building demolished to make way for a new development?
Lurker
04-07-2009, 10:10 AM
This is a little off-topic (or maybe, back to the original topic) but I've always compared a strip club to a farmer's market or something, where the stalls pay some amount to the venue for providing a value-added place to sell their product. That's definitely the best analogy to another business I can think of, but it's certainly not the only applicable model you can compare the business to.
I do think that the most unusual thing about strip clubs is that the customers generally want to pay the institution itself as little as possible, and pay the performers as much as possible. This is one of the reasons I think my analogy is better than comparing it to a dinner theater or something. Nobody at a comedy club rushes up to tip the comedian $100 after the show--they pay the house, and the house pays/books the entertainment. At a strip club every dancer is an entrepreneur, and an entrepreneurial model has arisen which suits many dancers and customers' preferences.
Kellydancer
04-07-2009, 12:49 PM
But, are they gone because they went out of business of for some other reason,... like the owner died, retired, moved or got divorced (and had to sell the club and split the proceeds)? What happened to the building? Did a new SC move in or did some other business make use of the building? Was the building demolished to make way for a new development?
Many reasons. A few went out because they became sleazy clubs and got busted, others went out because they were forced to by owners or the town. Two were closed because the owner died. A few others went out of business because they couldn't compete for whatever reason (nicer club nearby, high taxes). Only one became another club, the rest became other things (like restaurants) and quite a few were demolished.
Where were you earlier....;)
This is a little off-topic (or maybe, back to the original topic) but I've always compared a strip club to a farmer's market or something, where the stalls pay some amount to the venue for providing a value-added place to sell their product. That's definitely the best analogy to another business I can think of, but it's certainly not the only applicable model you can compare the business to.
I do think that the most unusual thing about strip clubs is that the customers generally want to pay the institution itself as little as possible, and pay the performers as much as possible. This is one of the reasons I think my analogy is better than comparing it to a dinner theater or something. Nobody at a comedy club rushes up to tip the comedian $100 after the show--they pay the house, and the house pays/books the entertainment. At a strip club every dancer is an entrepreneur, and an entrepreneurial model has arisen which suits many dancers and customers' preferences.