HSL 1526 Proposal Fifty Fifty Over Five

Introduction

Zachary,

As we discussed when viewing the property on Friday morning, here is our proposal for leasing 1526 West Main. In this proposal I am focusing on establishing a long-term home for our organization that will support our current growth. In the years ahead it will become our flagship lab as we expand to multiple locations around the Phoenix valley. This building is right in the sweet spot of size and location for our organization, and we look forward to building a positive long-term relationship as we act as the custodians of the property.

Sincerely,

[signature]

Judd Uhre

About HeatSync Labs

HeatSync Labs is a 501c3 educational organization that focuses on teaching people to use tools and technology. We have been serving the community since 2009 and have been located on Main Street in downtown Mesa since 2011. We are community driven with our volunteer members filling the board positions, teaching classes, and hosting lab hours for our members to come and use our equipment.

Our revenue comes from member fees and from hosting dozens of classes and meet-ups each month. COVID was a big challenge for us, as it was for so many smaller enterprises. We have been recovering rapidly and are now outgrowing the space that seemed too big for us when we moved in, in 2019. We are excited to continue our growth into a larger space!

Why 1526 West Main

While being located in downtown Mesa has its benefits, it is not an ideal fit for our mission. Retail shops - with large amounts of foot traffic, and customer turn-over measured in minutes - are better suited to the store-fronts we have occupied for the past 11 years. 1526 West Main will serve us better with dedicated parking; our members come to us as a destination for hours, not as brief passers-by.

The larger space will also accommodate our current equipment more comfortably, providing a better educational experience for our classes and meet-ups. To achieve our next level revenue goals, which will set us up to open a second lab and beyond, we will need the breathing room available at a site like 1526.

The Proposal

HeatSync Labs proposes to begin developing 1526 later this year, starting with repairs and a build-out to suit our needs. We want to make necessary repairs to the existing systems and to make upgrades which will increase the value of the property for the long run. We also have a number of less ambitious upgrades that will make the property suitable for our needs.

For the basic repairs and build-to-suit, we propose to begin with a build-out and move-in phase before we begin paying rent. For the more significant property improvements, like pavement, sign renovation, and fire suppression, we propose paying for the improvements up front in exchange for a reduced lease rate over five years.

Plan of Action

Phase 1: Validation

During the first phase of the proposal, HeatSync Labs will begin due diligence to document the building suitability, repairs, and upgrade requirements. This will include the following:

1. Zoning: We will ensure that our activities will fit within General Commercial zoning.
2. Building Code: We will seek verification that our activities fit within the building code, or find what changes must be made.
3. Inspection: We will have the building and systems inspected and a report written on any deficiencies.
4. City of Mesa: We will talk with City of Mesa, both to verify our findings regarding zoning and building code, and to see if they have existing programs to assist with our move.
5. Fire Marshall: We will verify our findings regarding building code and inspection with the fire marshal.
6. Other?...

Phase 2: Intent to Proceed

At completion of validation we will present our findings along with specific costs, proposed lease reduction, and a timeline with milestones. When we reach an agreement with the lessor, we will sign an intent to proceed and begin our build-out.

1. Intent to Proceed: We will [do some thing that commercial real estate proposals do when they cross the Rubicon - sign a document of intent to proceed? Put some money in escrow? Wait for the lessor to put some money in escrow?]
2. Begin Build-Out: HeatSync Labs will begin the build out.
3. Status Update: HeatSync Labs will update on status [period]-ly and on milestones as they are reached.
4. Build Out Complete: Upon completion of the build-out, HeatSync Labs will provide a final status report.

Phase 3: Move-In

With repairs and build-out complete, HeatSync Labs will begin moving in.

Phase 4: Lease Payments Begin

After 3 months of build-out and 6 months of lease abatement, HeatSync Labs will begin paying the lease at the reduced rate negotiated in consideration of the more major upgrades.

Financials

Initial Repairs

To begin build-out, we will need to make any necessary repairs to critical systems such as HVAC, plumbing, roof, and windows. These costs will be born by the lessor as essential requirements for making the building usable. We recognize that knowing these up-front costs is of great importance to the lessor. We will get estimates and provide them as soon as possible, while Phase 1 is ongoing.

Lease Rate Table

Following are example lease rate figures that will be updated to reflect the outcome of the Phase 1 discovery.

These rough figures assume:

1. Build-out is done with no lease cost to the lessee.
2. Move-in abatement is in lieu of lessor paying for build-to-suit.
3. Years 1 through 5 abatement represent a 50/50 split of the cost of asphalt, fire suppression, and sign renovation.
4. 5% inflation for the next two years, 3% after that.

Period	Headline Rate	Abatement	Net Rate	Notes
Build-Out (3 months)	$3100/month	$3100	$0	Non-occupancy Period
Move-In (6 months)	$3100	$3100	$0	Abatement in lieu of Build-to-suit
Year One (12 months)	$3100	$900	$2200	Abatement for cost of capital improvement begins
Year Two (12 months)	$3255 (5% increase)	$900	$2355	Lessee may terminate lease.(1)
Year Three (12 months)	$3418 (5% increase)	$900	$2518	Lessee may terminate lease.(1)
Year Four (12 months)	$3521 (3% increase)	$900	$2621	Lessee may terminate lease.(1)
Year Five (12 months)	$3626 (3% increase)	$900	$2726	Lessee may terminate lease.(1)

(1) After the first year of lease payments, the lessee may, at their sole discretion and at any time, terminate the lease without cause and without penalty. Lessee will have incurred the property improvement expense for asphalt, fire suppression, and sign renovation, which improvements will remain with the property. Those improvements are the sole and entire benefit to the lessor for the early termination of the lease by the lessee. Lessor may not terminate the lease without cause before the end of year 5.

Appendix A: Property Layout

Appendix B: HeatSync Labs Internal Layout

Appendix C: Ballpark Figures

These figures are back of envelope numbers. Proper estimates will be sought as early as possible.

Asphalt

• 6,000 ft2
• $20,000 - $60,000 installed
• Source: https://homeguide.com/costs/asphalt-prices

Fire Suppression Sprinklers

• 5,000 ft2
• $35,000 installed system
• $25,000 water main hookup
• $60,000 total
• Source: extrapolated based on the estimate for our current, smaller, location.

Sign Renovation

• $10,000
• Source: SWAG