Strategy call on real estate leases, Star Wagons carve-out, and deal negotiation

March 30, 2026 at 10:49 AM|55 min
Neutral

Bottom Line

The team is analyzing problematic real estate leases (especially Balboa) and a potential competitive bid from Galpin for Star Wagons, as they finalize their negotiation strategy and financial model for a potential deal with Hudson.

Key Takeaways

Balboa Lease Issue:: The Balboa lease is highly problematic, with an overpriced office building and a month-to-month LADWP land lease, making it difficult to sublease and a major liability in negotiations.

Galpin Competition:: Galpin is a potential competitor seeking to carve out only the Star Wagons brand and assets, which could leave Hudson with less desirable assets but also provides cash, unlike the team's equity-only offer.

Lease Strategy as Leverage:: The team plans to use the liability of bad leases (like Balboa) as negotiating leverage, proposing that Hudson either retains them for more equity or contributes them for less equity in the combined entity.

Financial Model Confidence:: The team's pro forma EBITDA model for the combined entity (PacketCo) shows significant improvement ($20M by 2027), providing a margin of safety needed to advance to commercial term negotiations.

Decisions Made

• Use Balboa lease complexity as a key point in negotiations — decided by the team

• Proceed to craft a term sheet/LOI based on the validated financial model — decided by Speaker A

• Assume a 12-month downtime for clearing non-core real estate leases — decided by Speaker B
Action Items
Obtain and review the full lease files for the Balboa property (Studio Services building and LADWP land) to understand exact terms and risks. — Speaker A / Team
Draft a term sheet or LOI for the proposed deal with Hudson, incorporating the lease strategy and equity split framework. — Speaker A
Clarify the address and property details for 12312 Osborne Street and add it to the question list for Hudson. — Speaker A
Further analyze the competitive threat from Galpin's Star Wagons carve-out bid and its implications for Hudson's decision-making. — Speaker A / Team
Request Ryan's (Speaker B) formal opinion on the timeline and feasibility of subleasing specific problematic properties (Norris, Balboa, Ralston). — Speaker A
Decisions
To use the complexity and risk of the Balboa lease as a central negotiating point with Hudson, framing it as a liability that affects equity distribution. — The team
To advance to drafting a term sheet or LOI, having gained confidence in the financial model's margin of safety. — Speaker A
To assume a conservative 12-month period to sublease or clear non-core real estate properties in financial projections. — Speaker B
Topics
Real Estate Lease Analysis Star Wagons Carve-Out Competitive Intelligence (Galpin) Deal Negotiation Strategy Financial Modeling & Synergies

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