Franchisors Put More Pressure On Franchisees To Grow

The fast food/quick service restaurant space has picked up steam in the last year due to the cap rate compression for other triple net sectors and the amount of growth in QSR, says Max Freeman in this EXCLUSIVE. 

Odessa, TX (November 17, 2016) – Dickey’s Barbecue Pit is a family-owned American barbecue restaurant chain based in Dallas. It was recognized as a top 10 growth chain by National Restaurant News.

In 2015, Max Freedman of Sands Investment Group’s Austin, TX office worked with the developer of Dickey’s Barbecue Pit to scout underutilized locations ideal for a national tenant. Freeman helped to secure a site at 2701 N. County Rd. and negotiated long-term flexible contracts to allow the developer time to secure a tenant and get plans through the city.

Once the project broke ground, the developer was ready to locate a buyer. Within two weeks of marketing the property, Sands Investment Group was able to identify a 1031 exchange buyer. This established a baseline for the developer to draw on additional credit to continue building for the franchisee.

Freeman represented the seller, Dynamic Development, in the sale. The 1031 exchange buyer paid all cash for the 2,000-square-foot drive-through restaurant. Dickey’s has a long-term 15-year lease which will commence upon opening for business.

“SIG has done a tremendous job locating solid opportunities for us as a development team in Texas. We are impressed with their knowledge and research to uncover opportunistic deals,” said Dan Porter, vice president of acquisitions, Dynamic Development. The developer has more than 50 years of experience in retail and multifamily development.

Freeman recently shared some insight into the deal, in addition to some overall quick service restaurant trends he sees for triple net properties in this exclusive. How are you working with developers as part of your strategy–especially as it relates to fast food/ fast casual assets–what are the advantages in these relationships?

Max Freeman: Developers are the lifeline of the QSR business. In working with operators in the space, developers provide financing, construction management and real estate site selection to new construction projects. They are infusing the capital that is fueling the expansion of the businesses. As a broker in the industry, it is important for us to bring the financing solutions and properties to assist in our client’s growth. What was your marketing strategy for the newly built asset? Why was timeframe so critical?

Freeman: The buyer pool that is chasing QSR NNN properties is seeking yield, term and strength in the guarantor. Our goal in this project was to offer a higher yield to attract a buyer to commit to wait until the project’s completion. The buyer’s commitment allowed the developer to hedge against market conditions during the construction process. What is the market today for fast food/fast casual NNN assets?

Freeman: The fast food QSR space has picked up steam in the last year, in my opinion, due to the cap rate compression for other triple net sectors and the amount of growth in QSR. Franchisors are putting more pressure on franchisees to grow, which is why you see so many of these food concepts coming out of the ground. Between new development and franchisees raising equity for new projects, you see a lot of inventory as a result of market conditions. What is your strategy for the franchisee in these NNN deals?

Freeman: Our goal is to help franchisees grow and we provide them with a multitude of options to do so. We leverage our industry relationships to bring construction resources, site selection and capital placement to assist in that growth.

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