Many QSR (quick-service restaurant) franchisees work with brands (e.g. Taco Bell) that allow the franchisee to own the underlying real estate in addition to the restaurant operating companies themselves. While this may provide necessary additional control over the operations, it also carries additional risk (environmental, market value, and eminent domain, to name a few) and can inhibit the franchisee from accessing all-important capital needed to grow. As we all know, the vibrancy of many QSR brands can change dramatically… and sometimes quickly. Having available growth capital allows franchisees to take advantage of positive market dynamics and trends.
Your franchise real estate holdings can be monetized while you continue to maintain significant control through a long term sale-leaseback transaction.The monetization of the property provides significant liquid capital which can be invested to meaningfully reduce market risk, increase profits, and importantly, protect your personal financial independence. Additionally, these transactions can be structured in a way that may protect you against creditors, estate taxes, and even income taxes! Broadstone Net Lease (BNL), a private real estate investment trust (REIT) has worked with numerous QSR operators to execute sale-leasebacks of the real estate component of QSR holdings, with consistent, positive results for franchisees. Typically, these are long-term leases, structured as Triple-Net. After the completion of a sale-leaseback transaction, franchisee families are better able to focus on QSR operations, and have generated liquidity for additional acquisitions or development of existing properties. We have found that focusing on these activities is where true wealth can be created. Alternatively, for those franchisees looking towards an exit strategy, the added liquidity can be used to deleverage their business, or can be the source of capital for personal investments; creating diversification in their personal asset holdings.
Sage Hill (a family office practice that specializes in advising families that own multiple QSR units) has noted even the most successful QSR franchisees can have blind spots, perhaps most prominently a lack of serious acknowledgement of personal financial risk. Owning an operating franchise company exposes the owner to the inherent risk of franchise operating issues (e.g. McDonald’s) and risks of slow genre growth in the QSR market. Those franchisees who also own the underlying real estate can be exposed to extraordinary leverage levels, real estate risk (potentially like that experienced in 2008), and liquidity risk (as seen in 2008-2009).
In Q4 of 2014, Franchise Times published an article outlining the favorable results that can be achieved through sale-leaseback transactions. Click here to read the article.
While it’s easy to digest the value proposition of unlocking liquid dollars from a previously illiquid asset, sale-leaseback transactions carry additional benefits for the “seller tenants”, because triple-net leases, themselves, carry value. If a QSR owner were to approach a bank to borrow against the value of owned real estate, the bank would typically only be willing to lend 50-75% of the property’s appraised value. It is crucial to note that the property’s appraisal does not ascribe value to the tenant lease the same way that a buyer like BNL would. By executing a sale-leaseback, that same QSR franchisee can unlock the value of their long-term lease, still remain in control of their restaurant property, and create optionality in the utilization of newly liquid dollars.
Broadstone and Sage Hill have worked with numerous QSR franchisees, and have seen sale-leaseback proceeds employed in a myriad of ways, often with tremendous results. If you are interested in discussing a sale-leaseback transaction in excess of $5 million worth of QSR real estate, please contact Vice President of Acquisitions, Jim Lessard, who leads Broadstone’s management of retail property. Jim can be reached at [email protected].
And to learn more about how families are investing and protecting wealth created by QSR operations, please contact Phil Toffel, Managing Partner and CEO of Sage Hill. Phil can be reached at [email protected].
Christopher J. Brodhead, Vice President of Investor Relations, Broadstone Real Estate, LLC
Christopher Brodhead joined Broadstone in August of 2013. He is responsible for establishing relationships with new investors, wealth managers and Registered Investment Advisors and for supporting Broadstone’s growing shareholder base. Christopher also plays a critical role in the development of investor communications and marketing strategies and programs.
About Broadstone Net Lease: Broadstone Net Lease, Inc. (BNL) is a private Real Estate Investment Trust (REIT) that focuses on acquiring and holding freestanding, single-tenant, net-leased properties. The REIT is externally managed by Broadstone Real Estate, LLC. For more information, visit https://www.broadstone.com.
Philip J. Toffel, Esq, CEO & Managing Partner, Sage Hill Family Office
Philip J. Toffel, is CEO, Managing Partner, and founder of Sage Hill Advisory & Management, LLC. Sage Hill acts as counsel and financial manager to affluent families in all financial, tax, and investment disciplines. Phil’s areas of expertise include family strategic financial guidance, estate planning, succession planning, investment portfolio management, income tax planning, and risk management.
Frank M. Antalek, ChFC is the President and Chief Portfolio Strategist of Sage Hill
An Economist by training, Frank focuses on the analysis, design and modeling of sophisticated strategies designed to provide our client families with the best possible combination of solutions to optimize their wealth in the pursuit of personal, family and charitable objectives. His special areas of expertise include portfolio management with an emphasis on consistent cash flow and providing counsel to business owners in strategic decision making.
About Sage Hill: Sage Hill is a family office serving successful family business owners regarding pre-exit strategic planning, succession planning, and advanced family estate planning matters. For more information, visit http://www.sagehilladvisory.com.