By Chris Cobb | Associate
Welcome back to the Big3 with CC, your weekly real estate investment source. The college football national championship was one of the best I have seen in my life. Tip of the “hound’s-tooth” patterned hat to Nick Saban for solidifying himself as the best NCAAF coach of all time. It appears that Alabama has become the New York Yankees or Manchester United empire of college football. Today, we discuss our favorite places to frequent when we are in a hurry or in an Uber ride at 2 am, investing in Quick Service Restaurants (QSR). Why are they a potentially good investment?
Part of the Culture
A significant part of American culture and lifestyle over the past decades has been fast food and quick service restaurants. When they began, it was mostly hamburgers, pizza, etc. that were sold by giants like McDonalds. Today, our society has become more health conscious and newer QSR restaurants such as Newk’s and McAllister’s Deli are popping up, offering more healthy options on the menu. McDonalds and some of the other perennial QSR’s have also added healthier options to their menus in order to keep up with the changing times. In short, they are a big part of American life and they do not show any signs of leaving soon.
Location, Location, Location
Where do you normally see Jimmy John’s, McDonalds or Chik-Fil-A? In high volume, busy areas such as malls and downtown shopping centers. This is good for two reasons. First, you can rely on the steady income due to the high traffic counts and walking customers that will, whether planned or on a whim, visit the establishment for a quick snack. Secondly, if the real estate is owned by the franchisee or company, the building will be valuable even if the restaurant does not last because of its favorable location. It can be repurposed and the property value can be capitalized on.
Steady Cap Rates & Returns
According to The Boulder Group, research experts in QSR investments, capitalization rates maintained a tight range in 2017 between 6.11 and 6.19 percent nationally. This is a good indicator that QSR holds its water as an investment. The returns are also noteworthy. QSR tenants typically have leases that contain 10% rent escalations every 5 years or 2% rent escalations annually. This is much more attractive than the slim returns provided by a corner drug store.
When it concerns real estate, invest yourself.