Real Estate Considerations For Multiple Locations
It is very important to analyze the real estate opportunity before signing a lease or purchasing a property.
To be a true real estate expert, all you need to do is say these three simple words with the utmost confidence: location, location, location. We have all heard this line a hundred times and most likely if you are an experienced multi-unit franchisee or a franchisor, you may be guilty of saying it a time or two.
While choosing the right location is critical, it is very important to analyze the real estate opportunity before signing a lease or purchasing a property. With today’s analytical tools, most franchisors have the ability to conduct a detailed demographics analysis of a market or trade area. Meineke puts its focus on population, household income, number of vehicles, competitors within a geographical range and a combination of attributes that are unique to the automotive industry. In addition to whatever marketing planning tools are available, physical characteristics such as curb appeal, ingress and egress, signage and site evaluations are equally important.
Unit Economics Matter
Before you decide to buy or lease, it is important to understand the unit economics of your franchise and that the lease factor works within your business model. Too often franchisees and real estate brokers fall in love with the location first. We have all seen great locations within our franchise that are now owned by a second franchisee that made the business successful by renegotiating the deal after the original franchisee failed. Simply put, unit economics matter. When choosing a location, understanding the price and the amount you’ll spend on tenant improvements can make or break a good location.
With a strong plan and capable operations, there has never been a better time to grow.
With that being said, everyone wants to get the best deal on his next lease or purchase. Many franchisees have been very fortunate in recent years to find some great properties, as well as great deals. Of course, most prefer to own their locations for obvious reasons; however, if a property owner is not willing to sell or you are growing fast, you might be forced into a lease situation. There are many successful franchisees that do not look for “A” locations. They take an alternative approach and look for “B” or second generation locations in high traffic areas, which often work well from an economic standpoint. Often one can negotiate significant discounts, as much as 50 percent off current market rates. Also dealing with individual owners as opposed to corporations can be an advantage. Here are some things you may want to consider:
- Agreement to Return Security Deposit. It is reasonable to negotiate the return of a security deposit after 12 months of paying in a timely fashion.
- Step Up Rents. If there is a possibility that it will take time to ramp up a center, then by all means have the landlord participate in the upfront expenses. Consider the first month or two without rent or negotiating rents that ramp up over time. This can save you thousands of dollars.
- Automatic Renewal. This can be a crucial feature so that you don’t get blindsided five years down the road when your lease term expires and you have to re-negotiate an excellent lease at a premium. It is often recommended to write in an automatic renewal, unless the landlord is notified within a certain period of time in advance.
- Self-Insured. A lot of the time, even in a triple net lease, the landlord wants the security of insuring the property. A better rate may be available by bundling all of your properties together.
- Record a Short Form Lease. This makes it public record that you have a lease and the basic terms are known.
- Subordination, Non-Disturbance and Attornment Agreement. This step is very important if your landlord has a mortgage on the property. Basically this is an acknowledgement from the lender that you have a valid lease, the lender recognizes the lease and accepts it if the landlord fails in his obligations to the lender. If you fail to do this and the landlord is foreclosed on, you could lose your location without notice.
Searching for Locations
When searching for locations, keep an open mind. Drive up and down the street, speak to local business owners and understand the market you are entering. Currently at Meineke, some of the former Blockbuster locations around the country are being converted to car care centers. Who would have thought a Blockbuster could be a Meineke Car Care Center? You just have to be creative and consider the best way to go.
- New Build to Suit? This is always nice because you can build to your specifications. The price can be high for this luxury or the deal can be right depending on your contractor. There are some great deals out there right now on build to suit.
- Take Over an Existing Location? There are a number of great deals out there with existing businesses that have been hit by the economy. In other words, a great operator can take over a business through a great deal and make it work. Although there are operators who blame the economy for poor operations and give up, you can capitalize on those locations, which are probably the best deals out there.
- Conversion Strategy. Convert an independent that has some history within your industry. Often you can find great locations at affordable prices and through branding, you can provide incremental volume from the first day. Meineke offers significant royalty concessions on this strategy, making conversions an ideal strategy.
- Second Generation. In the automotive industry, there are hundreds of closed competitor locations across the country. Real estate tools such as LoopNet can help you identify great opportunities within your market.
While there are many considerations for growth, it is very important that you have the financial and human resources to grow responsibly. Staying active with your franchise system also allows you to know what is going on within the marketplace and can help you identify hidden opportunities. With a strong plan and capable operations, there has never been a better time to grow.
Bryan Brown has been a multi-unit franchisee with Meineke Car Care Centers for the past 16 years and currently owns and operates eight units In Louisville, Ky. and Southern Indiana. Brown is a Meineke Franchisee of the Year for 2008 and 2012 and recognized as the Mighty Auto Parts Franchisee for Greater Louisville, Ky. and Southern Indiana. He can be reached at email@example.com.