6-unit Burger King Sublease – Northern California

Executive Summary:

• The client who was a mixture of the tenant wanted to get out of his 6 Burger King locations. With the new California wage increase these stores were going to start losing him money.

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‍Background:

• Large Burger King operator that wanted to sublease and lease these six locations:
  1. 13796 Mono Way, Sonora CA
  2. 1330 E Monte Vista Ave, Vacaville CA
  3. 526 Fairway Dr, Galt CA
  4. 1610 W Main St, Turlock CA
  5. 2020 Standiford Ave, Modesto
  6. 1233 Oakdale Rd, Modesto CA

Challenges:

• The challenges that we faced on this transaction included the following:
  1. Percentage rent clauses which were very aggressive.
  2. All B & C locations.
  3. Not wanting to lease it to any burger competitors.
  4. Subleases terms ranged from 7 years of primary term to about 20 years;
  5. Key money was also needed on some locations.

Approach:

• Our approach was to target both national and local operators to backfill the space. We knew in some of these more remote areas that finding a national tenant would be tough. When focusing on local tenants our requirement was for a proven, high revenue operators who often have stronger sales than the national tenants; that would put owners at ease.
• We reached out to all the QSR operators in the market and surrounding markets that had a void. It was important that we deal directly with corporate, franchisees and brokers.
• The corporate companies know who is able to grow and who isn’t. Some of the franchisees are involved in multiple brands so they would have multiple options to take down the deal.

Solution:

• We also wanted to try and get some operators to take down multiple locations.
• Throughout the process we had competitors looking at the same buildings and this drove up the demand for paying more in key money or taking less desirable locations.

Results:

• We leased all tenants and favorable terms to the owner. We had operators all with higher sales volumes which in turn made the owners of the real estate happy. The operators is now out of 7 locations and got some key money on select deals.

Conclusion:

• The drive thru space is one of high demand in California due to the difficulty of getting approved and also making construction pencil in this current climate. Second generations restaurants are always desirable; especially with a drive thru as it creates a higher volume store for the tenant as over 80% of sales come through the drive thru.

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