Petrogram - Summer 2011 - (Page 21)
Out & About THE INDUSTRY
Look Carefully Before Leaping Into Bed with a QSR Partner
Mark Radosevich, PetroProperties & Finance, LLC
o committed Petro-Pros, the Parthenon in Athens or the Coliseum in Rome doesn’t hold a candle to the beauty and majesty of a new co-branded, multi-acre convenience store with a major Quick-Service Restaurant (QSR) tenant. They look so good that we were compelled to feature two of our clients’ facilities on our new website. But like a high-maintenance girlfriend, sometimes looks can be deceiving. Careful research is essential before entering into a longterm relationship. In these two highproﬁle instances, after conducting a network rationalization study for each respective chain, we found that both stores ranked low in overall store performance and resultant cash ﬂow value. They each scored so low that despite high developmental costs, we were ultimately retained to sell them to stop the bleeding. The QSRs at the facilities, however, were doing a stellar business and in one instance delivering maximum potential rent based on sales. Neither one of these major brand hamburger outlets delivered promised synergies to the store and fuel operations. Based on this situation, we decided to poll various marketers across the country that we knew had developmental and operational knowledge. We found that some had very good experiences and still seek appropriate co-development opportunities, while many others were disenchanted and would never do another one. They felt that the risks were too high for failure on the store side of the development and the QSR lease requirements were too restrictive. This informal survey clearly indicated the necessity of taking extreme care when contemplating a co-development project. Following are some thoughts that should prove helpful if one is intent on going in this direction.
Even after the best professional minds in a marketer’s organization have signed off on the project, never go forward without a professional site study to verify fuel volume and inside store sales potentials.
No development should ever be based largely upon the opinion of the QSR partner. Nor should any “upside” synergies be factored into the store sales pro-forma. Even after the best professional minds in a marketer’s organization have signed oﬀ on the project, never go forward without a professional site study to verify fuel volume and inside store sales potentials. An investment of a few thousand dollars for the study could save a multimillion-dollar mistake. If the green light is still on at this point, a decision will be made whether to do a “build-tosuit” for the QSR tenant, whereby the marketer funds most of the project costs, or a simple ground lease, whereby the tenant funds their part of the development. Based upon our experience with the underperforming sites, the build-to-suit example delivered a consistent level of rental income, coupled with the credit value of the QSR tenant, enhanced the overall value of the facility. We couldn’t have sold the site in any other circumstance. For this reason, we recommend that if at all possible, marketers make the early investment versus entering into a long-term ground lease that will not signiﬁcantly augment facility value into the future. Careful consideration must also be made to the lease agreement prepared by the QSR. Once entered into, the marketer will have fee simple ownership in name only. Make no mistake about it, the QSR tenant will control the future disposition of the facility for as long as the lease is in eﬀect, and don’t expect any sympathy if the store is not doing well. The lease agreement will generally provide the QSR with a 30-day right of ﬁrst refusal on the sale of the facility. The bigger control contingency however, provides the QSR with the right to approve
Table of Contents for the Digital Edition of Petrogram - Summer 2011
Petrogram - Summer 2011
2011 Sunshine Food & Fuel Expo: Dawn of New Opportunities
Take Action: Be Involved and Be Impactful
FPMA’s Legislative Conference
FPMA Featured Advertiser Marketplace
Out and About the Industry
Florida Lottery Launches New Monopoly™ Scratch-Off Games in July
Taxes, Credits & Penalties
Bearing the Burden
BP-Branded Marketers Continue to “Fuel” Th eir Florida Communities
Index of Advertisers/Advertiser.com
Petrogram - Summer 2011
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