Franchise operators are sitting on real estate they’ve never priced
How franchise operators accumulate real estate without managing it as a portfolio, and the two-track structure that turned one operator’s holdings into $20MM of expansion capital.
Franchise operators grow by buying out older operators who want out. Every acquisition brings stores, and most stores bring real estate along with them: some owned outright, some held on long leases signed decades ago at rents that made sense decades ago.
Almost none of it gets managed as a portfolio. It sits on the books as the place the business happens, valued at whatever it cost, while the markets around the stores urbanize and the rents drift further below market every year.
A 100-plus unit operator engaged me after a casual conversation made him curious what the real estate underneath his business was worth. The inventory answered him: locations he had operated for 20 years now sat at intersections that priced like trophies, and some of the rents he paid on leased sites ran as low as 15% of what the space would fetch today.
The structure ran on two tracks. On the owned real estate, a sale-leaseback program: he immediately converted equity to cash and kept operating the stores on long-term NNN leases.
The leased sites were the more interesting track. Where his rent sat well below market with years of term remaining, I approached the landlords with offers to buy the buildings. Here is the pricing logic that made it work: a property carrying a below-market lease for years to come is worth its value as a continuing rental, not its value at market rent with vacant possession. Many of these landlords had inherited the asset or had wanted out for years without knowing how to start. They sold at prices that were fair against the income they actually held. My client, as the tenant controlling the lease, captured the entire spread between that price and what the real estate was worth in his hands.
$20MM came out of the program, and every dollar went back into the business: new units, competitor acquisitions, and an operating-software investment that improved unit margins. His daily relationship with the stores barely changed, but his balance sheet changed completely.
The case study on the site has the deal-level detail. The question for any operator who has been acquiring for a decade or more: when did you last price the real estate as a portfolio? If the answer is never, the audit usually pays for the conversation.
Operating 20+ units and never inventoried the real estate underneath them? Send me the store list. Start the conversation