Finding a Franchise Site: Buckets of Water, Nothing to Drink?
Obtaining the ideal site for your Franchisee does not have to be as tough as you think.
By Mark Kagan, Esq., Broker
Commercial Real Estate Acquisition Team
Attracting entrepreneurs to your franchise offering, issuing them the Franchise Disclosure Document (FDD) and entering into a franchise agreement is exciting. Let’s not let finding a site for your new franchisee turn this new relationship sour. Sometimes it is the ability of being able to find the right site quickly that will seal the deal, after all time is ticking. So let’s explore exactly what you can expect when trying to find a site that will please your new franchisee and meet your specifications.
Drive down the road, in any central business district and you’ll see a sign on almost every property. To you (the Franchisor) and your “site acquisition team” it would appear as if finding a site will be easy. Then, apply your franchise site criteria: type of real estate, ideal size for the space, target submarket, and demographics; water in the bucket is beginning to get shallow. Just when you think you have a reasonable number of options, many landlords will not deal with you for existing non-complete agreements in their current leases, or they simply want to limit competition for their existing tenants in a strained economy. There is also the challenge that many landlords are publicly traded entities, who grossly overpaid for their properties in the last boom. Accordingly, the fiduciary obligations these groups owe to their shareholders and values they leveraged with debt, force them to solely deal with companies who, in their opinion, have made it, and will stand the test of time continuing to pay substantial rent until the economy begins to rebound from its current downturn.
Ultimately finding a site is the franchisee’s responsibility, however, as a franchisor, you are required and obligated to offer franchise support. So, to make matters more challenging cities such as San Francisco, have passed legislation, which requires all “chain stores”, referred to in San Francisco as “Formula Retail” (11 or more stores worldwide) to engage in a special permitting process; a process requiring a planning commission public hearing to consider the issuance of a conditional use permit; then an approval, appealable to the Board of Supervisors. Similarly, zoning, parking, and use restriction ordinances may require obtaining a conditional use permit.
Finally, there is “the family.” In any submarket, in any commercial real estate subspecialty, the 10/90 rule is fast in effect. That is, 10% of listing brokers are consummating 90% of the transactions. The 10% “family”, have done business together for years, many have worked together at the same companies, and see each other at the same business functions year after year. It is more than enjoyment doing business with their own. Rather, transactions are tough, and the “wrong” outside broker will waste their time for failure to properly make offers, present financial data, and sell the business concept. Accordingly, listing brokers may be an impediment in some transactions.
For all these challenges, in today’s market it is important to have a highly qualified “commercial real estate acquisition team” for when you have franchisees who need to find a site quickly. You need a team who can conserve the water in the bucket. Not to worry, The Franchise Maker has you covered.
It starts with our commercial real estate broker who specializes, solely representing users of commercial real estate (tenants and buyers). Though landlord’s pay commissions, your broker has to have professional training to identify and avoid conflicts of interest. In addition, your broker must have the requisite training, skill and experience garnered over hundreds of transactions and hours of study, which will make it easy for listing brokers, principals and municipalities to deal with your needs. Finally your broker should have the foundation of knowing how real estate partnerships, LLC’s, and REIT’s are structured to properly set your expectations and the expectation of your franchisee, so that fruitless bargaining is avoided, maximizing your time and limiting your frustration.
In addition, it would help if you also had an attorney who specializes in real estate transactions. Not just the law, but also one who has an intimate understanding of current commercial real estate market conditions, standards and norms. You wouldn’t have an orthopedic surgeon, do brain surgery, would you?
Finally, you need a marketer of your business, who is masterful in combining the elements landlord’s are looking for when considering a prospect for their real estate; someone who knows how to package your business, and sell a concept. Acquiring commercial real estate is more than writing offers on mortar, bricks and rent.
Assemble a team, who can help you whether you’re franchising in California, New York, Florida, Texas or anywhere in the United States, and while you may find the water is low, the bucket isn’t empty and you won’t go thirsty.
About the Author
Mark Kagan is part of The Franchise Maker’s real estate acquisition team and is a real estate broker who is also a licensed attorney with the California State Bar.
The body of Mark Kagan’s experience encompasses the successful negotiation of over 500 leases, license agreements, and easements; the acquisition and asset management of a national commercial real estate portfolio; and the performance of receivership services nationwide. He is capable of handling transactions nationwide and has had much success with franchise systems.
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