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Rapid Price Growth for Fast Food Eateries Driving NNN Restaurant Investment Activity

Burger Joints Leading the Charge
September 3, 2014
Fast food restaurants have been one of the most heated commercial real estate investment sectors in 2014, with individual average restaurant property sale prices per square foot jumping 18% over last year.

Fast food restaurant sale prices averaged about $510 per square foot in 2013. Through the first six months of this year, the average sale has shot up to a little more than $604 per square foot, according to an analysis of CoStar COMPS data.

In addition to attracting higher prices, the volume of individual property sales in the first six months of this year is double what it was for the same period last year.

The NNN restaurant industry segment attracted more notice after Ontario, Canada-based Tim Hortons Inc. and Miami-based Burger King Worldwide Inc. agreed to an $11 billion merger.

With approximately $23 billion in system sales, over 18,000 restaurants in 100 countries and two strong brands, the new company will be based in Canada, the largest market of the combined company.

Burger Kings have been one of the hottest investment properties among the industry, for example, this week Carrols Restaurant Group Inc. in Syracuse, NY, agreed to purchase 64 Burger Kings in Tennessee, Indiana and Illinois from Heartland Food LLC for $18 million excluding inventory.

Of the nearly 775 fast food restaurant property sales of 2013 and 2014 analyzed for this story, sales of Burger King properties accounted for more than 80 of the deals. Wendy’s restaurants were the second most popular accounting for 66 sales. KFC eateries were the third most popular accounting for about 50 of the deals.

The Boulder Group, a Chicago-area based boutique investment real estate service firm specializing in single tenant net lease properties, reported this month that the single tenant net lease quick service restaurant sector will remain active as the lower price points and rental escalations affiliated with this asset type continue to attract private and 1031 exchange investors.

“Private and 1031 exchange investors typically pay a premium for net lease properties due to their timing constraints and alternative investment options,” reported John Feeney, vice president of Boulder in the quarterly report.

“Corporately guaranteed leases will remain in the highest demand among private investors due to the strength of credit associated with the assets,” Feeney said. “REITS and institutional investors will continue to seek larger portfolios of quick service restaurant properties via sale leaseback transactions rather than one off transactions to obtain economies of scale.”

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