Big Macs & real estate
Issue 98 - August 26th, 2022
Most people think of french fries, Big Macs, or the McFlurry when you mention the Golden Arches, but most people do not realize that at its core McDonald’s is a real estate holding company empire.
While the brand has sold more than one billion hamburgers to customers around the world, 85% of its stores are owned by franchisees. Franchisees pay to use McDonald’s brand name, its proprietary processes and trademarked menu items, but unlike other franchises, McDonald’s owns the land the stores are built on.
McDonald’s owns thousands of iconic pieces of real estate around the globe. From New York City’s Times Square to Moscow’s Red Square, McDonald’s has ventured around the world, buying up prime real estate. Franchisees pay McDonald’s a cut of their food sales, but a much larger portion of McDonald’s revenue comes from the rent it’s paid on its real estate. After all, rent in Times Square isn’t cheap, but a Big Mac is.
Think of it this way: An investment in McDonald's equates to the ownership of rock solid real estate assets that form the backbone of McDonald's balance sheet. The real estate is paid for with rent from the franchisees, predicated on the sales of the chain's iconic burgers and fries. In addition to purchasing the real estate, these sales also inject additional revenue into the income statement in the form of royalties and corporate store sales.
Former McDonald’s CFO, Harry J. Sonneborn, is even quoted as saying, “we are not technically in the food business. We are in the real estate business. The only reason we sell fifteen-cent hamburgers is because they are the greatest producer of revenue, from which our tenants can pay us our rent.”
Today McDonald’s makes its money on real estate through two methods. Its real estate subsidiary will (1) buy and sell hot properties while also (2) collecting rents on each of its franchised locations. There are over 36,000 locations worldwide, of which only 15% are owned and operated by the McDonald’s corporation directly. The rest are franchisee-operated.
“The Founder,” a 2016 film about McDonald’s history explains the genius behind their business model succinctly: “You don’t build an empire off a 1.4% cut of a 15 cent hamburger, you build it by owning the land on which that burger is cooked.”
Newsworthy Links To Share
Real Estate Giant Compass Is Facing an ‘Existential’ Cash Burn Problem (Vice)
Flexible apartment living proptech Landing announced closing a $125 million Series C led by Delta-v Capital.
The company says the round includes a combination of new equity and debt financings, and also included participation from Greycroft and Foundry. It says it will use this capital to continue expanding its network of apartments to meet growing demand, following a 380% increase in membership over the past year.Landing’s model revolves around a membership-based rental experience, with over 20,000 move-in ready apartments and monthly leases available to members across more than 375 U.S. cities. It says this includes entry into 33 new markets in 2021, and claims even larger momentum this year, noting more reservations have been booked on its network in 2022 than all of last year.
The University of Texas endowment boasts a 2.1 million-acre, mineral-rich swath of land within the country’s largest oil field, managed by the school itself. Located in the Permian Basin, the plot rivals the size of Delaware and Rhode Island combined, and makes the school about $6 million per day. (CRE Daily)
“HOA Assist, founded by Daniel Stedman and Mitch Gassen, 3rd generation to a family-owned HOA Property Management Company, announced their plan to disrupt the property management market with an affordable new business model. It fills a gap in the market with its service that offers homeowners associations (HOAs) a happy medium between self-management and full-service property management companies. HOA Assist provides HOAs with a service that covers financial statements, portal access that includes automatic payment of dues, assistance with administrative tasks and educational resources for self-managed HOAs.” Street Insider
Stream Realty Partners offered up more information this week on its plans to remake a section of the Sixth Street entertainment district in Austin, emphasizing daytime business and a move away from the high-volume shot bars and nightclubs that have dominated the area for decades. (Austin Monitor)
ANOTHER potential major semiconductor plant near Austin: Micron's plans for potential $80B semiconductor factory near Lockhart unveiled in incentives applications (Austin Business Journal)