McReal Estate: What Investors Can Learn From McDonald’s

March 9, 2015

McDonald’s has long recognized the value of its locations, and we’re not just talking about the offerings on their value menu. Nations Restaurant News reports that the corporation owns $28.4 billion in land and buildings, making it the top fast food chain and one of the biggest real estate companies in the world.

So, what can we learn about commercial real estate from the fast food giant?

Have faith in your menus — and your markup

When McDonald’s leases land, buildings or both to franchisees, they can capitalize on their name as well as their property. According to the most recent franchise disclosure document, the company charges franchisees for rent based upon how much the franchisor paid to acquire and develop the site or the building. These costs range from 8.5 percent to 15 percent, and comprise an important part of the restaurant’s success.  According to McDonald’s annual report, it collected $6.1 billion in franchisee rent while laying out only $1.06 billion to cover their actual rent expenses.

More property equals more choices

The perks of real estate investment don’t end with income. Because it controls a vast amount of property, McDonald’s is able to select the most profitable sites for its restaurant locations. This, in turn, allows the company to maximize sales along with potential franchisee markups. It’s the best possible strategy for any company serving the public.

Real estate returns can turn expectations around

Many investors push for restaurant operators to lease rather than own commercial real estate. The capital expenses are often high, and returns on real estate are lower than the returns on restaurant operations. However, McDonald’s doesn’t follow that reasoning — they act more like a real estate broker than a restaurant operator. And, though their reports of an 82.7 percent margin on franchised locations don’t include capital expenses, the McDonald’s model still defies traditional expectations.

In its annual report, McDonald’s stated that its ownership of real estate along with a “co-investment” by franchisees “enables us to achieve restaurant performance levels that are among the highest in the industry.”

If you want to know more about how your business can leverage commercial real estate opportunities to maximize returns, talk to the professionals at Intelica. We can help you identify prime locations, manage commercial leasing and increase your income. Contact our team today.