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  Fast Food Restaurant Appraisals

From Whataburger restaurants in Texas

Whataburger Restaurant Pizza Huts on the East Coast    


    one of the newer Pizza Hut concepts

We appraise restaurants.

The appraisal of Fast Food restaurants are not really unique or unusual, at least not to us; we appraise them on a regular basis.  

Fast food restaurants are sold in a national market – not just locally. One consequence of having a national market for these facilities is that there is more data available on these types of properties than on most other types of properties.   The market is so nationalized that I have seen appraisals for fast food restaurants in Ohio that have sales from Texas and Missouri listed as comparable's - we try not to do that, but we have.

As to the value of fast food facilities - they have multiple values.   For example, a Burger King restaurant can be viewed as a vacant restaurant, or as one that has a lease.   If it is vacant, the building structure may or may not contribute value to the land – location tends to dictate.   Generally speaking, the building tends to add value in secondary locations.   In prime locations, the existing building is as likely to be razed as it is to be reused.

The fact that these fast food restaurants tend to be operating under a franchise agreement impacts the value - obviously, the lease period can not extend beyond the franchise agreement.  

Leases of fast food facilities tend to be percentage leases.   That is, the rent tends to be expressed as a percentage of gross sales – typically, a percentage over a “breakpoint”.   Also, these leases run concurrently with the franchise agreement, which generally does not exceed 20 years.

The percentage rental rate varies from franchise to franchise.   Some fast food properties demand a higher percentage rent than others.   Franchises like Burger King often have rental rates from 8%-8.5% whereas Pizza Hut or KFC often have rates from 6% to 7.5%.  

Because the rents are based upon a percentage of gross sales, otherwise similar stores can (and often do) have radically different values.  A store that has only $700,000.00 in gross sales simply cannot support the same rental that a store grossing $2,000,000.00 can afford. 

Finally, the remaining term of the franchise agreement often has a significant impact on value.   Franchises with 5 years remaining on the franchise agreement do not sell for as much as properties with 20 years remaining – all other factors being equal.  

Being national appraisers of fast food restaurants(Quick Service Restaurants – QSR's as they are known in the industry) provides the Gorman Group with the information and expertise to handle these assignments.  

Generally, our appraisal reports include two values for the real estate.   One value is the value as though the property is leased at market rent.   The other value is as though the property is vacant.   These values are reported to provide the client with enough information to make an intelligent decision - whether it be for purchase, lending or sale.



NOTE : If you are thinking of ordering an appraisal for financing purposes, please consult with your lender first.  Federal law dictates that banks must order the appraisal - not the borrower.

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