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7-Eleven
Advance Auto Parts
Affordable Dentures
ALDI
Applebee's
Arby's
Ashley Furniture
AutoZone
Bank of America
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BMO Harris Bank
Bojangles'
Burger King
Captain D's
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Chick-fil-A
Chipotle
Church's Chicken
Circle K
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Family Dollar
FedEx
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Fresenius Medical Care
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KFC
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Tractor Supply Co.
Verizon
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Wendy's
Zaxby's
  McDonald's


Average Property & Lease

Average Sale Price$2,499,500
CAP Rate (12mo avg with 10+ lease term)4.01%
NOI$99,407
$/Square Foot$590
Building Size4,500 sf
Lot Size1.15 +/- acres
Lease Term20 Year Ground Lease
Escalations10% Every 5 years
CREDIT RATING
BBB+
S&P
Baa1
Moody's
view credit rating chart
View Net Lease Property Listings at CALKAIN.COM Last Updated: September 9, 2016
Net Lease Advisor Overview

McDonald's, with its "golden arches" and Dollar Menu, remains the dominant brand in the QSR space. With primary, secondary, and tertiary market locations, McDonald's size and reach provide a strategic competitive advantage, as well as varying risk/return investment opportunities for net lease property buyers. Brand recognition, operating stability, and strong credit ratings reinforce McDonald's standing as a prime net lease investment property.

McDonald's remains the best example of a "flight to quality" in net lease investing. As cap rates have adjusted across the board for all net lease investments, McDonald's assets continue to attract multiple buyers and trade at a significant premium over other properties. This aggressive pricing is a result of the high credit of the tenant, overall lease terms, relatively low purchase price, and general lack of supply in the marketplace. While McDonald's, like most QSR brands, franchise the vast majority of their locations, when leasing a location they almost exclusively select locations and guaranty leases on a corporate level.

The "Golden Arches" have long been a Business school case study of a real estate business that happens to sell hamburgers, as they prefer to purchase the real estate of their restaurants versus leasing, which has in-turn, created a lack of supply in the net lease market. When they do lease a location, it is almost exclusively done so through a ground lease, generally for 20 years with 3 to 5 renewal options of five years each. Previously McDonald's has been willing to offer rental increases of 10-15% every five years of the lease, however lately they have been able to scale back their rental increases to 10%, and are currently signing leases that will be flat for the first ten years. In terms of the underlying real estate, McDonald's needs 0.75 - 1.15 acres of land with premier access and visibility. While McDonald's has used their strength to negotiate lower rental rates, that has translated into easier rents to replace in the unlikely event a site were to be vacated, however that situation is viewed as extremely unlikely given their lofty credit and significant financial investment in each location by paying for the construction of their own structure.
 

Pros

Cons

  • High Credit
  • Increases in primary term
  • Low price point
  • Low cap rates
  • New leases are flat for first 10 years
  • Ground leases don't allow for depreciation
Tenant Description

McDonald's Corporation is the world's largest chain of quick-service restaurants (QSR), serving nearly 47 million customers daily, with about 36,000 restaurants in 100 countries serving burgers and fries.

McDonald's restaurants are either company-owned and operated or operated by franchisees. There are 14,000 restaurants in United State and nearly 90% of the restaurants are run by franchisees or affiliates. The corporations' revenues come from the rent, royalties and fees paid by the franchisees, as well as sales in company-operated restaurants.

McDonald's has pursued two strategies since 2003. To keep up with rapidly changing consumer preferences, demographics and spending patterns, McDonald's has introduced new items and campaigns to create more healthy foods. The strategy reflects the philosophy that novelty, as opposed to loyalty to traditional products, is the key determinant of sales in the fast food industry.

McDonald's committed to refranchise 4,000 restaurants between 2015 and 2018 since ownership is a powerful driver of growth.


MCDONALD'S TREND
CAP Rate

2016 avg: 4.30%

2015 avg: 4.18%

RECENT SALES

Las Vegas, NV

$2,650,000 | 4.79%

Evansville, IL

$1,200,000 | 4.7%

MORE INFO
www.mcdonalds.com
Google Finance: MCD
Google News: MCD