Newsflash: McDonald’s, the golden-arched, creepy clowned, nasty play yard, burger flipping, Happy Meal making American (and international) icon is not just a restaurant chain. In reality, it is one of the world’s top real estate portfolios. Sink your teeth into that.
Ray Kroc, the founder of McDonald’s, once asked a group of MBA students what business they thought he was in. The response was obvious: the hamburger business. Mr. Kroc replied with a firm, “No,” then explained, “My business is real estate.”
It all started back in 1956, one year after Kroc’s first McDonald’s opened its doors. The first president and chief executive, Harry J. Sonneborn, envisioning the real success of the company would be in property ownership, suggested the idea of purchasing cheap real estate along well-traveled byways across the country. That vision resulted in the birth of Franchise Realty Corp.
Simplified, McDonald’s gets the No. 1 rule of real estate: location, location, location. They own some of the most valuable real estate in the world. This company not only buys up properties in good locations and sells properties in locations that underperform, but they also charge their franchisees rent from these properties (in addition to the franchise fee). Not a bad gig for a burger joint.
Last year, McDonald’s closed out 2018 with over $21 billion in sales. Don’t get me wrong, although I would be one of the last people on this planet to impart any wisdom on the making of a good burger, I do have enough experience to know that I wouldn’t recommend McDonald’s in the quest. Yet, I can’t help having a certain amount of respect for a company that can create a real estate model that equates to ownership of a 38,000-unit apartment complex.
Commercial real estate is a different animal. In comparison, if residential real estate were a dog, commercial real estate would be a manatee; it doesn’t even live on the same surface. There are different types of commercial real estate, including office buildings, retail, multi-unit, industrial, land and other noncategorical types of buildings such as hotels, hospitals and storage facilities.
Each of these categories, in and of themselves, require a specific knowledge base. While an office space may only be a question of zoning, lease or loan type and CAM (common area maintenance) fees, an industrial building could go on to include environmental reports, current leases, city regulations beyond zoning, extended due diligence to and various testing and inspections.
Nearly four years ago, I dipped my toe into the commercial real estate pool. As is my nature, I determined that one toe was not enough to indicate the temperature, so I just dove in. To this point, it has been both a refreshing and difficult swim, with absolutely no regrets. Although my first love will probably always be the dog, I’m also enjoying swimming with the manatees; they are large and beautiful creatures.
My first transaction happened more out of necessity than deliberateness. Frankly, I was just tired of writing someone else a rent check for office space. I saw all the other agents in our office writing one out to someone else as well. I wanted to become that person who collected those checks. I found an office and began leasing out space. I’m not getting rich on it, but I’m also not losing money: Plus, it’s a decent tax write-off.
Since that time, I have invested in other commercial properties and have helped clients do the same. While it is an arena that bears higher risk and larger potential for loss, the gains can be incredibly lucrative and gratifying. Ask the people with the golden arches spanning every corner across the globe. So what if McDonald’s fries are immortal? (This is not a good thing with food — i.e. it is supposed to decompose.) They are making a killing on their real estate.