Franchise Lawyer Blog

Location, Location, Location

Our firm has always been extensively involved in real estate, so this week I walked up 6th Avenue in Manhattan to the New York Hilton to visit the annual New York Conference of the International Council of Shopping Centers (“ICSC“), the premier retail real estate organization in the United States. The ICSC Conference is where commercial landlords, including most of the major mall owners and real estate developers in the country, gather to make deals. The conference also attracts potential tenants of all shapes and sizes, including (and here’s the connection to our blog) many franchisors. In fact, a walk around the countless booths brought me face to face with many of the nation’s major franchising companies: Burger King and Dunkin’ Donuts, among others. There are also a host of lenders, brand experts and other advisors looking to provide assistance to prospective retail tenants.

The tone at this function could not be described as somber; this is, after all, a room full of salesmen (and saleswomen). However, the crowd seemed a little thinner than at prior events, with the occasional booth operator standing forlornly alone with no one to talk to. Various speakers gave the bad news, retail chain store sales have fallen a record 2.7% year over year in November. With this morning’s Wall Street Journal announcing that the World Bank predicts an unprecedented global recession, it wasn’t hard to detect a panicky note in the air, a more strident tone in the hub bub of conversation.

What does this mean for franchising? Well, obviously this worldwide slowdown is going to have a negative effect on just about everyone. Franchisors and their franchisees will have to adjust to reduced demand, tightened credit, rising costs and everything else that goes with it.
But within the real estate context the news from this conference is that attractive real estate deals can be made. It is a buyer’s market for premium locations. A franchise system that is weathering this storm and cautiously thinking about expansion will be able to find attractive sites at prices that are significantly more affordable than they were even a few months ago. And those prices will probably be reduced even further as demand continues to weaken. A franchisee who secures a long term location at this point will be paying prices that a few years from now, when (not if) things turn around, will look like the deal of this new century.

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