Multi-Unit Franchisee Magazine Issue III, 2017 | Page 58

BY SARA WYKES
Space
IS THE PLACE
BREAKING GROUND IS HARD TO DO IN 2017
“R
eal estate develop-
ment is one of the
hardest things for
a franchise,” says
Philip Schram, chief development offi-
cer and chair of Buffalo Wings & Rings.
Since buying the brand in 2005 with
Nader Masadeh and Haytham David, he
has helped rejuvenate and rebuild it to 70
locations today. However, changes in the
real estate market, construction industry,
lending policies, and regulations are slow-
ing him from his goal of adding 75 new
locations in the next 5 years.
“In 2009, when the economy col-
lapsed, a lot of people left construction,”
says Schram. The result was a shortage
of qualified contractors and construction
workers. As the downturn continued, no-
body wanted to be a tenant, he says, and
“we developed an excess of real estate.”
For those willing to sign a lease, it was a
buyer’s paradise.
But when the economy began to re-
cover and development activity increased,
that labor shortage persisted, even wors-
ened, as many contractors had exited the
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MULTI-UNIT FRANCHISEE IS S UE III, 2017
business. Of those who remained, he says,
“builders can only go at a certain speed.”
Nearly a decade later, fallout from the
subprime mortgage crisis also persists, re-
sulting in a real estate and lending market
nowhere near as friendly as it had been
before the Great Recession.
“Before that,” says Schram, “there was
Philip Schram
much more trust that the money would
go to the right person and the job would
be done. Now there is less trust and more
underwriting, and that takes time. There
are new guidelines banks must follow that
are more stringent than they were in 2009.”
Robert Thatcher, director of franchise
and real estate development for Ben’s Soft
Pretzels, agrees. “The days of 110 percent
financing are long gone,” he says. “It takes
real equity now.” Thatcher says he’s also
seeing today’s higher costs for the most
desirable real estate driving an expansion
out of core markets into secondary and
tertiary markets, where land and rents are
more affordable.
Power shift
The economic recovery that followed the
recession also altered the attitude of mu-
nicipalities toward development. “When
things were slow, cities were begging de-
velopers to come in,” says Schram. “Now
they are in a stronger position and are be-
coming more demanding—and that affects
how long it takes to develop a location.”
The economy’s improving health has