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 56 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