My Podner in this episode is Brendan Charles and he’s going to talk with us today about what franchisors should be teaching their franchisees about site selection, real estate negotiations, and build-out. Bad decisions in these areas can be detrimental to the success of the location. Everybody has some skin in the game here. This discussion will benefit both new and seasoned franchisors.
Brendan Charles Intro
Get to know Brendan
Topic Segment – Site Selection, Real Estate, and Buildout
Topics Discussed in this Episode
- You only get one chance to get the real estate right.
- Real estate is one of the three main controllable in a franchise business model but real estate is only a “controllable” until you sign the lease.
- If you don’t know what your break even is BEFORE you start looking for real estate, then your real estate decision could break you.
- #1 rule in site selection – Never fall in love with a space.
- The real estate brokers’ incentives are not necessarily aligned with yours – the more you pay in rent, the more the broker gets paid on commissions
- Know exactly what your site selection criteria are BEFORE you start your search
- How do you develop site selection criteria when you only have one location to go by?
- Utilize the free services of your real estate broker to provide the demographic reporting
- Once you have multiple locations in operation (data points), then you can compare performance with location attributes and fine tune your site criteria
- Onboard your broker about the brand – make sure they share the enthusiasm of the brand’s potential as they will be your #1 sales person when presenting the concept to potential landlords
- Spend a full day viewing all available locations in the “Market Tour”. Take copious notes on the good as well as the bad locations
- Boil your options down to 3-5 locations
- Time kills all deals. You have to move FAST after your market tour and get the letters of intent out quickly.
- The franchisor should be very involved in the site selection process – don’t sit on the sidelines
- Submitting a good letter of intent is the most important step in the whole landlord negotiation process – rent, term, tenant improvements, etc.
- If you don’t get the Letter of Intent right, there is no way you will get the build out right, and if you don’t get the build out right, you’ll be behind schedule and way out of budget
- Once the letter of intent is delivered, the landlord is on notice to respond, however, that doesn’t mean that you can stop looking.
- Always have backup sites in your pocket
- Use two LOIs to leverage the deals against each other.
- Once you reach the lease stage, the due diligence of the space continues – make sure that the space is exactly what the landlord advertised it to be. This is done with a site survey
- The drawings from the landlord aren’t always accurate so don’t rely on them
- It is best to utilize a national architect for every franchised location rather than local architects
- Floor plan design in a restaurant – the dining room is your money maker and should be maximized
- Familiarize yourself with the design review process – go down to the city offices and meet the people who will be doing the plan review
- Identify general contractor bid pool – qualify them – Have they built in the market you are in? – Do they have the relationships with the city officials, etc. Avoid too many GCs in the bid pool
- At the time of the build-out, the interests of the landlord are in line with yours because they get rent money once you open your doors for business, so they can be a good source of referrals of general contractors.
- Poorly planned design submitted to the city will stall the process
- Be aware of a TAP Fee – a fee by the city in order to tap into the utilities. This can be very expensive
- Ensure you have a plan to get your FF&E paid for and delivered on time according to the contractors timeline
- Qualify the bids by ensuring that everything in the bid is supposed to be there and nothing is there that isn’t supposed to be there. Be sure to clarify who will be responsible for what activities and purchases. Make sure there is a clear matrix of responsibility.
- No hammer can swing until the building permit is issued
- There is no return on investment for the franchisee to be on site every day once hammers start swinging, rather, they should be focused on the bigger picture of doing the activities in preparation for the opening day such as hiring staff and marketing for the grand opening
Red C Business Advocacy
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