Fast Food & QSR NNN Properties for Sale
While the health food industry is booming, fast food continues to be a staple of the American diet. Believe it or not, over one-third of American adults consume fast food on any given day. That means that every day, there are about 84.8 million people eating fast food in the U.S. alone! In other words, the fast food industry isn’t going anywhere.
Fast food might be cheap, but an investment in the industry has the potential to be highly lucrative. The CDC found that the average American spends over $1,200 per year on fast food alone – and the average American household spends around 10% of their income on it.
That adds up to $110 billion every year. The numbers don’t lie: It’s time to get your foot in the door of the fast food industry.
Fast Food NNN Properties Overview
In America, there are over 200,000 fast food restaurants, often abbreviated in the industry as QSRs, short for quick service restaurants. That number represents a year-over-year growth rate of 1.4%, and the industry is predicted to only grow. California, Texas, and New York boast the highest concentrations of fast food restaurants in the nation.
|Fast Food Triple-Net Lease Properties Overview
|McDonald’s, Burger King, Taco Bell
|Number of business entities
|Average NNN lease property cost
|$1,500,000 - $4,500,000
|Average cap rate
|5.2% - 7.1%
|Typical lease term
|10 - 20 years
|Average lot size
|0.5 - 1.5 acres
|Urban and suburban locations, typically with room for a drive-thru window
Common Fast Food NNN Lease Tenants
Many fast food NNN lease tenants are highly recognizable brands such as McDonald’s, Burger King, Starbucks, and Taco Bell. While McDonald’s continues to dominate the fast-food industry, boasting over 38,000 locations worldwide, Starbucks is quickly catching up – and has recently surpassed McDonald’s in terms of revenue.
In fiscal 2022, Starbucks topped the list of biggest restaurant companies by revenue, clocking in at $32.3 billion on the top line. McDonald’s was close behind at $23.3 billion, Chipotle saw $8.4 billion, and Yum! Brands (parent company of KFC, Pizza Hut, and TacoBell) made $6.7 billion. Clearly, the fast food industry is thriving, making QSR NNN properties a stable investment.
Why Choose a Net Lease Over a Gross Lease When Investing in Commercial Real Estate?
If you are a commercial real estate investor looking for a tenant in the fast food industry, you will see numerous benefits when you choose a net lease over a gross lease. These two categories are usually viewed as opposites.
So what’s the difference? A gross lease states a fixed amount of rent that a landlord charges a tenant to use a given space. The tenant will never pay more or less due to operating expenses, as those are covered by the landlord. Net leases are different because landlords can pass operating expenses to tenants, offering them a more passive investment.
Single, double, and triple-net leases (also known as N, NN, and NNN leases) are the three available tiers. Each level affords the landlord a lower degree of risk, as they can transfer additional expenses to the tenant, making their passive income more consistent.
Single-net leases, or N leases, usually hold the tenant accountable for property taxes and rent – but the landlord is still liable for insurance, maintenance, repairs, and utilities. N leases are less common than their NNN or NN counterparts when it comes to QSR properties.
What Types of Net Leases Are Common in the Fast Food Industry?
Most fast food tenants will sign ground leases with primary terms ranging from 10 to 20 years. Some of these tenants, like Chick-fil-A, will actually invest in constructing built-to-suit structures, which then become the property of the ground lease owner at the end of the lease. When tenants make that level of investment, they’re even more likely to stay in a location.
Fast food tenants typically prefer NNN leases, also called “triple-net leases.” NNN leases hold the tenant accountable for operating expenses and costs related to the property, which can include insurance premiums, property taxes, and bills associated with structural maintenance or repairs. That makes NNN leases highly desirable for commercial real estate investors.
While these leases often allow tenants to pay a lower base rent (because they’re responsible for so many operating costs), they remain attractive. That’s because NNN QSR properties mean fewer property management responsibilities for the landlord, making the investment more passive for a savvy commercial real estate investor.
How to Evaluate a Fast Food Net Lease for Sale
No matter what industry you’re looking for a tenant in, it’s crucial to evaluate both tenant strength and property value when signing an NNN lease. Most fast food restaurants prefer urban and suburban locations along highly trafficked retail corridors. High visibility is also a plus, and proximity to other businesses as well as room for a drive-thru window, are each major value-adds.
Meeting these criteria will help ensure that your tenant does not default on the lease. When your tenant succeeds and continues renting your property, you profit, too. That’s why it’s essential to choose a quality location so that you can continue generating passive income through your investment properties.
Luckily, fast food NNN tenants are typically large companies with strong balance sheets. That means you’ll be able to count on receiving your payments in a timely fashion each month, and you won’t be wasting time chasing down subpar tenants to get your money.
What Makes Fast Food an Attractive Industry for NNN Leases?
The fast food industry is full of benefits for commercial real estate investors. First and foremost, investors will benefit from the recession-proof nature of these tenants – they will be able to withstand even the most challenging economic circumstances, meaning you won’t have to worry about them defaulting on a long-term lease.
Research has shown that essential fast food and QSR NNN properties perform well in any economy, so you’ll enjoy reliable income for years. With absolute net leases (NNN leases) that free you of any property management responsibilities and costs, you will be able to rest easy with passive, consistent income – and with long-term leases, that income is here to stay.
How Do Fast Food NNN Properties Compare to Others?
One of the most attractive components of a fast food triple-net lease tenant is the fact that many of these leases are backed by strong corporate guarantees. Fast food restaurants are high-quality opportunities that typically offer promising financials and are investment-grade tenants who are sure to pay their dues.
For instance, McDonald’s and Starbucks both offer an impressive credit rating of BBB+ from Standard & Poor’s. With continuing growth in the fast food industry and attractive cap rates that allow for strong returns on your investment, fast food is a great place to enter the world of commercial real estate.