This article was written by David Sobelman, CEO and founder of 3 Properties.
When I say “Chick-fil-A,” what imagery or emotion arises in you? For me, it’s the greatest nuggets on the face of the planet and an uncontrollable desire to never stop eating them. I also think of the wonderful service, the nice nature of everyone in the store, working or patronizing, the memories I have watching my children romping on their playgrounds, how happy they were and how much Purell I used on them afterwards.
Additionally, I think of the mutual patience, with everyone present, that is willing to put up with a crowded, yet pleasant, experience. These experiences resonate with me for so many personal reasons that it could just be possible that they overshadow some very glaring attributes of my physiological experience (i.e. gormandizing fast food, etc.).
It is the overshadowing thoughts that may be exactly what the market wants you to have when underwriting the value of your triple net leased investment.
Using a Chick-fil-A as an example, or any tenant for that matter, from a net lease investment perspective, can you ask yourself if the name on the sign actually matters? Malcolm Gladwell’s book Blink: The Power of Thinking without Thinking is the inspiration for the above argument about “blink” responses and Chick-fil-A.
Have you seen the balance sheet of Chick-fil-A – or ANY audited financial statements? There is a Franchise Disclosure Document (FDD) summary on the company that could be found with enough effort, but it’s usually just a summary and it’s usually hacked by someone looking for “click-bait” so you’re ultimately unsure of any accuracy.
The answer for most investors is that they are purchasing a property for millions of dollars at one of the lowest returns (cap rates) on the market based on the name on the sign – not from any other financial or quantifiable metrics! Don’t get me wrong, I love their food and will drive out of my way to get some, and it appears that they make a lot of money because their stores are rarely empty. But what if they leave? Will the next tenant have that same draw? Will I drive out of my way for a Chick-fil-B?
At 3 Properties, we like to say, “take the sign off the building and keep everything else in place (the balance sheet, the credit risk, the lease terms, the location, etc.) and then decide if it’s a property that should be bought or sold.” We use math and other fancy ways to determine value, not a sign or your “Blink” response.
However, I look forward to my next visit to Chick-fil-A because, REALLY, who would ever go to Chick-fil-B?