Article

Real estate redo

Economic troubles send franchisees and landlords back to the bargaining table.

March 18, 2009 by Valerie Killifer — senior editor, NetWorld Alliance

With little economic relief in sight, franchisors are taking steps to help their clients stay afloat through lease renegotiation programs.

Quiznos announced March 18 an initiative to renegotiate franchisee leases at no cost to franchise owners. And Tropical Smoothie CafÃ© also is in the process of creating a formalized template designed to help franchisees initiate similar renegotiations.

Denver-based Quiznos has established three teams to renegotiate store leases in accordance with current market values, and has already renegotiated 40 since the teams have been in operation, according to a company release. The store leases in consideration include those that are expired as well as ones that have high rent given current property values.

"Even a down economy can be an opportunity, and the current market for retail rent is an example of that," said Rick Schaden, Quiznos founder and CEO. "Through innovative and strategic techniques, we are working toward mitigating the impact of the economic situation and ensuring our franchise owners' success."

Alisa Harrison, spokeswoman with the International Franchise Association, said the organization is hearing more about members who are using lease renegotiations as a tactic to cut costs and focus on unit economics.

The association offers a list of suppliers in the real estate field that can help franchisees at least start the renegotiation discussion, or even become aware that a lease renegotiation is possible.

Dan Wirtz, president of Atlanta-based Windsor Realty, said the company is developing a lease renegotiation plan for Tropical Smoothie CafÃ© and its franchisees. The plan will be a template for franchisees and covers how they can approach landlords and the type of sales information they'll need to take into the discussion.

"The strategy is going back to landlords and saying â€˜let me show you what sales were and what they are now, and here are the proactive steps that I've been taking (to boost sales)," said Tropical Smoothie CEO Jim Valentino. "At the end of the day, everybody needs to help keep all of the businesses afloat. If (franchisees) have a need they have to get up, get aggressive and get it done."

Additionally, if a Tropical Smoothie franchisee feels uncomfortable with the renegotiation discussion, Windsor also can step in to help.

"We get this call almost daily from our franchisees and franchisors," said Wirtz.

How much leverage a franchisee has depends on several factors, such as the size of the unit and how much term is left on the lease. A tenant needs to make a compelling reason why the lease needs to be renegotiated, such as sales are down 30 percent from last year, or the development site has lost a couple of anchors.

"Most landlords are human and understand the situation and where we are," Wirtz said. "It also depends a lot on the landlord's situation. A landlord strapped for cash, or struggling with his note, is not going to be able to do it. It really is a situational item.I caution people that it can be done, but go in with your eyes and ears open and be realistic about what you want to get out of it."