Commercial Real Estate - Franchise (Owner Occupied) Seeking Financing

[Cory St. Esprit]

I am a franchisee with Subway. I currently own 30 units and we do about $15M a year. I am adding about 20 more this year, but there's one small pocket I'm struggling with the financing on (honestly, due to Huntington Bank dragging their feet on items, etc.), so I'm seeing what other options there may be. 

It's a 3 restaurant package in West Virginia (where we already have a base) and includes 1 piece of real estate. EBITDA on the 3 franchises is about $374,000. I've got signed deal with Seller for $250,000, which includes the 3 franchises AND the real estate for 1 of the units. Need about $125,000 in CAPEX between the units to bring them up to current Subway image.

Typically, a Subway will go for 3.25x EBITDA. I just happen to have found a really good deal at a really good time. I've been doing this 20 years, so know how to operate these. Anyone have insight on lending options out there? Seller doesn't care how we split the real estate vs. the franchise, but I don't think I could get $250,000 for the real estate. Is there a commercial DSCR option?

[Doug Smith]

I own a mortgage company now that does both residential and commercial finance, but I spent years as a commercial banker with both big banks (First Union/Wachovia) and 2 community banks. Huntington is a very conservative bank. If it were me, I would reach out to other franchisees in your area (perhaps your Development Agent might have some insight...see...I know the Subway lingo and I've done Subways in my banking days). I would also consider being a bigger fish in a smaller pond. By that I mean community banks. They tend to be less bureaucratic and more creative than big banks. I can likely do this loan, but in all fairness, with this type of loan I suspect a community bank is going to beat me out. I'll likely be higher priced on an owner-occupied restaurant franchise, but you've been around the block and have a significant track record. I think a community bank would be much more apt to put a deal together for you than a big national or regional bank like Huntington. Good luck to you!