National pizza chain net lease investment

[Rao Mu]

I am in contract to buy a Free standing property leases to a national pizza chain. I am picking it at a high cap of 9+ with only 2 years remaining in lease. They have been operating this location for almost 23 years and the business remained same national chain all these years with 3 different franchises. Present franchisee operates around 50+ locations. It has around 10 parking spots too.

Location is really good with traffic light intersection and full egress on both sides. It’s in a suburb of Philadelphia and it is densely populated. Half a block on that highway has Olive Garden and other half a block has another national restaurant chain.

  From the brokers words, present tenants want to buy it but at a lower price which owners didn’t agree. So, my guess is that they will stay and renegotiate lease.

  This is my first commercial investment and wondering what are the risks I didn’t anticipate. Purchase price is fairly low less than 400k.

[Account Closed]

Some things to consider.

How much longer is left on their franchise agreement? Does it's expiration line up with the lease?

With a 50+ location franchise they probably get some pretty good incentives for keeping locations open. They probably also need to do capital intensive re-models in order to keep their franchise so they'll ask for build-out money at the lease expiration. Some larger franchisees are public so you can look at 10-k financial reports that have a lot of details that might be helpful.

Are there any big box stores recently built in the area? Those locations tend to be more profitable and they could be planning a move to a pad location somewhere nearby.