Culver's

[josephdifranco]

Hello,

I'm appraising an owner occupied Culvers, just built in 2014. The owner paid in the ballpark of $450/SF for the vacant land, the building and the site improvements. What he paid is generally supported by the cost approach. Most of the fee simple sales are in the $200 to $280 range, reflecting resales which were generally constructed from 2000 to 2008, some with more recent renovations. There was one Culver's sale at about $450 per square foot, but it was a tenant purchase. I was unable to get the lease rate or lease details, but these investment sales tend to sell much higher versus the fee simple sales. I have tried but can't get any additional details.

I would welcome your advice as to how to view this property, whether the most likely purchaser would be a Culver's operator; which would lead me to emphasize the cost approach or if it should be viewed as second generation; emphasizing sales comparison. Maybe split the difference?

Thanks for any help,

Joe

 

[nstanbru]

Forgive my ignorance, but what is a Culvers?

 

[josephdifranco]

Franchise restaurant.

 

[Michael S]

The leased fee value for properties like this can easily be double the fee simple value. If this is a single franchisee even with a sale-leaseback and a 15-year lease an investor would demand a higher cap rate due to the risk of a single operator. I'm not sure what market rent would be but in theory a more experienced operator would have higher sales and therefore be able to support a higher rent.

If you're valuing the fee simple interest, it is what it is. I'm sure you could find some other second generation fast food sales, not necessarily Culver's. I suspect a sale-leaseback would generate the highest value as compared to a sale to another owner-user, especially if it was a different concept that required extensive remodeling.

 

[Mile High Trout]

Forgive my ignorance, but what is a Culvers?

https://www.facebook.com/culvers/posts/156904767841348

It's the place you drive by, on your way to Chipotle.

 

[Gobears81]

I remember valuing a fast food restaurant and although all items in the income approach were well supported, it resulted in a value that was head and shoulders above the sales approach. The sales that were used were fairly good also, so I had a similar problem. As a result, I emailed an AI instructor, and his response asked whether the property is locationally and physically suitable for a national tenant. If so, the most likely purchaser is a passive investor.

I thought that was a great statement because it is a case of theory meeting application. There are some odd cases that appraisers face (such as some assessment statutes) where this statement is very relevant also.

That is not to say that a property that is currently owner occupied would sell for $700 per square like some leased fast food restaurants do, simply because it is suitable for a national tenant. Also, the operator may not have had sufficient time to determine a stabilized sales or earnings, but it may shed some light.

 

[JTip]

https://www.facebook.com/culvers/posts/156904767841348

It's the place you drive by, on your way to Chipotle.

LOL.

Come on MHT, how can you pass on an order of deep fried cheese curds?

 

[Stephen J. Vertin MAI]

Forgive my ignorance, but what is a Culvers?

Best fast food burger in the country. Very big in the Mid-west

It's the place you drive by, on your way to Chipotle.

You must be under 40?

 

[Terrel L. Shields]

Never have sit foot in either... I guess than means I am over 60...and damn...they're right...I am.

PS - Michael S gave you good guidance. The fee simple value is likely going to be affected by any specialized franchise equipment, signage, design, etc. Terms of the franchise may point to special items that will have to be removed or modified if sold. (For instance, the old KFCs had a distinctive roof line which had to be modified if the building was sold to someone else.) So you may be dealing with some obsolescence off the CA related to special (overbuilt) improvements.

 

[Highlight17]

Can't speak specifically to Culvers, but these fast food franchises often sell higher when its the leased fee interest due to the rent being partially based on construction costs, as these are often build to suit. So, the rent includes amortization of project costs as well as a 'market rent' component. I may be off on this, but can't imagine an investor buying a vacant (i.e. owner-user seller) Culvers with the intent if placing a new operator of the same franchise into it (way too many contingencies). Apart from a leaseback, I would think it would sell to another owner-user, as a going-concern. Therefore, the income approach would be emphasized (sales revenue less COGS, plus other revenue, less OE's to get EBITDA). If you go this way, and your client is Federally Regulated, you'll likely be asked to estiomate the contributory value of the various components which comprise the total assets of the business.