Franchise fee vs value?

[Vernon Martin]

Are these triple-net-leased properties? The last Chili's I appraised was a NNN-leased property, and these types of properties are traded more like bonds than real estate. The Chili's I appraised was bought based on a 5% cap rate because of Chili's superb credit rating. If Longhorn's is also NNN-leased, I would guess that investors would require a higher cap rate, thus explaining the difference in leased fee value.

So, does the assessor assess based on fee simple or leased fee value?

 

[Michigan CG]

Assessing a Chili's at $2.6 M, and a neighboring property at $1.6 M which is superior gives the Chili's lease holder the right in many states to challenge the assessment.

Many states require assessments to be consistent in property types. If there is a 6,000 SF Chili's and it is assessed at $2.6 M, and a restaurant next door the same size assessed at $1.6 M, all other things equal, the Chili's should be protesting the assessment.

Isn't consistency part of the assessor's job in your state?

Vernon, a Chili's purchased at a 5% cap rate? WOW! If it is a small franchise group that changes management, that income stream could dry up in a year.

 

[Lawrence R.]

In our state, we have a loophole, called an assessable transfer of interest.

Sales are one such ATI, so are deeds of distribution, etc...

when a property is transfered via an ATI, we are free to "spot assess" and reappraise the property.

This means that (in general) we would defer to the sale price. I personally had to research over 1200 ATI's last year(whew!) and determine market value. Many times you find consideration that exceeds MV, and you don't change your assessment. Sometimes you do change for the higher sale price.

Before that sounds extremely unfair, realize that our property taxes on a 200K owner occupied home is about 800 dollars a year.

Chili's had a deed showing a 2.6 million consideration, and sold within a year of the other steakhouse. We were sure that there was some consideration here that was not assessable. We were thinking about 1million in a franchise fee was part of the deed.

We will probably put it at 1.6 million.

But in SC, Equity is out the window.

 

[Michigan CG]

Before that sounds extremely unfair, realize that our property taxes on a 200K owner occupied home is about 800 dollars a year.....

.......We were thinking about 1million in a franchise fee was part of the deed.

Wow, $200k house only pays $800 a year in taxes? In states I know that would be $3,500-7,000.

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$1,000,000 in franchise fee....that would be an all time record.

 

[Lawrence R.]

Wow, $200k house only pays $800 a year in taxes? In states I know that would be $3,500-7,000.

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$1,000,000 in franchise fee....that would be an all time record.

Well, we looked at what the original loan amount was before Chili's sold it back to the franchisee, and it was 1.59 million, about the same as the Longhorn's. so, we are trying to figure where the extra mil went to. I thought that seemed a little high, but I come from a Automotive background, and franchise fees can get that high...I think we will need some cooperation from the owner on this one.

Yeah, we save all that tax money by scrimping on education. We don't need no new textbooks! I live in a mobile unit, I don't care if my kids go to school in one!!

 

[Michigan CG]

Well, we looked at what the original loan amount......

The loan could have included personal property. There are a couple hundred thousand dollars worth of equipment in a Chili's.

Franchise fees, last time I saw some run $10-100K for restaurants. Automotive franchise fees are a different bird.

 

[stefan olafson]

Lawrence,

Can't you contact Chili's directly and quiz them? Maybe not on the specific property you are wondering about, but on franchise fees, FF&E typical in a build out, value of Goodwill, etc...

Then I'd call the buyer and seller and ask them similar questions and see where it all falls out.

$1,000,000 for a franchise fee seems quite out of the ordinary. I'd think that profitability of the restaurant may have had a lot to do with the difference in value. But I'm up here in ND where we usually don't know much anyway!

 

[Lawrence R.]

I won't be contacting Chili's...It ain't my stinkin assignment, LOL!!:new_all_coholic: