–By Sunny Sajnani, Senior Director
Metropolitan Capital Advisors (“MCA”) recently launched a restaurant financing platform to take advantage of a sector that traditional real estate finance intermediaries have steered away from. Our firm is currently working with several successful restaurateurs to help expand their businesses. In the past 18-months, MCA has closed over 15 restaurant financing packages totaling over $60mm. Most of these financings did NOT include any fee-owned real estate.
Restaurant (or operational) finance is secured by cash flow, leasehold improvements, and inventory whereas a typical real estate mortgage is secured by bricks and sticks. In a typical real estate financing, terms like Loan-to-Value (LTV), Debt Service Coverage (DSC), and Net Operating Income (NOI) are thrown around regularly. In operational finance, although the concepts are similar, the lingo is completely different. Lenders prefer to use metrics such as Lease Adjusted Leverage (LAL), Fixed Charge Coverage (FCC), and Earnings Before Interest Taxes Depreciation and Amortization (EBITDA).
MCA has witnessed lenders grow more aggressive in financing franchisees of top tier brands such as Burger King, KFC and Wendy’s. This has been a result of large corporations (such as YUM! Brands) divesting of corporate-owned restaurants in large packages to experienced franchisee operators. In most scenarios these franchisees can operate these restaurants more efficiently by reducing overhead and increasing margins. Also, the franchisors prefer to sell these restaurants to proven operators so they can bank on a royalty income stream going forward.
Lenders have seen the positive result of new management taking over these portfolios and are lending aggressively to get the business. Not only are the banks getting interest income on the loans they are providing but they typically require a full service relationship including treasury management, credit processing, insurance, etc., producing large revenue streams for the banks. According to Restaurant Finance Monitor’s annual ranking, the 200 largest U.S. restaurant franchisees reported over $26.3 billion in sales and operated 20,331 units in 2012. Both measures are up by some 10% from the previous year and by 20% from the depths of the recession in 2009. By contrast, the food-service industry as a whole grew by just 1.3% between 2011 and 2012. These statistics show that big restaurant franchisees are getting even bigger.
Although lenders are getting aggressive, they are still being selective when it comes to whom they will lend. On every restaurant financing assignment that MCA takes on, we present to a wide cast of lenders to make sure that we are covering the market thoroughly and have a high certainty of execution, especially on an acquisition. Also, on large acquisitions and refinances that include several units, MCA has an experienced closing team that assists borrowers with all the nuances of closing leasehold or fee mortgage loans. This can include tracking down landlords to execute waivers, handling title issues in various states, and coordinating third parties. MCA is now a one-stop shop for restaurant financing as well as real estate financing. For more information on available finance options for your branded restaurant financing requirement, contact MCA Senior Director Sunny Sajnani (firstname.lastname@example.org or 972-267-0600).