Deal Insight: How to Complete a 21-Unit Taco Bell Deal

 

Allen Brown, Director GRS | Title

Allen Brown, Director
GRS | Title

Barry Bain, Director GRS | Centaur

Barry Bain, Director
GRS | Centaur

Large commercial real estate portfolio deals can get complicated. It can get even more complex when you’re dealing with multiple ownership interests in several locales. GRS Group recently played a big role in the transaction of 21 Taco Bell restaurants in Michigan, Ohio and Pennsylvania. The deal involved the acquisition of some of the properties by a REIT, Agree Realty Corp., franchisee Charter Foods North, not to mention Yum! Brands, which owns Taco Bell. GRS Group was able to use its Global Services Connection to provide both financing and title assistance on the deal to help the transaction take place. Barry Bain, a director with GRS financing arm GRS | Centaur, orchestrated the due diligence on the purchase with Allen Brown, national accounts manager of GRS | Title. Bain spoke with us about the transaction’s complexities and how the team got the job done.

How was this deal different from other transactions you’ve worked on?

It was a multi-property multi-state transaction involving several parties beyond just a seller and buyer. It was one franchisee selling to another franchisee, with the selling franchisee being advised by MarshallMorgan, an advisor to the restaurant industry. MarshallMorgan approached GRS Group | Centaur to find a buyer for the real estate when they learned the buyer only wanted to buy the business.  Additionally, the buyer secured bank financing from Regions Bank for the purchase of the business, thus that made six parties, including the buyer of the real estate in the transaction, aside from GRS | Title and Corteq.  Secondly, with this being within the Taco Bell system, Taco Bell Corporate is very particular about their franchisees being in compliance with their franchise and development agreements.  As a result, this transaction went down the road with three different buyers before the final buyer got to contract and closing.

Is having so many different parties involved something unusual for you to come across?

It’s somewhat run of the mill, but it’s unique as to where we got involved in the transaction. By getting involved at the front end by the adviser that was hired by the seller, it allowed us to have more influence over the sale-leaseback and the other services that we were able to provide and help execute the transaction. And honestly, GRS was aware of the transaction well in advance as MarshallMorgan had actually called upon us to provide them quotes in due diligence and transaction services at the commencement of their assignment. Often we’re not finding out about the deal until a buyer has secured the transaction, and they decide to sale-leaseback the real estate and need to find someone to assist them. That’s when GRS Centaur would typically get engaged. Then on the transaction-services side, that’s generally when the buyer needs title survey, environmental due diligence and those services. But being involved from the outset allowed us to be in front of and talking to each of the parties in the transaction.

All three of these states are close together, but I’m sure each of them are different to do business in. Was that a challenge at all?

Not so much on the Centaur side. On the title side, yes, because you’re dealing with different counties and states from a transfer and title requirement standpoint. One of the really unique things about this particular transaction being executed in Ohio and Western Pennsylvania is that it’s a very large oil and gas exploration area. Each one of the properties had an underlying oil and gas lease for subsurface rights, which made it somewhat challenging from the title and environmental sides. Albeit, most of these leases were several years old and none of them had been acted on, and the seller hadn’t received any royalties of any sort, but the idea someone could come in at any point in the future and drill on a site was an interesting dynamic. There were some endorsements that were required from title and some business-education in regards to the territory and how these oil and gas leases existed and what mineral rights were available, if any, in the area. That was something you don’t find too often in other states around the country.

One of the parties, Agree Realty Corp., is a REIT. Did that add any different dynamics to the transaction?

In general, if a REIT is involved in a transaction like this, it would tend to be much more complicated. But in regards to Agree, they were relatively easy to work with.

Does the sale-leaseback and single-tenant transaction climate for restaurants still have a lot of momentum? Are we going to see as much activity in the future?

I see it continuing. We’re seeing more of the multi-property transactions and merger and acquisition activity between franchisees, particularly in the major brands like Taco Bell, Wendy’s, Burger King and the other nationals around the country. You have a lot of franchisees that have been in the business for a long time, and they’re ready to retire and move on, so they’re going to be selling. Private equity is continuing to heavily pursue the restaurant space. We’re putting together a private equity list with those involved in restaurants. When I started out the project a couple of months ago, I figured there might be a dozen. I continued to research and there are probably two dozen that invest in the restaurant space, anywhere from investing in a Taco Bell to a TGI Fridays to more regional brands, the latest being Berkshire Partners Investment in The Portillo Restaurant Group, which has expanded from the Chicago Metro area to Arizona.

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