Business owners are similar to homeowners: when they stay up to date on their loan payments, it is usually a sign that they are doing well financially. As commercial real estate brokers, one of the criteria we use to assess the financial well being of a company’s franchises is the loan default rate of its franchisees. When the default rate is high, it is often a sign that more than failure on the part of franchisees is at play- corporate shortcomings are often involved, too.
Loan default rates are not the only criteria by which income property should be assessed prior to purchase, but they do provide a good entry point for evaluating the financial security of businesses as a triple net lease tenants. With that in mind, below are ten businesses whose default rates for Small Business Administration (SBA) backed loans indicate that having them as triple net property tenants would lead to a profitable income property investment.
Dave Thomas may be gone, but his daughter Wendy and the board of executives for the eponymous burger chain are doing well. Heading into 2012, the restaurant’s franchisees had a 0% loan default rate for the past ten years.
PENN STATION, INC.
Whereas Blimpie is one of the riskiest submarine sandwich makers based on SBA backed loan defaults, Penn Station, Inc. is one of the best. Like Wendy’s, the restaurant chain posted a perfect 0% for defaults between 2000-2012.
Harley Davidson franchises have done well in tough economic times. Thanks to the remarkable brand loyalty the company’s motorcycles generate, its franchisees enjoyed a SBA loan default rate of 0% for the decade 2000-2012.
STEAK N SHAKE
Steak N Shake has burgers and fries that taste like no one else’s. Combine the unique cuisine with affordable prices and excellent corporate backing, and you have a hamburger joint that enjoyed a 0% default rate from 2000-2012.
FIVE GUYS BURGERS AND FRIES
Hiding behind this restaurant’s fun atmosphere, stacked burgers, and mounds of fries is an impeccably run fast food franchise. Five Guys Burgers and Fries’ franchisees had an SBA backed loan default rate of 0% between 2000 and 2012.
In a perfect world, the success of fitness franchises would ride on the success of burger franchises. All jokes aside, Plant Fitness continues to be a good triple net lease real estate tenant, having posted a 0% loan default rate from 2000-2012.
Taco Bell is a well-known franchise with tons of locations—over 5,800 in the U.S. alone. With that number of franchises, there are bound to be some loan defaults. In the decade ending in 2012, only 2.1% of Taco Bell franchisees defaulted.
Another food franchise giant with thousands of locations, Pizza Hut experienced a modest 3.5% default rate between 2000 and 2012. With over 6,000 locations in the U.S., Pizza Hut is widely considered a stable triple net property tenant.
Jimmy John’s has been a notable competitor in the sub sandwich shop market over the past decade, as its 3.5% loan default rate attests. In its 30 years in business, the company has grown to roughly1,600 locations across the U.S.
CULVER’S FROZEN CUSTARD
Culver’s is gradually expanding its operations across the nation. For a company that continues to catch on with the U.S. populace, a default rate of 4.2% over the past decade isn’t bad. Most Culver’s locations make good triple net real estate.