Franchising in New England

Dees Stribling, Contributing Editor for Commercial Property News states in an interesting article that:

“The sale-leaseback deal was mostly invented to provide an alternate source of capital for a company that dislikes too much debt, or simply wants more capital than its bank cares to lend it. These days, it seems, that alternative can be all the more useful for corporate finance, now that banks in general are hesitating to lend, regardless of the creditworthiness of the borrower.

One real estate owner tapping into the sale-leaseback source in a big way recently is DineEquity Inc., franchisor and operator of Applebee’s Neighborhood Grill & Bar and IHOP Restaurants, which just inked deals with an assortment of buyers to sell 66 Applebee’s company-owned restaurants in Houston, Dallas, Texas and Albuquerque.

These deals come immediate after the company completed the sale of 15 company-operated Applebee’s restaurants in Nevada, and earlier this year, DineEquity sold 29 company-operated restaurants in southern California and Delaware.

All together, these transactions represent 110 locations, and the company is looking to sell more. DineEquity expects to generate about $63 million in after-tax cash proceeds from the sale of the 110 Applebee’s restaurants. An additional benefit to the company is that the locations are mostly Applebee’s lowest profit-performing restaurants, the sale of which will remove their negative impact from DineEquity’s P&L statement.

“We’re actively negotiating with several interested buyers for each of Applebee’s remaining company-operated restaurants available for sale,” said Julia A. Stewart, DineEquity’s chairman and chief executive officer. “While the chill in the credit markets presents a challenge to our refranchising efforts, we believe it isn’t insurmountable.”

But where to find the buyers? DineEquity, for one, is fortunate in that a number of its new franchisees are interested in becoming owners. “The sale transfers the stewardship of these Applebee’s to the hands of experienced restaurant operators new to the system, who are capable of delivering a higher level of performance in these markets,” said Stewart. “They believe in and are committed to Applebee’s brand revitalization efforts under way.”

For example, in the sale of 22 company-operated restaurants in Houston, Wellington D. Yu, a franchisee new to the Applebee’s system, is the buyer. Yu is the president of the Peterson Group Inc., a real estate development and management firm, but has been involved in the restaurant industry for more than 25 years as a franchisee of various brands, including McDonald’s.

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Utilizing Retirement Savings as a Funding Source.

With small business loans and second mortgages scarce these days, some middle age entrepreneurs are starting companies using their retirement savings, a novel financing method that is helping people get into their own business.

Jon Wilson and Larry Blasier discovered the retirement financing option when together they decided they wanted to open a MAACO Franchise in San Luis Obispo, CA.

Jon and Larry shared a passion for restoring cars and were excited when they were approved to build a MAACO in their community. Jon has worked 21 years for the California Department of Corrections and Larry has worked 27 years for Long Beach Transit.

They both knew that this was what they wanted to do. The investment required to open a MAACO was approximately $296,500.00. That was more cash than they had available so they needed to assemble a financing plan. IRA Rollover Solutions of Kirkland, WA a NEFA Member set up a C Corporation for them, a designation which allows a company to issue private shares of stock. Then a profit-sharing retirement plan was created within the corporation, making it eligible to accept pretax retirement contributions, without penalty or tax consequences.

Both Jon and Larry rolled over $75,000 each from their retirement savings, into the profit-sharing plan. As a result, the C Corporation could then use the money to invest in a MAACO franchise. They were also able to secure an additional $350,000 thru a SBA Loan provided by Small Business Loan Source, of Houston TX. The SBA Loan came in at 2 ½ points over Prime for 10 years 6 months, with the first six months interest only.

Jon Wilson knew right away when he contacted IRA Rollover Solutions, “this company was the right one for us. Rick Cox and Tom McDonald knew exactly what we wanted to do and handled the whole process with ease. We were never in the dark about anything and they were very professional in all aspects of getting our corporation established and us getting the start up money we needed.”

Jon and Larry have worked hard other the last few months is getting their MAACO franchise off the ground they signed a lease in August at 770 Capitolio Way, San Luis Obispo, CA 93401. They are scheduled to open by December 1^st.