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What the Big Real Estate Players Do

What do companies who buy tons of real estate do? How do they decide where they're going to put their stores or fast food restaurants....? Where does Whole Foods put its stores? Where does Starbucks put their coffee shops? How do large corporations or chains buy real estate?

How does one become a real estate mogul...? Not everyone can be Donald Trump, with their name on buildings across the country, but not everyone gets a loan from their Dad either. Yes, Trump got a loan from his Dad when he was starting out in New York real estate.

But to become a real estate mogul, the idea is to think like savvy stores and restaurants who always seems to put their shops and cafes in up and coming neighborhoods or trendy areas of town.

And there was this from Zillow about buying property near Whole Foods or Trader Joe's:

"Zillow found that homes grow more rapidly in value if they are closer to a Trader Joe's or Whole Foods," the company said in a release.

Between 1997 and 2014, homes near the two grocery chains were consistently worth more than the median U.S. home. By the end of 2014, homes within a mile of either store were worth more than twice as much as the median home in the rest of the country."

How do the power players in real estate decide where or what property to buy? The idea is to think like those real estate moguls so you can someday become at least a local real estate mogul.

I’ve heard that the main focus for McDonald’s, when they were just an upstart company, was to add new franchises so they could increase their empire of investment properties that they owned - their McDonald's restaurants were essentially income generating properties and restaurants on a secondary level.

Could it be, then, that McDonald’s is first a real estate investment powerhouse and a restaurant chain second? It certainly seems that way—let’s take a look.

According to former CFO of McDonald's:

"We are in the real estate business. The only reason we sell hamburgers is because they are the greatest producer of revenue from which our tenants can pay us rent."

McDonald’s buys and sells properties, usually restaurant lots, but sometimes other properties they feel will be hotspots in the near future. Think about it. McDonald’s has buildings in almost every major city worldwide, ranging from the hottest of spots to the not so greatest of spots. They’re everywhere.

On top of the franchise fees which McDonald's charges its franchisees to use the "McDonald's" name, it charges rent to the franchisees to use the corporately-owned properties. According to their August, 2003 10-Q, McDonald's had approximately $1.6 billion dollars in earnings available for fixed charges, for the six months prior to June 30, 2003. Of those earnings, $141.6 million—nearly 10%—came from "rent charges...considered to be representative of interest factor". Source

But you don’t have to establish worldwide dominance in order to do what McDonald’s has done. In San Francisco, there’s the ubiquitous Academy of Art, bussing students to and fro from their various downtown locations. If you want to talk about valuable real estate, this art school not only has property in the financial district but also along various parts of the theatre district and beyond.

The Academy of Art College has managed to insinuate itself into the consciousness of San Franciscans as a legitimate art school. It has accomplished this through advertising (its spots have appeared on MTV and elsewhere), prominent campuses (the Stephens family, which owns the college, has accumulated downtown buildings appraised at $36 million, each prominently displaying AAC signs), and a fleet of logo adorned, navy blue buses that endlessly plies the downtown area. Source

TIP: Think about the “Don’t Be Evil” philosophy outlined by Google. It’s a tight rope at times, but in the long run it’s better to make a just decision, and recoup revenue from property that is thoroughly researched and honest.

I’ve also heard a story about how the head of Wal-Mart would fly over cities he was interested in, scouting where all the houses were located and where neighborhoods were expanding. Then, he would put a new store somewhere in the general vicinity.  That's certainly one way to do your research, a bit too vague. You really don't know a great deal about all those houses or neighborhoods - are they potential Wal-mart shoppers or are they more likely to go to Costco or WholeFoods?

Well, now that we have Google Earth, there’s no need for a chopper or a plane. There’s also statistical data that reinforces a spatial view of expanding neighborhoods. And if that weren’t enough, we all have access to all sorts of information that can help guide us in our decision making process, ranging from employment rates to salaries to school data.

Remember, this isn’t an emotional decision but one that is based on numbers. But if your gut is telling you, “This house is unique and worth the price,” then go with your intuition and instincts, but only if you have the experience.

TIP: Track where new companies are establishing themselves or relocating. Follow new sports teams that are moving in or out of areas. If there’s anything that can create new properties, then find out what it is and get on it! Alternately, you want to take note if the reverse is happening: teams are moving out of a city, companies abandoning their locations, etc.

Read more: Real Estate Moguls



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