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- 🚦The Hard Corner
🚦The Hard Corner
Happy Thursday!
We're your go-to source for the latest news in the retail and finance sector of commercial real estate. Every other week, we'll provide you with a concise and insightful roundup of the key stories shaping our markets.
This edition covers critical shifts and strategies in real estate and retail. Fast-casual brands Chipotle, Wingstop, and Shake Shack have announced plans to open over 700 new locations in 2024, capitalizing on strong Q3 performance and steady consumer demand. This rapid expansion stands in contrast to casual dining chains like Denny’s and TGI Fridays, which are closing underperforming units. While these closures highlight struggles across parts of the restaurant industry, fast-casual brands are thriving and expanding, widening the performance gap in commercial real estate as prime retail spaces shift toward high-growth sectors.
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📉 Market Spotlight
S&P 500 Current: 5,966.03 2 Weeks Ago: 5,705.45 | 10 Year Treasury Current: 4.39% 2 Weeks Ago: 4.36% |
1 Month SOFR Current: 4.79% 2 Weeks Ago: 4.84% | WSJ Prime Rate Current: 7.75% 2 Weeks Ago: 8.00% |
*Data from 11/14/2024
📰 Featured News
Fast-Casual Giants Target 700+ New Locations Amidst Industry-Wide Restaurant Shake-Up
As casual dining chains shutter stores, Chipotle, Wingstop, and Shake Shack leverage strong growth to expand aggressively, signaling a widening gap between top-performing brands and struggling competitors.
Fast-Casual Brands Expand Rapidly as Casual Dining Chains Falter
Over an 18-hour span this week, three leading fast-casual brands—Chipotle, Wingstop, and Shake Shack—outlined aggressive growth strategies for the coming year following strong third-quarter performances. These brands are collectively targeting over 700 new locations in 2024, leveraging their growth momentum as traditional casual dining chains like Denny’s and TGI Fridays continue to close underperforming units.
The contrasting trends highlight a divide in the restaurant industry. Denny’s has plans to shutter 150 locations by 2025, while TGI Fridays has also been closing restaurants. Quick-service restaurants (QSRs) face challenges as well, with Wendy’s announcing plans to close about 140 locations due to traffic struggles. Against this backdrop, fast-casual brands are ramping up expansion, further emphasizing the performance gap that has emerged within the industry.
Chipotle’s Expansion Strategy
Chipotle opened 86 new restaurants in Q3, bringing its total to 3,615, a 9% increase from last year. The chain is on track to open between 285 and 315 new restaurants in 2024, focusing heavily on "Chipotlanes," which enhance customer convenience by offering digital order pickup. The company also continues its expansion in Canada and has plans for further growth in Europe and the Middle East.
Wingstop’s Record-Breaking Growth
Wingstop achieved 106 new openings in Q3, setting a quarterly record and increasing its unit count by over 17% compared to last year. The brand, which has set a target of 320 to 330 new locations globally for 2024, benefits from strong unit economics, with average unit volume exceeding $2.1 million. The vast majority of Wingstop’s growth comes from its existing franchisee network.
Shake Shack’s Steady Expansion with a Focus on Efficiency
Shake Shack opened 17 new locations in Q3, including three drive-thruss and nine licensed stores, with plans for a total of 75 openings this year. The company has focused on reducing construction costs, achieving about a 10% cost reduction for new units in 2024. Shake Shack expects to open around 85 stores next year, with a strong focus on company-owned locations.
A Tale of Two Sectors
The success of fast-casual brands in expanding their footprint and increasing market share contrasts with challenges faced by casual dining and some QSRs. As industry winners and losers continue to emerge, these fast-casual chains demonstrate their adaptability and appeal to shifting consumer preferences.
🚦 The Hard Corner Picks
Facing High Vacancy Rates, Property Owners Weigh Costly Tax Implications of Returning Keys to Lenders: As Class B and C office vacancies rise, owners consider foreclosure and deed-in-lieu options but must navigate complex tax liabilities from phantom gains and debt cancellation income.
Tech Mergers Shrink Choices: How CRE Companies Can Navigate Vendor Consolidation: As CoStar acquires Visual Lease, customers face potential shifts in software function, cost, and control. Here’s how to prepare for vendor changes and maintain flexibility in an evolving tech landscape.
Positive Leverage Marks a New Era for CRE Recovery in Retail and Hotel Sectors: With yields surpassing debt costs, CRE sees a shift to positive leverage, signaling renewed investor confidence and stabilization in capital markets.
Surge in Private Sector Hiring Defines Expectations with 233,000 Jobs Added in October: Despite hurricanes and labor strikes, U.S. job market shows resilience with robust growth across multiple sectors, signaling economic strength ahead of key Fed meeting.
Rate Cut Sparks Optimism in CRE as Sectors Stabilize and Vacancy Trends Show Mixed Results: FOMC’s September rate cut boosts confidence in CRE recovery, with multifamily and industrial sectors seeing steady demand, while office and retail markets grapple with changing dynamics.
Revised Data Shows Stronger U.S. Labor Costs, Raising Inflation Concerns: Unexpected growth in unit labor costs and productivity gains highlights inflation risks, prompting Federal Reserve caution.
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🛒 The Retail Corridor
Denny’s to close 150 Locations by 2025 as It Navigates Economic Challenges and Industry Shifts: Facing rising costs and intensifying competition, ‘America’s Diner’ restructures its portfolio, plans remodels, and targets strategic closures to optimize long-term growth.
Retail Real Estate Thrives as Demand Surges and National Tenants Edge Out Smaller Chains: With rental growth returning and limited Class A space, landlords favor high-credit tenants, but local retailers remain crucial for community engagement and anchor success.
Big Lots Auctioning 255 Store Leases Amid Chapter 11 Restructuring, Bringing Total Closures to Over 500 Locations: As Big Lots streamlines its retail footprint for a potential acquisition by Nexus Capital, its leases attract interest from expanding brands like Ollie’s and Burlington, presenting new opportunities in over 40 states.
TGI Fridays Files for Bankruptcy Citing Rising Costs and Shifting Consumer Trends: Iconic American restaurant chain to restructure after closing 50 more locations, joining peers like Red Lobster and Rubio’s struggling amid economic pressures and evolving dining habits.
Retail Closures Accelerate: Over 2,000 Stores Shuttered as Econoomic Pressures Mount: Pandemic aftermath, inflation, e-commerce growth, and over-saturation contribute to a wave of store closures, reshaping the U.S. retail landscape.
TGI Fridays Exits 78 Leases Amid Chapter 11, Seeks Financial Restructuring: Bankruptcy plan to cut costs, maintain franchise support, and position brand for potential sale.
Editor’s Note
We dedicate significant effort into crafting a newsletter that balances information with engagement, but let's be honest – newsletters aren’t our day job. Marhilus Ventures is a diversified investment firm, involved in real estate, finance, and business investments. Our niche? Retail assets, hence "The Hard Corner." Specializing in middle-market value-add properties, both single and multi-tenant, we strategically invest capital through direct equity, joint venture equity, and debt structures across the United States.
Go Check out our investment criteria, if you have anything that may be of interest, shoot it over. We appreciate it!