A Crash Course in Business Real Estate courtesy of Radio Shack & Mcdonald’s

It’s interesting to see a business like Radio Shack go out of business.

On the one hand it’s almost an American icon; a place where you fawned over some remote control car or electronic toy back when you were a kid. On the other hand, almost none of us have been back there to buy anything since we were kids.

It’s not the consumer’s fault either with the advent of online shopping and lower price points, Radio Shack’s business model became impractical and the company failed to adapt. They coasted for years on borrowed time until we arrive where we are today—with the Shack’s stores selling out old inventory at fire sale prices just to recoup something for bankruptcy proceedings.

But there’s a diamond in the rough here, too. A hugely valuable asset is just buried on the 94-year-old company’s balance sheet, waiting to be cashed in.

Radio Shack’s Real Estate Time Warp

Just think about it.

The company’s been around for nearly a century. They have about 4,000 stores—most of them located in grocery-store anchored "daily use" shopping centers, where the foot traffic alone justifies the price of admission. Twenty or thirty years ago, Radio Shack could pick up these kinds of properties for a song. But as prices have multiplied … as foot traffic has doubled and tripled, these have become some of the most sought-after retail locations in the country—and Radio Shack has thousands of them.

The company’s Real Estate holdings were ultimately one of its most valuable assets, helping to keep the rest of the company afloat by bolstering the company’s balance sheet over so many years. For the lucky buyers and developers that get tapped to handle these deals, it’s basically a real estate time warp; cashing in on a deal that was decades in the making.

One of those lucky buyers, CEO of Hand and Stone spas Todd Leff, is excited at the opportunity to pick up some of the shack’s old property in Baltimore but he also says this isn’t the first time he’s had a chance like this one, "We did the same thing with Blockbuster. It’s an interesting evolution to see the businesses displaced by the Internet, and we’re coming in as a service business." Other chains are hoping to get in on the action as well; like Mooyah, a fast-growing burger joint based out of Texas.

Mooyah’s particular brand of fast-casual service isn’t well known outside of the Lone Star state, but by culling through Radio Shack

• s immense list of available properties they’re zeroing in on upper middle-class locations where they can get a foothold in new markets. "Typically, Radio Shack has done a really good job in identifying really good real estate," said Ardag Tachian, leader of Mooyah’s franchise development, "they tend to be in locations that are highly visible, [and] access is generally good."

With the value of the company’s real estate portfolio now coming fully into the light, we’re left to wonder whether Radio Shack could’ve leveraged this unique and powerful asset a little more effectively

McDonalds’ "Hidden" Profit Center

On the other end of the spectrum, you’ll find another household name—McDonald’s.

While Radio Shack goes out of business, McDonald’s is sitting on top of the world with a share price about to break the triple digits. The last few quarters haven’t necessarily been the most profitable in the company’s history, but they’re getting by all the same. That’s partially thanks to what we like to call McDonald’s "worst-kept secret" (other than the sauce). That secret? They own almost all the real estate under their individual franchise locations.

You read that right. McDonald’s is actually one of the largest real estate companies in the world; with over $28.4 billion worth of land and buildings—leasing the land, the buildings or both on 15,000 of its restaurant sites. And their leases are often coming with a high markup, as one former franchisee explained.

This franchisee owned a location in a busy shopping center, where McDonald’s (the company) leased the space for about $2,400 a month. The company then charged the franchisee 8.5% of revenues in rent & location fees. Since the franchisee was doing about $2 million a year in business, that meant $170,000 (or $14,000 a month) went right back to the company in rent; nearly six times what they were paying.

At the end of the day, everyone ends up satisfied too.

The company leverages its name and clout for bigger profits … the franchisee gets to leverage that name for his own profit … and the shopping center’s owners don’t mind renting at a bit of a discount to bring in McDonald’s brand and foot traffic. It’s a win-win.

Across all their locations, McDonald’s collected about $6.1 billion in rent last year—roughly twice what it made in royalties—while only spending a little over a billion, for a margin of over 80% profit. That’s nothing to sneeze at; and it’s a great buffer to help keep McDonalds’ investors happy and the company afloat through good quarters and bad.

Always worth the Ground it’s standing On

When the topic of business real estate came up in the office, one of our writers related a bizarre personal anecdote. He told us about a restaurateur with a large family and an overactive wife. This guy spent most of his time working on family business up in New York while his wife and kids ran the restaurant down in South Florida.

The place was awful; they’d serve some good food every now and then, but customers were always leaving unhappy, orders were always being screwed up and there was just a revolving door of highly questionable employees.

But the restaurateur … he just didn’t seem to care.

He’d just come by and smile every now and then (whenever he was down from New York), standing around and delivering entrees while his restaurant hemorrhaged a fortune.

Why did it seem like the guy didn’t care? Because he actually didn’t care. You see, he’d purchased the property outright when they opened the restaurant. So he bought a prime, downtown location in cash about a decade prior to the prices exploding in his neck of the woods. So he couldn’t care less whether his family failed at running a restaurant … ultimately he just wanted them to have something to keep them busy, and for every dollar they lost in running the business, he made back a dollar-fifty on a clever real estate transaction.

Moral of the story? Pay close attention to your real estate situation. Your business is always worth the ground it’s standing on, and in a lot of cases you’ll be able to leverage the value of that real estate to the benefit of your business’ bottom line.

About The Author:

Based in Miami, FL, Houses.com provides the world’s largest online marketplace for homes and real estate. Showcasing over 4 million listings for sale, rent & vacation in over 70 countries, Houses.com is dedicated to helping buyers and sellers turn their House into a new Home.