The risk nobody's underwriting in fast-food NNN

Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes

3mo

I don't see this introducing any seismic new risks. Fast food was declining well before GLP-1s were as prevalent.

So, GLP-1s, specifically, not really an issue, in my eyes. A) given the cost, I think GLP-1s are a bit of a fad, and if more insurance companies stop covering them due to costs, more people will fall off them. But more so, if it isn't GLP-1's, it is Supersize Me from 2004. If it isn't a documentary, it is a stale menu. If it isn't a stale menu, it is new competition coming to market, or consumer taste (Nashville hot chicken, anyone), or some scandal (temperature checks at Chipotle), or something else.

Long story short: there will always be risks to brands/franchisees in the NNN space. We will never know the root cause of those risks 3-5-10 yrs from now. So, will fast food be around? Yes. Will every chain remain viable? No. As a NNN investor, I don't think it is about identifying any specific risk, but looking at the broad universe of risks and industry trends to make a bet if that use and user is viable long term, regardless of what is being thrown at it.

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Nicholas Cokas

OP

Member since 2021 · 81 posts · 79 votes

3mo

Evan — this is the comment that actually sharpened it for me, so let me build on it instead of pushing back. You're right that you can't underwrite by naming the risk-of-the-decade. Super Size Me, a stale menu, a scandal — unknowable, and chasing each one is how you go broke. Twenty years of brands prove your point.

Here's the screw-turn your own framework handed me, though. Your list — menu, scandal, new competitor — those are idiosyncratic. They hit one operator, and a portfolio washes them out. Which is exactly why you don't underwrite them one by one — you're right not to. But a population-level appetite shift isn't on that list. It's systematic — it hits every value-dinner box at once, and no portfolio diversifies out of it. Those are two risks an actuary prices completely differently, and the systematic bucket is the one I don't see anyone pricing yet.

So I'm not betting Ozempic ends fast food — I'm with you, it won't. I'm saying the guarantee only ever protected the lease term, and category-wide coverage compression shows up at the year-10 renewal — the one year the guarantee was never covering anyway.

Honestly, 'bet on the use and the user' is the right rule. I just think this is the rare risk that fails the user half across the whole category at once, instead of brand by brand.

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Vijay FriedmanBusiness Member

Miami, FL · Member since 2026 · 766 posts · 122 votes

3mo

Quote from @Nicholas Cokas:

Been chewing on this and want to pressure-test it with the NNN crowd here.

A lot of people park money in single-tenant net-lease fast food — the standalone Taco Bell, the McDonald's outparcel — because it's "recession-proof, mailbox money." Long lease, corporate guarantee, sleep at night.

Here's the variable I don't see in anyone's underwriting: 1 in 8 American adults is now on a GLP-1 weight-loss drug (Ozempic/Wegovy/Zepbound), projected to hit ~30M users by 2030. These drugs work by killing appetite. Early data already shows people on them eat ~21% fewer calories, and fast-food dinner traffic among regular users is down ~6% (Cornell; New Atlas).

A QSR keeps maybe 6-8 cents on the dollar. Lose 6% of traffic and you can lose half the store's profit — rent, staff, fryer all cost the same. That doesn't break a corporate-guaranteed lease tomorrow. But it shapes renewal risk and rent coverage at the 7-10 year mark — exactly the horizon a lot of NNN buyers hold to.

Cap rates on these haven't moved for it at all. So either the market's right that it's noise, or there's a mispricing forming in a "safe" asset class.

Genuinely curious how this forum thinks about it:

- Anyone underwriting GLP-1 / demand-shift risk into QSR or other retail NNN yet?

- Which formats are most exposed — value/drive-thru vs. fast-casual?

- Does renewal risk change your assumptions here, or is the corporate guarantee enough that you don't care?

@Nicholas Cokas
Interesting perspective. I think the bigger question may be whether changing consumer behavior impacts renewal probability more than near-term rent coverage. A corporate guarantee protects cash flow today, but long-term value often depends on what happens when that lease approaches expiration. Curious whether others are adjusting exit cap or renewal assumptions because of these trends.

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JD MartinBusiness Member

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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

3mo

The better fast-food operators will just start serving up Ozempic milkshakes and Wegovy burritos. Americans love big portions, cheap menus and fast food. The chains that make the adjustments will just keep chugging along.

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Joel OwensBusiness Member

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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

3mo

Doesn't concern me at all.

Been in NNN 22 years and own properties myself and also a principal commercial broker. If you have excellent dirt, reasonable rent, strong sales reporting, and a brand that performs well I could care less about GLP medicines.

I was in food business for decades in all facets including ownership before getting into NNN. A general metric is you want gross annual sales at 10 percent or lower of rent.

So 100,000 annual rent total you want at least 1 million sales. If number is creeping up to 11, 12 or higher look for them to renegotiate the lease rate or close the location down. If they are national credit grade brand they often can keep paying the rent on a dark location. If it's small like 5 or 10 unit operator then when they go dark they often go bankrupt.

Optimally if sales to rent ratio 7 percent or less doing pretty good, if 5% crushing it, if sub 5 percent incredible. Its not always about the sales either. You could have QSR brand that averages 1.5 million in sales. One location could be doing 1.6 million in sales so over performing brand average but paying 40 a foot in rent. Conversely one can be doing 1.4 million 100k under the national store sales average but paying 20 a foot in rent and more profitable. You also look at saturation levels in the market for that food type versus population levels and income levels to see cannibalization ratio for the market Rural tends t go out 10 mile radius, small suburban 5 miles, strong suburban 3 miles, urban core 1 to 2 miles. Density increases so the market ring can shrink. Urban core is more walkable also so foot traffic comes into play more so than vehicle traffic in suburban to rural areas.

Also as site might have more upside potential than current tenant business model. Your current tenant might average 1.6 million in sales but another tenant on same site their stores average 4 million so can pay more rent and still do good.

There are tons of other things that go into it. I am tired of typing...lol

People that want the goodies of wisdom sign exclusives with me to buy. Good luck

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John M.

Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 796 votes

3mo

Never heard of underwriting for the GLP-1 trend but you certainly have an interesting point. Another trend that is going on now is the falling of Alcohol sales. This would primarily affect those sit down restaurants. I'm starting to see a lot of MockTails on the menu but I'm not sure they have the same profit margin as regular Alcohol.

Food trends, location, space layout, traffic counts, and demographics are the main drivers for an investor's underwriting needs.

The underwriters at the banks look at the quality of the tenant, cash flow, strong lease terms, and economic trends.

P.S. Corporate guarantees are bit over rated, but they are a great marketing tool for the investors and the bankers. A lot of these Guarantees come from a shell and not the operating company. So when the shell goes bankrupt good luck with trying to collect rent!

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Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

3mo

Quote from @Nicholas Cokas:

Been chewing on this and want to pressure-test it with the NNN crowd here.

A lot of people park money in single-tenant net-lease fast food — the standalone Taco Bell, the McDonald's outparcel — because it's "recession-proof, mailbox money." Long lease, corporate guarantee, sleep at night.

Here's the variable I don't see in anyone's underwriting: 1 in 8 American adults is now on a GLP-1 weight-loss drug (Ozempic/Wegovy/Zepbound), projected to hit ~30M users by 2030. These drugs work by killing appetite. Early data already shows people on them eat ~21% fewer calories, and fast-food dinner traffic among regular users is down ~6% (Cornell; New Atlas).

A QSR keeps maybe 6-8 cents on the dollar. Lose 6% of traffic and you can lose half the store's profit — rent, staff, fryer all cost the same. That doesn't break a corporate-guaranteed lease tomorrow. But it shapes renewal risk and rent coverage at the 7-10 year mark — exactly the horizon a lot of NNN buyers hold to.

Cap rates on these haven't moved for it at all. So either the market's right that it's noise, or there's a mispricing forming in a "safe" asset class.

Genuinely curious how this forum thinks about it:

- Anyone underwriting GLP-1 / demand-shift risk into QSR or other retail NNN yet?

- Which formats are most exposed — value/drive-thru vs. fast-casual?

- Does renewal risk change your assumptions here, or is the corporate guarantee enough that you don't care?

Obvious market trends are only obvious in hindsight. However, the era of great expansion for the fast food industry is likely over. It’s just as easy to have better quality and healthier food delivered to your home as it is to have junk food.

Investing in 3N properties with long leases to major tenants has more of the characteristics of investing in a bond than investing in real estate.

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G. Brian DavisPro Member

Investor · Hatboro, PA · Member since 2016 · 2k+ posts · 845 votes

3mo

I think a lot of NNN buyers will see it as a longer-term "consumer behavior drift" more than an underwriting driver today. Most of these deals still live and die on location strength, rent coverage at acquisition, and the credit behind the guarantee. If those hold, people tend to assume the renewal risk gets repriced at the next cycle anyway.I do think weaker drive-thru/value spots would feel it first not immediately, but at lease rollover.

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John M.

Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 796 votes

3mo

@Don Konipol

Good point about NNN acting like a bond. The returns of 5-6% are meh! I'm starting to shift away from the NNN space as I am seeing returns of 10-15% in the Private equity sector which also behave like a bond...I.E. steady returns.

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Michael K GallagherBusiness Member

Real Estate Agent · Columbus OH · Member since 2018 · 1k+ posts · 1k+ votes

3mo

Interesting perspective, I think what you are suggesting is underwriting for other tenant uses and redevelopment, and most of the QSR's are OP's at grocery anchored centers, and as you mentioned there is a rize if GLP-1, med spa, even hormone health operations, not to metion existing operators like Urgent cares etc all of which would be interested in such a piece of dirt.

Obviously depends on the deal and operator and land but my general feeling is just because QSR's are the top bidders now for these OP's they are still the creme de la creme of retail real estate and will generally have a use case even if refitting is needed.

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Nyron Isaac

Member since 2024 · 144 posts · 27 votes

2mo

This is a brilliant piece of macro-underwriting. Anyone ignoring a projected 30 million GLP-1 user baseline by 2030 is walking blind into massive renewal risk.

While a corporate guarantee keeps your mailbox money safe tomorrow, corporate entities do not renew underperforming real estate. If a QSR's store-level profit is cut in half due to a 6% traffic contraction, that tenant will exit at their 7–10 year option window, leaving you with a specialized, single-purpose building that is incredibly expensive to convert. Value/drive-thru burger and fried chicken concepts are the most exposed because they rely on high-margin, impulse side additions (fries, sodas) which are the exact habits killed by these drugs.

To protect your portfolio, stop looking strictly at the corporate parent umbrella and start auditing Unit-Level EBITDAR and Rent-to-Sales Ratios during due diligence. Alternatively, pivot your capital stack toward consumer-resilient NNN formats like medical clinics or auto-service hubs, and finance them via Commercial Non-QM Platforms under an LLC, where underwriters can lock in long-term leverage based on non-disruptable service credit profiles rather than high-calorie retail concepts.

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The risk nobody's underwriting in fast-food NNN

The risk nobody's underwriting in fast-food NNN

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