Strip malls and franchising

[Account Closed]

Out net worth is $750,000 with all of it in securities. My wife wants to open a franchise with Platos closet and Once upon a child, both are owned by the same corp.

The location is near a mall and all of the current strip malls are newly leased. 

Has anyone ever built a strip mall then leased one of the spaces with a franchise that you also own? 

[Eric Odum]

I am not sure about Kansas, but the construction costs in Florida would make it tough to make sense financially.  The franchise needs to pay rent as it would normally in a separately owned center or your real estate investment is just subsidizing your business investment.  Make them both stand the investment test alone....or make sure that the combined return is fair (who knows!  Maybe the location is so good that sales compensate). Those two franchises tend to gravitate towards C+ to B, 3rd generation properties for a reason.  The rent is lower and they are appealing to a client that is more cost conscious.  With construction costs the way they are right now, rent ask rates have to be  much higher than similar (much older) properties.  

If you can have it make sense, by all means, go for it, but just don't fall in to the trap of sinking capital in to real estate and earning little to nothing on it b/c it is subsidizing the business. Save your capital for investing in additional franchise locations, after you get up and running or search for a real estate deal that provides you a fair return.  

Having said that, I am working with a multi-store chain right now that just overpaid for a parcel....is paying through the teeth for construction. He doesn't care. I could not find a tenant to replace his concept, if something happened, at the rent he needs to pay the overhead. But, The projected sales in the location made the opportunity cost for waiting for an ideal location in the area too high. His payback on the buildout was longer, but the 15 year projected ROI more than made up for the cost. In my experience, however, this is highly unusual.