Corporate-guaranteed franchisee vs. corporate tenant

[Account Closed]

So what's the difference between a corporate-guaranteed franchisee tenant and a corporate tenant? From reading a lease recently, the corporation is liable for any defaults in a corporate-guaranteed franchisee tenant. If that's the case, why are corporate tenants deemed more secure than franchisees? 

[Joel Owens]

Parent corporate guarantee you have to see if investment grade or credit grade. BBB- or better buyers can typically get the best loans with lenders when buying your property. If tenant is not rated then usually buyer has to put more down percentage wise to get the loan and interest rate is higher and amortization is lower on payments ( example 15 or 20 year amort. versus 25).

Location plays a factor as well. You could have a national tenant but in a small town where most lenders will pass to do a loan.

Least to most risk usually.

1.Yum brands parent corp guarantee for a Taco Bell - many thousands of stores backing the lease

2. Yum brands subsidiary- say half the stores across the U.S. backing the lease

3. Large franchisee - hundreds of stores backing the lease

4. Small franchisee - maybe 3 to 10 stores backing the lease

5. Not even a Taco bell concept but Joe's Taco's with one or maybe two locations.  

It is key with a parent corporation to know under what terms they will step in if a franchisee fails and for how long etc.

Even with all those levels you have to watch out for how many units are giving the guarantee on the lease. If it's a single unit remote entity even if they own 10 stores and have no personal guarantee on the lease they can bankrupt that LLC and walk away.

I require tenants to have skin in the game or I do not want to do a deal as a landlord. If they want all this stuff from me but want to give nothing of themselves in return then it is no deal. It would be like a house flipper wanting a hard money loan and then want to put in little to no money in the deal and no guarantees. When the going gets tough they will be long gone with little to lose. If they have a lot on the line they will tend to give best efforts to make things  a win.