updated 10/1/2008 8:09:25 PM ET 2008-10-02T00:09:25

While the credit crunch is making it hard for some restaurant companies to get loans to build new locations and renovate old ones, other chains are using the slowdown to secure better terms from landlords struggling to find viable tenants.

  1. More on Food trends
    1. Satisfy your craving

      Look for more exciting eats and foodie trends on the Bites blog

"Landlords are being fairly aggressive now," said David Litchman, chief executive of Pockets, a sandwich and salad chain based in Chicago. "Now we're getting many, many more deals come across the table."

As gas prices have jumped to record levels and confidence in the economy has tanked among consumers, spending has slowed down and led to lower sales and profits at restaurants and retailers. That's led to some pain for landlords, because companies have less money to expand.

Meanwhile, lenders have become more cautious on extending credit to restaurant franchisees, further constraining growth in the industry.

With less credit available and a decline in growth overall for restaurants, landlords have been more willing to offer incentives like tenant improvement packages, in which a landlord offers tenants money to improve the property in exchange for a lease.

Some landlords, meanwhile, are keeping rents consistent rather than raising them.

"They're saying, 'If we can just hold our own for a year or two, we'll kind of be out of the woodwork'," said leasing consultant Dale Willerton, CEO of The Lease Coach.

"Developers are caught in this perfect storm just like everybody else, maybe more so," said Zane Tankel, CEO of restaurant franchisee Apple-Metro Inc. The company owns 28 restaurants in the New York area, including Applebee's — owned by DineEquity Inc. — and Chevy's Fresh Mex Restaurants. "They're anxious to get tenants in there."

For other companies, however, the credit crunch has no silver lining. Cautious lenders have made it more difficult for some restaurant companies to sell company-owned stores to franchisees — a practice called refranchising.

Refranchising cuts costs for the company because the franchisee then pays the restaurant's operating costs. With costs for ingredients, labor and energy all rising in the past year, refranchising has become more popular as a way for companies to insulate profits.

Jack in the Box Inc. spokesman Brian Luscomb said its lenders have been requiring more paperwork and documentation from franchisees looking to buy its restaurants.

"Some transactions might be taking a little bit longer to consummate," he said.

Jack in the Box is in the middle of a big refranchising campaign, with the long-term goal of selling 5 percent of its company-owned restaurants each year.

Denny's Corp. has also been attempting to sell more than 300 of its restaurants to franchisees. The company plans to refranchise about 100 locations this year.

Denny's spokeswoman Cori Rice said Denny's has seen "continued demand" from prospective franchisees to buy Denny's restaurants but added the company is "taking a wait and see approach from the lending markets."

One of Denny's lenders is GE Capital Solutions, which recently said it is taking a closer look at the loans it makes to franchisees.

GE Capital spokesman Stephen White said the company is deferring rate quotes "until things settle down."

"We're simply taking more time," he said.

Rice said Denny's was seeking alternative lenders to GE Capital given its more restrictive stance.

Other chains, including Wendy's International Inc., have said the tighter credit could restrict plans to renovate older locations and open new ones.

Wendy’s new Chief Executive Roland Smith said in an interview Monday that although it’s too early to judge the impact of the credit crisis, its effect will be felt most on his development plans.

“The total story is not yet understood,” Smith said.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


Discussion comments


Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 3.79%
$30K home equity loan FICO 4.99%
$75K home equity loan FICO 4.69%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.83%
Cash Back Cards 17.80%
Rewards Cards 17.18%
Source: Bankrate.com