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McDonald’s Owns 41 Billion Dollars in Real Estate

Did you know that McDonald’s owns 41 billion dollars in real estate? It may be surprising to you, but the company’s landholdings make perfect sense when you consider its overall business model. It started out as a regular fast-food chain, but has since evolved into a real estate empire. Read on to discover how McDonald’s landed its real estate empire and how it makes money.

To start their business, a McDonald franchisee may have paid $950, but could expect a return of about two to three years later. Rents would fluctuate according to profitability, so the rent could be higher or lower than the franchisee’s monthly profit. The franchisee would pay the franchisor a set markup, usually five percent, on the lease. Other lease terms may include additional costs, such as advertising royalty fees.

Kroc struggled to expand his business. Despite the enormous popularity of his hamburger chain, the company didn’t make enough money to support its expansion. He needed money to fund franchisees, but he couldn’t afford to do it alone. Sonneborn’s solution was to find ways to franchise McDonald’s stores. By 1956, Kroc had hired Sonneborn, who immediately saw that fast food wasn’t generating enough profit to support expansion plans.

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During the 2008 recession, McDonald’s relied heavily on the property market. Nearly eighty percent of its 36,000-stores are franchised, and the company rents those properties to franchisees. In this way, it’s protected from the fluctuations in burger sales. So, while a McDonald’s franchisee may not be the best idea for you, a McDonald franchisee’s property lease is still a good investment, and it’s probably the best deal available for a commercial real estate investor.

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