LAS VEGAS—If several recent transactions are indication, at least some quick service restaurant properties are able to find capital in today’s market.

Two corporate-backed Del Taco properties in Las Vegas recently traded hands for a total of $3.75 million, or about $731 per square foot, in a recent all-cash deal. Though the properties were built in 1999 and 2001, they have newly signed long-term triple-net leases, according to Irvine, CA-based Faris Lee Investments.

Faris Lee’s Dennis Vaccaro and Matthew Mousavi represented the sellers, Innovative Property Partners LLC and Visionary Partners LLC. The buyer, an Arizona-based family trust, was represented by Marcus & Millichap Real Estate Investments Services.

“Faris Lee’s marketing strategy was to focus on the proven locations for both Del Taco properties in addition to the newly signed 20-year absolute NNN corporate-backed leases, providing an investor long-term security of income and virtually no management responsibilities,” Vaccaro says in an announcement. “Both properties also benefited from the synergy created by the strong adjacent anchor tenants at each location.” Though the buyer was not pressured by 1031 exchange deadlines, the deal closed quickly with a 20-day escrow, according to Faris Lee.

In another deal, priced at $7.3 million, Rochester, NY-based Broadstone Real Estate LLC announced that Broadstone Net Lease Inc. closed on the sale-leaseback of six properties with Sonic Corp. and affiliates. The properties are located in Oklahoma and Texas. Broadstone Net Lease is a private REIT formed in 2007 that currently owns 43 properties.

Meanwhile, in the restaurant franchisee world, Scottsdale, AZ-based GE Capital, Franchise Finance this week announced that it provided a $4-million credit facility to RDSL for the acquisition and development of seven Jack in the Box franchise restaurants in the greater Dallas market. RDSL was formed by four franchisees and, according to GE Capital, currently owns and operates 19 Jack in the Box units in Dallas and southern Oklahoma.

“I wouldn’t say that they trade easily, because they’re not very easy to finance,” Jonathan Hipp, president and chief executive officer of Reston, VA-based Calkain Cos., says of quick service restaurant properties. Still, he adds, they are trading, albeit at much higher cap rates than just a few years ago. “What was 7 before is now 8.5 to 9.5,” he adds.

What’s more, the market has seen a return of differentiation between corporate and franchisee tenants, a distinction that virtually disappeared when the market was moving fast. “There is definitely a differentiation today, but then, there are very few credit deals out there today,” Hipp says. Recent deals closed by Calkain include a franchisee Wendy’s property in Bowie, MD; in addition, Hipp reports having one four-property casual dining portfolio a few weeks away from closing and another casual dining property under letter of intent.

Without the rare credit backing of, say, a McDonald’s, the real estate, unit sales and the operator’s track record is ultimately how these properties are being valued today. “Part of it is driven by the location of the restaurant, and the sales,” says Hipp, “and then it boils down to what is the strength of the operator.”

By Michelle Napoli

Certainly it appears the global economy has moved on in the last two months and we appear to be seeing some early signs of improvements signalling that the recession is starting to ease. The Organisation for Economic Co-operation and Development (OECD) has suggested that there are “tentative signs of, at least, a pause in the economic slowdown” in some countries – namely the UK, France, Italy, and China. Jean-Claude Trichet, the president of the European Central Bank, said recently that there has been a “slowing down in the decrease in GDP” and went on to note that certain countries were already reporting a pick-up.

There are also signs that housing market activity in the UK is picking up slightly, with mortgage approvals up slightly and surveyors reporting increased interest in house purchases. World stock markets too have recovered significantly from their low points in March.

All of this is good news, but our view remains largely unchanged as regards the overall state of the world economy and also the property market in Mallorca. That is, that there is indeed a slowdown in the rate of fall of the key economic indicators in some countries. And this could be a sign that the recession is gradually finding a its lowest point. We do not feel however that there will be a quick or significant rebound except for perhaps in the stock markets driven by traders who appear in the main to be flying in the face of what continues to be pretty dire economic and company performance data.

Furthermore some of the key actual economic indicators, and things the UK and other counties still have to contend with, look far from cheery. Unemployment could reach 9% in the UK, 10% in the US and 20% in Spain by the end of the year. This will undoubtedly have a negative effect on consumption and the housing market in these countries.

Added to this, these signals of recovery are not yet apparent in a small number of the biggest economies in the world such as the US, Germany and Japan. In many developing countries too conditions are still getting worse.

With all this in mind, we think it far too early to be heralding the end of the recession, or even that it has reached its ultimate low. It may be that we will see a modest return to growth in some countries in 2010, but it will take longer, possibly much longer, to return to the levels of activity seen prior to 2007.

On top of this there are still great concerns over the financial health of some of the worlds biggest economies. And the overall effects of the massive amounts of money pumped in to stimulate these economies is not yet clear. The IMF has warned that there could still be another $3 trillion in losses for the financial sector as a whole before the crisis is over.

Our prognosis for the Mallorca property market

As above, there are plenty of solid reasons to believe there will be no significant uplift in property markets in any country, even the strongest such as mallorca, during the course of this year and most likely the first half of 2010 too.

On top of the global macro economic considerations there are factors specific to the Spanish property market that also put pressure on prices across the region. These are highlighted in the article mentioned above.

However, it is also very clear that activity has picked up for and that sales are being made, albeit at a relatively low level. There are a number of more positive factors that are contributing to this.

Euro interest rates are lower now than they have even been

The latest European Central Bank’s interest rate cut to 1.00% is the lowest level since the single currency’s creation. It is possible that the rate will be cut still further later in the year. Whilst it is likely that not all of this will be passed on to lenders, any lowering of consumer rates is positive and will help stimulate the markets to some extent.

In Mallorca we are seeing buyers are taking 50% loans so they have a hedge against any further significant currency fluctuations. Braver investors are seeking higher percentage Euro loans on the basis that Sterling will improve against the Euro and therefore, paying off the loan and converting the bulk of their Sterling at a later date will be to their advantage.

Reflecting this there was a small increase in the number of new mortgages granted in March although the number is still significantly down on last year.

Continue opportunities for property purchases at very low asking prices for Mallorca

This is the most important factor. Buyers in the Mallorca property market at present tend to be either professional investors, or private individuals who realise a) that there are some very good deals to be had in the current market and, b) that to delay looking for a property in the hope that conditions will move even more in their favour might mean missing out on a great opportunity that is available in the market right now.

We have written several times on this subject and you can read previous articles ono the subject via the links listed on this page of the Mallorca Property Partners website.

Overall our prediction remains that average property prices in Mallorca will drop further through to the end of this year, possibly continuing into the first half of 2010. We do not however think this drop will be as high as in other parts of Spain (predicted to be 10% overall this year and 12% next year by analysts at BBVA – one of Spain’s leading banks). The fact that there are active buyers in the market in Mallorca sets the region apart from most. And there are plenty of other solid reasons to set Mallorca apart from other parts of mainland Spain, the other Spanish islands, and most other international property markets too (see the “Green shoots” article referenced above).

But once again the over-riding observation is to not rely too much on market data and statistical analyses. This is because of the considerable variance in actual selling prices above and below the average prices in this unusual market environment. The reason for this is that the seller’s circumstance is a more powerful factor than in a “normal” market environment and this is not directly related to the usual determinants of the value of a property.

There are, therefore, some exceptional deals being done at price levels that are unlikely to be improved upon regardless of where average prices go to. To illustrate, see this selection of properties in Mallorca that have  either been reduced in price or listed at very low asking prices.

If you are reading this because you might be interested in buying a property in Mallorca, our advice is to monitor opportunities on an ongoing basis. You might see the ideal property right now and be able to get it at an unbeatable price. It is not easy though to identify the best opportunities, as not all owners are dropping the asking price but still may negotiate significantly when it comes to an offer.

Your best approach would be to brief us at MPP to use our experience and unrivalled contact base to look out for the best Mallorca property opportunities for you. Read more about what Mallorca Property Partners offer.