Net Lease Investors: Drive Thru for QSR Opportunities
Drive thrus proved to be a safe alternative to eating out during the pandemic.
When it comes to retail investments, the old saying about location goes by the boards. Yes, a good location is essential for traffic. But, as we’ve all learned—painfully—COVID-19 took care of retail traffic.
Well, not totally, and this is the key ingredient to the recipe for successful net-leased restaurant investment: Start with Quick Service Retail (QSR). But, not just QSR, but QSR with drive-through capabilities. Now add that great location—a major intown thoroughfare or corner spot. Finally, go for the investment basics: a long-term lease, a creditworthy tenant and strong cap-rate performance.
Drive-throughs are not always a welcome site, particularly in higher-tone communities, but they are essential for business survival. They would also seem vital to our personal survival as well, judging from the length of lines at the dinner bell. Drive-throughs have over the decades become one of the fabrics of our hectic lives, and during the pandemic, they offer among retailers a rare combination of sustenance and safety.
Drive-throughs have actually been a growing piece of our culture since the early 1930s, and the popular belief is that they started … where else? In California. Here’s a little background to amaze your friends at your next socially distanced cocktail party, this from the museum website of the Water & Power Associates in California, dispelling the Golden State myth:
“We didn’t quite invent the drive-in restaurant in Los Angeles. The Pig Stand in Dallas beat us by a year. But we did do more than anyone to perfect the concept and ensure its spread. After all, we were living in the most car-oriented part of the country, and we did set the standard for what is cool.” (By the way, visit the website for some very cool old-school drive-in pix.)
Their popularity—no, their necessity—proved itself to net lease investors in the past six months as a safe alternative to eating out (we won’t discuss calorie counts here). Just look at their performance relative to other net-leased sectors. To the extent that higher cap rates mean greater risk, QSRs remained solid.
And now we’re starting to see history repeat itself. Just as drive-throughs caught fire from their Pig Stand origins long ago, today, more casual dining restaurants are incorporating the feature in their new builds in order to stay afloat. At the very least, they’re offering curbside service.
Maybe drive-throughs aren’t quite as cool as claimed by the Water & Power Associates of California. But in the era of COVID, they’ve certainly come of age through their offer of safe and risk-free options. Not just for mealtime, but also for your net lease investments.