Empty Space Means Big Opportunity

(Crain’s) — The vacancy rate for Chicago-area retail real estate shot up during the second quarter to its highest level in nearly five years, and is expected to continue to climb this year as merchants retreat.
Amid an increasingly harsh economy, the vacancy rate climbed to 8.65% during the second quarter, compared to 7.93% during the first quarter and 7.51% during the second quarter of 2007, according to a report by CB Richard Ellis Inc.
The vacancy rate hasn’t been this bad since the third quarter of 2003, when it was 9.19%.
CB Richard Ellis says the vacancy will continue to rise this year at a slower rate, but does not predict how high. The rapid rise in vacancy can’t be blamed on developers, because the total amount of space remained unchanged during the quarter. Instead, the escalating rate is largely the result of store closings during the quarter by retailers such as Linens 'n Things and Sharper Image.
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“Doom and gloom is not my nature,” says Sharon Kahan, a first vice-president with CB Richard Ellis’ retail brokerage group. But “everyone realizes that we still have some tough times ahead of us.”
Last week, trendy discount apparel retailer Steve & Barry’s filed for Chapter 11 bankruptcy protection and is expected to liquidate. The Port Washington, N.Y.-based company has about a dozen stores in the Chicago area, including one planned for Evanston.
The 0.72-percentage-point jump in vacancy is the largest quarterly increase since the fourth quarter of 2002, when the rate soared more than a percentage point, to 11.13%, the highest level since at least 1994.
Chicago developer Robert Bond offers a particularly bleak assessment of the local retail real estate market, particularly if oil prices continue to rise.
“This economic morass we are in will continue past 2009, and hopefully start turning around in 2010,” says Mr. Bond, president of Chicago-based Bond Cos.
In addition to weakened retailers closing stores, even healthy retailers are slowing down their expansion plans.
For example, Walgreen Co., a driving force in retail real estate nationwide, said last week it plans to slow down expansion over the next three years.
The Deerfield-based drugstore company said it would add 365 stores during the 2011 fiscal year, 27% fewer than the 500 stores its expects to add during the current fiscal year, which ends Aug. 31.
And Plano, Texas-based J.C. Penney Co., said it plans to open just 20 stores nationwide in 2009, compared to 36 new or relocated stores in 2008. Penney’s opened five stores in the Chicago area in 2007.
The total amount of retail space rose just 0.63% during the second quarter, to about 124.2 million square feet.
The amount of space under construction slipped to 10.4 million square feet during the second quarter, compared to 10.7 million square feet during the previous quarter. Despite the slight decline, the amount of space under construction in 2008 is still well above recent historical averages of about 8 million square feet, the report says.
A joint venture led by Mr. Bond completed the only significant new shopping center during the second quarter: Springbrook Prairie Pavilion, a 270,000 square foot, two-stage lifestyle center in Naperville. Anchored by Austin, Texas, based-Whole Foods Market Inc., the center will be about 93% leased in October, when the second phase is completed, Mr. Bond says.
The vacancy rate rose in nine of the 12 Chicago-area submarkets during the second quarter, CB Richard Ellis says. The rate was the highest in Kane County, where it rose to 16.4% during the second quarter, compared to 14.81% during the first quarter.
Outlying retail centers that were banking on the suburban homebuilding boom are expected to face stiff challenges, Ms. Kahan says.
The vacancy rate is the lowest on the city’s North Side, falling to 3.99% in the second quarter, compared to 4.71% during first quarter.

Francorp Client - Swiss Chalet

Francorp client Swiss Chalet opened the doors to their first operation in 1954 on Bloor Street in Toronto Canada. The menu has always been simple with a focus around rotiserie chicken. The concept was dine in or take out and the restaurants featured Swiss Chalet's famous fresh cut fries.

In the 1970's the large food purveyor Cara Operations took over Swiss Chalet and took the company into the next 30 years of operations. Francorp worked with Cara and Swiss Chalet to bring the company into the United States and continue the strong brand's growth throughout Canada. Now Swiss Chalet operates more than 190 locations throughout Canada and the U.S. and still has one of the strongest brand names in Canada for the their quality food and great service.

www.swisschalet.com

www.francorp.com

Francorp Client - Boston Pizza

Francorp worked with Boston Pizza to structure their US franchise operations and grow the concept into the US market. The company and brand continue to make strides and become a powerful player in the franchise market both in the U.S. and Canada.

The Boston Pizza concept began in Edmonton, Alberta in 1964 when Greek immigrant Gus Agioritis opened “Boston Pizza and Spaghetti House”. Although he lacked any significant restaurant experiences, Agioritis achieved success by combining hard work with a business strategy that included a focus on growth through franchising. This strategy established the early success of the Boston Pizza chain, and by 1970 Boston Pizza had 17 locations throughout Western Canada, of which 15 were franchised.

One of the first franchisees attracted to the Boston Pizza concept was an RCMP officer named Jim Treliving. Treliving noticed the growing popularity of Boston Pizza and in 1968 opened his first franchise restaurant in Penticton, British Columbia. In Penticton, Treliving met George Melville, a chartered accountant and then manager of the local Peat Marwick office. Melville acted as Treliving’s business consultant for four years before becoming his partner in the business in 1973. Over the next 10 years the two men built a chain of 16 restaurants throughout B.C., giving them the hands on experience that would prove invaluable in their future position as the franchisor of the Boston Pizza concept.In 1983, Treliving and Melville acquired the chain of 44 Boston Pizza restaurants from then owner Ron Coyle, who had bought the company from Agioritis in 1978. The pair immediately divested 15 of their restaurants to individual franchisees, converted one restaurant to a corporate training restaurant and set about establishing systems and operating standards designed to enhance the already successful franchise system. In 1986 Boston Pizza made a corporate commitment to be the official pizza supplier for Expo 86 in Vancouver, B.C. The exposure that Boston Pizza received through the course of the world’s fair created significant interest in the franchise opportunity, leading to 17 new franchises in 1987 and 1988.By 1995, Boston Pizza had grown to 97 restaurants in Western Canada, with total system sales in excess of $110 million. Over the years the concept had evolved into a full service restaurant, the sports bars had been established as an integral part of the business, and the menu had been expanded to include a variety of appetizers, entrées, salads and desserts. On the corporate side the organization was preparing for future growth and evolution by adding core management resources to the corporate management team.

In order to ensure the success of its eastern expansion, BPI made significant commitment of finances and personnel in Eastern Canada. In 1997, BPI opened a regional office in Mississauga, Ontario and Jim Treliving moved to Toronto to oversee the operations, hiring senior experienced foodservice management and transferring a senior operations person from Vancouver. The organization signed its first development agreement for the city of Ottawa in that same year and opened the first restaurant in September 1998. As the company continued to grow in eastern Canada, Boston Pizza opened a regional office in Laval, Quebec in April 2004. Today there are over 90 Boston Pizza restaurants in Eastern Canada, including 18 in the Maritimes, and BPI has signed agreements and/or collected deposits for another 75 restaurants. At the same time, development continues in Western Canada, as strength of the brand provides new opportunities for growth.It took 12 years for the Boston Pizza chain to grow from $25 million in annual system sales to $100 million in 1995. Five years later the chain had reached $200 million in annual system sales and in 2005 it surpassed $500 million in annual system sales. Growth has been accelerating, and Management believes that the necessary conditions exist to continue the level of growth achieved over recent years as the strength of the Boston Pizza brand continues to grow.

In 2006 Boston Pizza reported sales in excess of $647 million.Jim & GeorgeAfter 32 years in the business, partners Jim Treliving and George Melville still love the business they are in. Though they have sold off all but five of their restaurants to devote all of their attention to managing the corporate operations, their attitude remains the same as the day they entered the restaurant industry. "Think like a customer, deliver outstanding food value and work closely with your partners."www.francorp.com

Quizno's to Open More Locations in Middle East

INTERNATIONAL. Quiznos plans to open new restaurants in the Middle East this year as part of a push to sell its sub sandwiches in international and emerging markets.
President Dave Deno said the Denver-based chain signed development agreements with franchisees in Saudi Arabia and United Arab Emirates and plans to open locations in those countries by the end of the year.
In Saudi Arabia, the company will partner with Gulf Restaurant & Park Co to develop a total of 50 locations in the country, Deno said. Hasan Mohammed Jawad & Sons, the franchisee for the UAE, has also committed to 50 stores.
The company declined to disclose the financial terms of those deals. Deno would not specify the exact dates the agreements were signed, but said both were signed within the last few months.
Deno said the menu for the locations will mostly remain the same, but the company may offer different proteins to coincide with what consumers prefer, a tactic he said the company will also use for future development in Asia, Europe and other regions.
Deno said the company has been focused on its US business, but is now attempting to expand quickly into more countries.
"What we're finding is that our brand and the food that we serve travels very well internationally," he said.
He said the company is in discussions with possible franchise partners in Brazil, India and Singapore.
Eventually, he added, he wants to add China, Mexico and Australia to that list. Deno said the company, which is privately held, plans to open a total of 150 international locations in 2008 and 250 locations in 2009.