Business

Restaurants and landlords hunger for better economy

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.

“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 and led to lower sales and profits at restaurants and retailers. That's led to some pain for landlords.

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 are keeping rents consistent rather than raising them.

“Developers are caught in this perfect storm just everybody else, maybe more so,” said Zane Tankel, CEO of restaurant franchisee Apple-Metro Inc. “They're anxious to get tenants in there.”

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

Refranchising cuts costs for the company because the franchisee then pays the restaurant's operating costs.

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