Developers cash in as investors spend big on fast food and childcare

All six including McDonald’s, Hungry Jack’s, Pizza Hut and Carl’s Jr restaurants, sold under the hammer of auctioneer David Scholes (who confessed to enjoying eating one of Carl’s Jr famously greasy burgers) generating total sales of more than $20 million.

The standout result was the $4.37 million sale of a new McDonald’s restaurant in North Rothbury in the NSW Hunter region.

Offered with a new 20-year ground lease and 3 per cent annual rent increases, it sold on a record low yield of just 2.97 per cent to a Sydney investor.

This low yield – 138 basis points below the official RBA cash rate and reflective of the weight of demand for the McDonald’s lease covenant – smashed the previous record of a 3.25 per cent yield struck on the $5.53 million sale of a McDonald’s in Newcastle just six weeks ago.

The McDonald’s in North Rothbury was developed by NSW Central Coast-based veteran John Stevens, who has been developing fast-food outlets and other retail assets for 40 years.

The Stevens Group development director Jason Capuano told The Australian Financial Review the company was thrilled with the outcome.

“These types of developments are four years in the making, but a lot comes down to the last 40 minutes [of bidding],” he said.

Bidding opened at $3.2 million and 35 bids later the fast food premises sold under the hammer for $4.37 million.

Mr Capuano said cap rates and yields for fast food outlets had tightened despite interest rates rising – a reflection of the premium value placed on them by investors.

He put the record McDonald’s sale down to the rarity of the opportunity, the new 20-year lease and relatively low price point.

“It’s pretty hard to buy a McDonald’s under $5 million. It’s a pretty safe bet,” he said.

Burgess Rawson managing director Ingrid Filmer said McDonald’s investments offered “bond-like surety”.

She said it was likely the purchases were cash buyers – a feature of many retail property sales negotiated below the cash rate by the commercial real estate firm.

Also selling under the hammer was a new Carl’s Jr restaurant in Caboolture developed by the Brisbane-based Belmonde Property Group.

Offered with a 15-year lease, it sold for $5.105 million on a yield of 5.1 per cent.

The Belmonde Property Group raked in another $7.985 million after selling an EG petrol station with an Oporto restaurant (next to the Carl’s Jr restaurant) on a yield of 6.1 per cent.

Joining in the action was high-profile businessman Adrian Fonseca and his development partners, brothers Ben and Jono Isaac from Isaac Property Developments, who racked up another big result in Newcastle after selling a new childcare centre at the Burgess Rawson auction for $7.05 million on a 6 per cent yield.

Offered with a 15-year lease, the childcare centre is next door to the Newcastle McDonald’s that Mr Fonseca and the Isaacs sold for $5.53 million in March.

“That’s a great result for us,” Mr Fonseca told the Financial Review.

“We budgeted to get $12 million across both assets and have ended up getting $12.6 million, so we are very happy,” he said.

Ben Isaac said it had been a great project combining fast food and childcare on one site.

“Both are prime real estate sectors in the current market. We set a record for the McDonald’s sale in March, but we’re very happy to be surpassed with today’s result [in North Rothbury],” Mr Isaac said.

“It underpins the confidence in fast food as the hottest sector in the property market. We have a very strong pipeline of fast food and childcare coming through and look forward to continuing to set records.”