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The thing is, they rarely sell the properties. At least from what I've seen. It's all unrealized appreciated value.

brianleb 17d ago
They don't have to ever sell the properties. Property can be assessed by a third party and then function as collateral against a low-interest loan, which is real money. Not that I think McDonald's will ever really find themselves in a pinch, but if they did, they would additionally be able to liquidate selected properties for cash. When you are rich enough, the promise of having money in the future is just as good as actually having money. It doesn't work like that for most of us, but that's the nature of risk assessment in finance.
c22 17d ago
Cashflow from renting to a franchisee must be fantastic. You pick the locations and the decor. If the business does well you prosper, but if the business does poorly you're insulated from the downside, the rent is due either way! If the franchisee can't hack it you repossess the building and rent it to some other suc^H^H^Hfranchisee.
- epolanski 17d ago
  McDonald's is invested in franchisee's success, it wouldn't be a great business otherwise.
  - yayachiken 17d ago
    It's actually hilarious sometimes. The business models that generate most scorn and incredulity on HN are the straightforward ones. They convert labor pretty much directly to a very basic product with a clear demand by society, that can't possibly be profitable, are we sure it's not actually a front for Real Estate or AI or Tax Evasion?
    - epolanski 17d ago
      I'm sure real estate is the primary business model of McDonald's but franchisees wouldn't be paying the rent and fees if the restaurant model itself wasn't very profitable. Most restaurants in Europe generate an average of 250k in net cash flow per average restaurant, that's few years of work before ROI.
      - SoftTalker 16d ago
        It's very easy to lose money running a McDonald's (or any restaurant) if you do not keep a very close eye on all your controllable expenses. Most franchisees need multiple stores to cover all the overhead and actually be profitable. McDonalds's Corp, the landlord, is in a better position but they also don't want to see stores fail, it's bad for their image.
        deleted 16d ago
        [deleted]
skew-aberration 17d ago
Rent is the realization of value appreciation - value is just the NPV of future rents
cgio 17d ago
Still looks good enough on financial statements if you’re ig enough to care about them, and it makes for great collateral in the process of buying the next one.

They don't have to ever sell the properties. Property can be assessed by a third party and then function as collateral against a low-interest loan, which is real money. Not that I think McDonald's will ever really find themselves in a pinch, but if they did, they would additionally be able to liquidate selected properties for cash. When you are rich enough, the promise of having money in the future is just as good as actually having money. It doesn't work like that for most of us, but that's the nature of risk assessment in finance.

c22 17d ago

Cashflow from renting to a franchisee must be fantastic. You pick the locations and the decor. If the business does well you prosper, but if the business does poorly you're insulated from the downside, the rent is due either way! If the franchisee can't hack it you repossess the building and rent it to some other suc^H^H^Hfranchisee.

epolanski 17d ago
McDonald's is invested in franchisee's success, it wouldn't be a great business otherwise.
- yayachiken 17d ago
  It's actually hilarious sometimes. The business models that generate most scorn and incredulity on HN are the straightforward ones. They convert labor pretty much directly to a very basic product with a clear demand by society, that can't possibly be profitable, are we sure it's not actually a front for Real Estate or AI or Tax Evasion?
  - epolanski 17d ago
    I'm sure real estate is the primary business model of McDonald's but franchisees wouldn't be paying the rent and fees if the restaurant model itself wasn't very profitable. Most restaurants in Europe generate an average of 250k in net cash flow per average restaurant, that's few years of work before ROI.
    - SoftTalker 16d ago
      It's very easy to lose money running a McDonald's (or any restaurant) if you do not keep a very close eye on all your controllable expenses. Most franchisees need multiple stores to cover all the overhead and actually be profitable. McDonalds's Corp, the landlord, is in a better position but they also don't want to see stores fail, it's bad for their image.
      - deleted 16d ago
        [deleted]

skew-aberration 17d ago

Rent is the realization of value appreciation - value is just the NPV of future rents

cgio 17d ago

Still looks good enough on financial statements if you’re ig enough to care about them, and it makes for great collateral in the process of buying the next one.