When former McDonald‘s CFO, Harry L. Sonneborn said that McDonalds are actually in real estate business, there is a little doubt that this statement is quite true. But do you know that the only reason they sell hamburgers is because they believe that hamburgers are the greatest profit producer from which their tenants could pay their rent?
McDonalds first launched its chain in 1954 but it wasn’t until 1956 did Raymond Kroc or Ray for short, thought of implementing the idea of tapping into real estate market. After Sonnenborn courted investors the Franchise Realty Corporation, a McDonald’s real estate subsidiary was born. Harry L. Sonneborn thought that they could earn money by leasing or buying potential store sites. Franchisees would pay either a minimum rate or a percentage of sales whichever is higher. As sales increases, the higher the rent charges, this means greater profits.
To simply its idea, McDonalds gain profit on real estate by two methods. Initially, it buys and sells properties. They buy properties which they think will be a hot spot once the restaurant will be developed. The other method is the franchise fees, McDonalds charges its franchisees to use the name of “MCDonald’s” plus rental fees for using the corporately-owned properties.
McDonald’s is the largest commercial real estate landowner in the United States which properties are estimated to be valued around eight billion dollars as of 2001.
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