Credit crisis has eateries in loan crunch

Commercial landlords are more willing to deal in a down economy.

NEW YORK (AP) — Though 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 down and led to lower sales and profits at restaurants and retailers. That’s led to some pain for landlords, because companies have less money to expand.

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, meanwhile, are keeping rents consistent rather than raising them.

“They’re saying, ‘If we can just hold our own for a year or two, we’ll kind of be out of the woodwork,’” said leasing consultant Dale Willerton, CEO of The Lease Coach.

“Developers are caught in this perfect storm just like everybody else, maybe more so,” said Zane Tankel, CEO of restaurant franchisee Apple-Metro Inc. The company owns 28 restaurants in the New York area, including Applebee’s — owned by DineEquity Inc. — and Chevy’s Fresh Mex Restaurants. “They’re anxious to get tenants in there.”

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

Refranchising cuts costs for the company because the franchisee then pays the restaurant’s operating costs. With costs for ingredients, labor and energy all rising in the past year, refranchising has become more popular as a way for companies to insulate profits.

Jack in the Box Inc. spokesman Brian Luscomb said its lenders have been requiring more paperwork and documentation from franchisees looking to buy its restaurants.

“Some transactions might be taking a little bit longer to consummate,” he said.

Jack in the Box is in the middle of a big refranchising campaign, with the long-term goal of selling 5 percent of its company-owned restaurants each year.

Denny’s Corp. has also been attempting to sell more than 300 of its restaurants to franchisees. The company plans to refranchise about 100 locations this year.

Denny’s spokeswoman Cori Rice said Denny’s has seen “continued demand” from prospective franchisees to buy Denny’s restaurants but added that the company is “taking a wait-and-see approach from the lending markets.”

One of Denny’s lenders is GE Capital Solutions, which recently said it is taking a closer look at the loans it makes to franchisees.