Lake Forest-based Del Taco Restaurants Inc. is using a real estate sale-and-leaseback tactic to secure the top location in the 550-store fast-food chain.
Del Taco has operated a company-owned restaurant for 40 years at 1720 Superior Ave. in Costa Mesa, that’s been owned by the same private owners since 1966.
The owners put the 2,709-square-foot building on the market this year, and Del Taco paid $7.8 million in mid-October, according to market tracker CoStar Group Inc. That comes to about $2,880 per square foot, at the high-end of a market that recently saw a vacant, 2,400-square-foot fast-food space in Placentia trade hands for about half that price.
It helps that the property sits on a 36,000-square-foot lot bounded by Newport Boulevard, 17th Street and Superior Avenue, provides parking and room for one of the “rare” 24-hour drive-thru locations available in Costa Mesa, according to listing agent Peter Deltondo of Marcus & Millichap in Irvine, who said the location has the top sales in the entire Del Taco chain.
Other highlights include the 147,000 or so vehicles that drive past the store daily, and about 307,000 people who live within five miles of the restaurant, according to marketing material.
It’s also within a half-mile of The Triangle shopping mall, which has 1.5 million square feet of retail space and a six-screen movie theater that draws traffic to the area. And there are no new retail or restaurant sites planned for the area, according to CBRE, a commercial real estate company with offices in Irvine.
The chain generally prefers to stick with its strength in operating restaurants than owning real estate. The move to buy the Costa Mesa property on an interim basis makes sense, however, given the competitive atmosphere in the immediate area. There are nearly 20 fast-food restaurants within a half-mile of the site, and chains such as In-N-Out Burger and Carl’s Jr., McDonald’s or Subway present a formidable bunch of potential competitors if the Costa Mesa building’s owner decided to let Del Taco’s lease lapse and place it on the rental market.
Its goal is to sell the property to a buyer who will agree to a long-term lease. Del Taco wants something in the neighborhood of a 20-year lease with preset parameters for rent hikes every five years or so—and an option to renew for another 20 years.
The offering memorandum said the first year’s rent is $282,625 on absolute-net lease terms, which would mean a capitalization rate of just under 4% based on the $7.8 million Del Taco paid last month.
Del Taco has about 300 company-owned restaurants out of 550 systemwide. The company-owned stores had about $400 million in revenue last year, according to a Securities and Exchange Commission filing.
The company doesn’t break out revenue for individual stores, but SEC documents indicate that company-owned units average about $1.3 million in annual sales, and the Costa Mesa location would ostensibly be significantly higher, given its status as the chain’s top seller.
The documents also indicated that franchised locations average an operating profit margin of about 28%.
The Costa Mesa property has been on the market for about a month, and multiple investors have started discussions, Deltondo said.
“Choosing the best buyer is not only about getting the highest price for the property” but also obtaining solid lease terms, he said.
