Happy Friday. This is The Shake 🤝: the weekly newsletter that digs up the true dirt behind real estate stories… one edition at a time.

Here’s what we got this week:

• The Details Behind GE’s Slick Move 👋 

• The Next Fast Food McConcept 🍔 

MARKET RADAR

The Irish (Tax) Goodbye 👋 

There’s a saying: The more you tax something, the less you get of it.

It’s fitting as we step back to 2016 when General Electric (GE) decided to move its 66-acre HQ from Connecticut to Massachusetts due to corporate tax hikes and bad politics.

While this may seem like a common theme today as more and more corporations leave anti-business states for pro-business states, this drama has the ultimate petty send-off that leaves the city of Fairfield with much less tax revenue than it hoped for. Oh, the irony! 

What led to GE’s move?

Well, CT Governor Dannel Mallot (D) signed a $2 Billion tax hike in 2015 that fell on businesses and high-earners. Shortly after, GE CEO Jeff Immelt began hinting about a corporate relocation.

CT’s corporate tax was gearing up to be the 5th highest in the country, jacking up from 7.5% to 9%. Couple that with its top income tax rate going from 5% to 6.99% and you have some disappointed rich folks. Also, doesn't help that CT has the 2nd highest property taxes in the country.

Oh, talking about property taxes, GE’s campus was delivering about $1.6 million a year to Fairfield from its 66-acre campus. Not too shabby as it made up about 1.2% of the town's $130 million budget. On top of all of this, it was the city's largest employer.

You might be thinking: Damn, whoever buys this campus has some shoes to fill in terms of tax payments…

Well, the former CEO of GE, Jack Welch, was a large donor to a nearby college called Sacred Heart University. The business school is named after Welch and it turns out they were looking to expand right in the nick of time.

Jack was feeling generous (and/or petty) and GE decided to go with Sacred Hearts' bid for the campus at $31.5 million - about $50 million LESS than its estimated market value.

So this means that Sacred Heart has to only pay taxes on $31.5 million… right?

Nope!

As some of you may know, Sacred Heart is a nonprofit entity, meaning they don’t pay ANY property taxes…

Not only is this a slick move and slap in the face but GE selling below market value to a nonprofit also gave them a significant tax write-off. That’s what you call a double whammy.

This made the town of Fairfield scramble and implement further tax programs to recoup the missing 1.2% from their yearly budget. Hurting small business owners and the middle class.

Creating anti-business climates can sometimes (most of the time) lead to unintended consequences if corporations decide to pack up and leave.

We’re curious…

Just what America (and CRE) needed: Another Fast Food Restaurant 🍔 

I’ve had Twitter for so long that I can’t even imagine where news like this would have been reported in the past, but I opened up my phone today while having a coffee to hear that there is going to be a spinoff brand of a fast food restaurant coming soon, and it was burnout of nostalgia from the 1980s.

Can you guess which fast food restaurant is creating a new spinoff concept?

I’ll give you a hint:

What is this little orange creature in a silver and blue ball you may ask? Well, that’s CosMc of course, a space alien that was in the 1980s and 1990s McDonald’s television ads.

The irony of all ironies is that of this entire spinoff concept, which will be known as “CosMc’s”, there is quite literally only one picture of this thing online, as it’s seen here dancing (I guess?) with arguably still the scariest f-ing mascot on the planet, Ronald McDonald.

I still can’t really figure out what this thing is, or how it ties into McDonald’s, or who at corporate was sitting there like “Man we should really bring that little guy back… you know what? Let’s create an entirely new brand off of ours for this thing”.

McDonald’s CEO Chris Kempczinski stated “CosMc’s is a small format concept with all the DNA of McDonald’s, but with its own unique personality,” which begs the question of what “personality” this thing is supposed to have. What even is it?

Now let’s talk about the commercial real estate angle here.

We don’t know too much about the details of the roll-out of CosMc’s, but we do know that we’re not far away from seeing the brand’s appearance. “The company will test CosMc’s in a handful of sites in “a limited geography” in early 2024,” per CNBC, but knowing the sheer size of McDonald’s, I can’t imagine this is going to be something light.

For a company that had sales in the 2nd quarter to the tune of $6.5 billion, it’s hard to imagine that this would be a small sample of a test for McDonald’s… so with that, let’s speculate.

Let it be known that these are purely predictions and we have 0 insider knowledge of McDonald’s plans for the launch of CosMc’s.

As it pertains to CRE and small businesses, here’s what we see as the…

Best Case

It would be interesting to see McDonald’s take a new approach to their real estate structure by actually signing leases in vacant retail space that is currently in flux due to the market. McDonald’s has a Moody’s credit rating of Baa1 and the brand that has a “The Shake” rating of AAA. 

I can’t imagine many landlords who would turn away a McDonald’s concept in today’s market, especially in some of the more recent cases of big-name retailers choosing to go dark.

The chances of this happening are extremely doubtful, but it would be an awesome thing to see.

Worst Case

All signs point that the worst possible scenario (for the CRE community in general) would be to see McDonald’s sit on the current market, wait for prices to drop even more in today’s rate environment, and then purchase the real estate.

This would only be a loss for the industry if McDonald’s kept it in-house and abandoned the franchise model. This is probably even less likely to happen than the first scenario.

Probable Case

More than likely, we’ll see more of the same model with CosMc’s that we’ve seen with McDonald’s over the years. The entity buys the real estate, builds that building to spec, and then leases it to the franchisees. It’s worked this long for McDonald’s, and it’d be hard to see them make a change from this.

As a CRE buff, I can’t wait to see what the site requirements look like as well as the fit-out for how the concept will compare and contrast to the golden arches. There’s absolutely a follow-up article coming about CosMc’s concept in the coming weeks.

With all of that, I realized I didn’t even mention the food… now if you’ll excuse me I’m going to go grab a McGriddle.

Happy Friday!

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^{DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.}