NPC, the world’s largest franchisee for Pizza Hut and Wendy’s locations, filed for Chapter 11 bankruptcy protection back on July 1, 2020.
NPC’s holdings in the CSRA mostly consist of Pizza Hut locations, according to lease data obtained by CoStar Group, Inc., a commercial real estate database service. Through its agents, NPC attempted to renegotiate most of its leased shopping center Pizza Hut locations. NPC didn’t even try to keep open many of the free-standing stores. The decision on which locations to keep open seem to have largely been based on whether the location was a free-standing building or located in a shopping center.
Bankruptcy is by far the worst possibility anyone can contemplate, especially where real estate is concerned. Banks view the bankruptcy of a borrower as one of the worst scenarios possible, even worse than the property that secures a loan burning down. Likewise, it’s the worst call a landlord can get from a tenant. For tenants or borrowers, bankruptcy is a last-ditch effort to stay in business. Bankruptcy does afford protections that can help users in restructuring debt or liabilities. Worst case is that it helps them to liquidate some of their assets but opens the possibility of preserving others.
Bankruptcy has one positive side, though. It creates opportunity for others. The vacated restaurant locations will quickly be put back into use with different brands. Currently in the CSRA, only the North Augusta, S.C., Pizza Hut location has been leased. However, similar to O’Reilly Auto Parts taking a vacant, bankrupt Eckerd Pharmacy or U.S. Auto Sales taking a bankrupt Ryan’s Steakhouse, these Pizza Hut buildings should be put back into service fairly quickly.
West Augusta, Martinez, Thomson, Swainsboro and North Augusta all had free-standing NPC Pizza Hut restaurants that are now closed permanently. Driving past these locations recently, one can barely even tell they were once Pizza Hut locations. The traditional red branding on the roof has been removed, the buildings repainted, signage removed, and even the pizza ovens hauled away. Attempts by NPC to restructure through bankruptcy-afforded protections did not save these locations. They are gone forever as Pizza Hut restaurants.
The NPC bankruptcy offers some helpful lessons for the restaurant business community. It will likely be a long time before restaurants mix the dine-in experience with locations that have a delivery-heavy model. Real estate investors who buy free standing restaurants and other single tenant retail buildings are nervous right now and rightfully so. Demand for alternative property types such as multi-family and industrial is increasing while demand for retail is low. That reduced demand and investor caution will drive down retail property values for the next few years.