Saddled with a high commercial vacancy rate early in the recession, Louis Fortis knew he had little hope of finding a tenant, so he took matters into his own hands: He purchased a franchise to fill his own space.
Fortis, a former state legislator and current owner and publisher of The Shepherd Express in Milwaukee, also owns three Madison commercial properties totaling 82,000 square feet. When the bottom fell out of the market a few years ago, Fortis (and industry counterparts) lost not only tenants, but the income they generated.
Of particular concern was an 11,000-square-foot property Fortis owned on University Avenue, which had already lost three highly desirable tenants when the recession started: H&R Block, the Geek Squad, and a Starbucks (after the coffee conglomerate announced the closure of 600 stores nationwide). Faced with empty space in a highlyvisible west side location, Fortis knew he had to be creative.
"We were sitting there, in the middle of the great recession, with banks not lending money to anyone. Entrepreneurs were unable to start businesses, and banks were getting jittery about having any commercial loans. I had a property that was more than 50% vacant, and it was not easy to refinance." It didn't take long for him to realize that waiting for tenants to find him was a futile strategy.
After researching franchise opportunities, Fortis settled on I-Hop, a familiar name with an established brand that was in the process of re-energizing itself – much like another familiar chain now making a comeback, Dunkin Donuts. It just made sense, Fortis explained. His property was, after all, located on the inbound, or, as he calls it, "the breakfast side of the street."
He established a corporation name, Wisconsin Dining, Inc., while his attorney, Chuck Chvala, helped with research and was responsible for the construction of the restaurant. "Chuck did the heavy lifting," Fortis said. In total, it took Fortis 14 months to put his plan together – from concept to completion, during which he learned all about franchising and visited California to meet with I-Hop's top brass.
"I wanted a chain because I'm not a restaurateur," Fortis admitted. "I don't have time to put into it, and a chain ensures a greater chance for success." Another benefit was the ability to choose from a pool of managers with previous I-Hop experience. He hired Larry Liegel, who had worked at the east side location, as general manager.
Fortis spent between $800,000 and $900,000 on the build-out of the 4,500-square-foot space, which includes the highest-end décor available to franchisees. The iconic I-Hop chalet-styled building has given way to an updated space with a revised menu that, in addition to breakfasts, now includes healthy choices. But the icing on the pancake was that Fortis' 50% vacancy rate was slashed to just 10%.
"If you have commercial real estate and end up in a recession, or have problems renting space, it makes sense to be proactive and either own a business, or partner, or invest in someone else's business to fill the space," he advised. "That's what I'll do moving forward."
"Where others have gone into bankruptcy with their properties, I made this happen. The chance of success with a chain is higher. If it was just 'Louis' Pancakes,' not so much. But here, I'm buying the name, recipes, and managers. It minimizes the risk and creates a very strong tenant."
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