Colorado Papa John’s restaurants for sale

The Baltimore company that owns 40 Papa John’s pizza restaurants in Colorado wants to sell all of its locations and already has a buyer for four in the Denver area.
PJCOMN Acquisition Corp., which is operating under bankruptcy protection, has another 32 locations in Minnesota that are also for sale.

The company is offering its restaurants in three lots, divided by location — Denver, Colorado Springs and Minnesota — and expects to reveal the successful bidders and backup bidders on March 21.
Bidders must pass muster with Louisville, Ky.-based Papa John’s International Inc.    (Nasdaq: PZZA), and the bankruptcy court judge has the final say in any sale. No one connected with PJCOMN, Papa John’s or the bankruptcy case was willing to respond to questions, but the details are spelled out in documents filed in various court cases.

Of the 32 Denver-area restaurants PJCOMN is offering to auction off, the company said it’s already found a buyer for four: 12093A W. Alameda Ave., Lakewood; 14575 W. 64th Ave., Arvada; 2420 Arapahoe Road, Boulder; and 1901 Youngfield St., No. 107, Golden.
PJCOMN has asked for bankruptcy court approval to sell those four to L&J Associates LLC for $22,000 each. An Oklahoma company, L&J Associates operates six Papa John’s restaurants in Colorado, including in Castle Rock and Brighton.

PJCOMN noted in court documents that the four stores are unprofitable and should be closed “as their continued operation will not maximize a recovery to creditors in this case.”

PJCOMN said the four locations would be closed if the judge doesn’t approve the sale.
The $88,000 L&J Associates is offering will go to an affiliate of General Electric Capital Corp., which lent the owners of PJCOMN $8.96 million to finance the 2007 purchase of the restaurants.

The General Electric affiliate, known as GECPAC Investments I LLC, holds the senior secured claim against PJCOMN, which still owes the company $7.69 million.

Brian Q. Mills of Castle Rock and H. Clifford Harris, who lives in Maryland, each own half of PJCOMN. They also borrowed $1.25 million from Capital Delivery Ltd., a subsidiary of Papa John’s International that provides financial help to franchisees.

Capital Delivery sued PJCOMN in federal court in Kentucky last August, claiming the franchisee had defaulted on its loan. The lawsuit demanded the repayment of $1 million in principal and $441,382 in interest.

GECPAC Investments I in September sued PJCOMN in Baltimore, also claiming default on a loan, and convinced a judge to appoint a receiver for PJCOMN.

PJCOMN filed for Chapter 11 bankruptcy protection in Maryland the day after the receivership order, and later blamed “financial problems caused primarily by the franchisor” for the bankruptcy filing.

Before making the filing, PJCOMN sued Papa John’s International in state court in Kentucky, claiming the purchase left them indebted for millions of dollars that they wouldn’t have borrowed had Mills and Harris had a more accurate financial picture of the restaurants.

Mills and Harris bought PJCOMN from Blackstreet Capital Management LLC, a private equity fund in Chevy Chase, Md., for $11.2 million. Their lawsuit claims neither Blackstreet nor Papa John’s International disclosed more than $1.9 million in liabilities, including unpaid taxes. PJCOMN later dropped Blackstreet as a defendant.

Papa John’s International admits to introducing buyer and seller, but not to withholding any financial information.

Papa John’s International counted 3,010 restaurants in North America at the end of last year; all but 597 are company-owned.

Mills and Harris also say they weren’t aware of potential legal trouble over how delivery drivers were paid. Rival Pizza Hut Inc. — a subsidiary of Yum Brands Inc. (NYSE: YUM) — was sued in California in 2004 over allegations the company failed to reimburse drivers for using their personal vehicles to deliver pizzas and failed to pay wages. The case was settled two years later for $5.1 million.

Shane Bass, a former delivery driver for PJCOMN in Denver and Aurora, filed a suit in federal court in Denver in 2009 and made allegations similar to those in the Pizza Hut case. The lawsuit was later certified as a class action involving more than 1,000 current and former employees. Drivers in Minnesota filed their own class-action lawsuit.

PJCOMN has agreed to settle the two lawsuits for a combined $300,000. The proposed settlement requires the approval of the bankruptcy court.

Grocery centers and outlets lead development

Real Estate Snapshot - Grocery centers and outlets lead development

New York City -- A retail real estate market report, issued by Savills US retail group, found that, even as recovery remains slow, a few formats are progressing at a faster clip than others.

According to Gerry Mason, head of Savills, the majority of recent and planned retail development is in the grocery-anchored and outlet center category. CBL & Associates and Tanger Outlets are among the most active developers scheduled to break ground in 2012.

The largest U.S. retail real estate investors, according to the report are Blackstone, New York City, which transacted $10.73 billion in 2011; DDR, Beachwood, Ohio, which transacted $1.66 billion; and Cole RE Investments, which transacted $1.52 billion in 2011.

The report provided a general overview of the U.S. market as it stands, which showed that marginal vimprovements in the second half of 2011 are leaving most cautiously optimistic about 2012.

However, it still suggested more retailers will fail in 2012. “The retail market is still purging tired concepts and inefficient business models,” said Mason. He suggested Talbots could be a victim, as it is accepting bids to be purchased and will likely file for bankruptcy protection if a deal can’t be reached. Sears Holdings Corp. is another, as it recently announced plans to close 100-120 of its total 2,200 full-line stores in 2012.

“Also, in fourth quarter 2011, Gap announced plans to close 189 stores in the U.S. and downsize numerous Old Navy locations. More closings could follow as the company shifts its focus overseas,” Mason said.

Retailers expected to lead the expansion charge are discount retailers such as Dollar General, Ross Dress for Less and Big Lots). These retailers can fill large footprints and generate strong sales volumes in a recessionary environment, said the report. Other notable movers will be Nordstrom, J.C. Penney, Starbucks and Apple, said the report.

A SMASH HIT

Smashburger’s varied menu has put it on a sizzling growth pace

By Steve Raabe The Denver Post

 
Smashed ground beef is proving to be a winning concept for Denver-based Smashburger.

With 143 locations opened nationwide since its inception in 2007, Smashburger is one of the fastest-growing restaurant chains in the U.S.

Commitments from newly signed franchisees will bring the store total to 450 by 2014.

But that number is small fries to Smashburger chief executive Dave Prokupek, who said the business “easily” could reach 2,000 to 3,000 outlets in the next 20 years.

“No one has ever really grown this fast in the first five years,” he said during a recent lunchtime interview at the Tabor Center Smashburger, gripping a napkin in one hand and in the other a grilled chicken sandwich with goat cheese and spinach.

Gourmet grilled chicken in a joint named after a burger? That’s part of the Smashburger appeal, analysts say. In what the industry defines as the “better burger” niche within the hamburger hierarchy, Smashburger is wooing customers with a diverse menu ranging from customizable burgers to chicken sandwiches and salads to innovative sides such as flash-fried mixed vegetables.

Its largest competitor in the “fast casual” subset of the better-burger category is Five Guys Burger and Fries, a national chain with six times as many U.S. restaurants.

“But Smashburger is different because they have a broader menu. They don’t just have burgers and fries and hot dogs,” said Darren Tristano, executive vice president of Chicago-based restaurant consulting firm Technomic.    Recently, Forbes magazine listed Smashburger as No. 1 among its top 100 “Most Promising Companies.

The Smashburger name derives from the cooking process, in which raw Angus beef meatballs are placed on a grill and smashed into patties by a cook wielding a hand-held steel paddle.

The cook keeps pressure on the patty for 10 seconds, causing it to sear and lock in juices while it continues cooking for another three minutes. According to Prokupek, starting with a loosely packed meatball instead of a preformed patty makes the burger less dense and allows it to better express flavor.

“I eat a lot of burgers, and I would describe this as a very good burger,” said customer David Jasper at the downtown Denver outlet. “They’re juicy and they’re tasty. And you can get in and out of here pretty quick." 

Customers order at the counter, then are served tableside within about five minutes.    The average check is $8. A typical restaurant grosses $959,000 a year.

Although Smashburger is privately owned and not required to report financial information, it recently disclosed to analysts that 2011 sales were $118.7 million, a 72 percent increase from $69 million in 2010. Most of the growth was from opening new outlets. Same-store sales increased 3 percent in 2011.    Smashburger was founded by Denver-based private equity firm Consumer Capital Partners — that same company that until last month was a principal owner of the struggling Quiznos chain. Consumer Capital ceded its Quiznos ownership in a financial restructuring that gave control to New York hedge fund Avenue Capital Group.     

Analysts and Smashburger insiders say the hamburger chain is entirely unaffected by the Quiznos financial problems and restructuring.    “Smashburger is growing much smarter than (Consumer Capital) did with Quiznos,” said restaurant analyst John Gordon of San Diego-based Pacific Management Consulting Group.

While many of Quiznos’ franchisees are one-store mom-and-pop operators, Smashburger is focused on high-volume, multi-store franchise investors, Gordon said.

Initial franchise fees are $40,000 per store, plus royalty payments of 5 percent to 6 percent of gross sales and a marketing fee of 2 percent.    The current mix of Smashburger restaurants is 58 percent owned by franchisees and 42 percent corporate-owned.

Prokupek said that going forward, growth will come primarily from new franchises. Smashburger projects that by 2014, 72 percent of its 464 units will be owned by franchisees.

The chain recently announced an international expansion plan with proposed franchise locations in Calgary and Edmonton, Alberta; Costa Rica and undisclosed countries in South America and the Caribbean; and Middle East locations, including Bahrain, Kuwait and Saudi Arabia.

Franchisee David Whisenhunt opened his first San Diego restaurant in 2010. He now has eight in operation and has the rights for an additional 18 in the area.

“It’s a brand-new brand that’s still catching on,” he said, “but I think the potential is huge.”

Transit-oriented developments springing up in metro Denver

Premium content from Denver Business Journal by Dennis Huspeni

 January 27, 2012
In the last 10 years, “transit-oriented development (TOD)” has gone from a new buzz phrase to reality for Denverites.

The mixed-use developments, which are next to bus and/or light-rail stations, are springing up along the Regional Transportation District’s light and commuter rail lines.

There’s likely a TOD coming soon to a neighborhood near you.
Now that Denver appears to be on the other end of the recession, several stalled TODs are moving forward.
“The good news here is I think people are starting to realize the new normal in the real estate world and the development world,” said Marilee Utter, executive vice president for Colorado Urban Land Institute’s district councils and TOD expert. “All the trends support TODs more than they’ve ever supported them here before. Demand from the consumer is high. Understanding from the regulatory and financial institutions are high — higher than it’s ever been.”

A closer look at two TODs, in different stages of development, reveals the challenges and benefits of having retail, office and residential developments near public transportation.

  Belleview Station

Development on the 51-acre “donut hole” of a site near Interstate 25 and Belleview Avenue in Denver was set to start in 2008, before the economy imploded.

“The construction crew was literally on site when Lehman Brothers collapsed,” said Louis “Dutch” Bansbach III, president of Front Range Land and Development Co. “It probably delayed our development four years.”
The Bansbach family has owned land along the I-25 corridor since the late 1880s.

The Belleview Station development area used to house the Paradise Valley Country Club, which later became the public Mountain View Golf Course. It’s affectionately known as the “donut hole” because the Denver Tech Center grew up around it, on much of the land that Bansbach sold.

Development now is starting in earnest, following the advent of RTD’s Belleview light-rail station.
Also, Denver in 2002 approved a new zone to accommodate denser, multi-use development.
And a tax increment financing (TIF) district, the Madre Metropolitan District, was formed to finance infrastructure improvements.

“It’s a stronger market for them now, and a simpler deal,” Utter said.
The first construction project is a five-story, 352-apartment/retail complex on the west side of the development area near Newport Street and Belleview Avenue. Holland Partners Group is building the complex and plans to break ground in coming months.

A company official said of the area, “Belleview Station will certainly be the premier mixed-use community for the Denver Tech Center and all of south Denver.”
Plans call for the residential developments to be on that west side and office buildings to be located closer to the interstate, where they can climb up to 22 stories — though the market likely will sustain only 12 to 15 stories, Bansbach said.

There’ll also likely be a hotel, to go with the retail component. In all, there could be up to 5 million square feet of vertical development, Bansbach said.

“We’ve got very attractive zones there that will allow for a higher density ... much denser than anything you could build in the suburbs,” Bansbach said. “We can build anywhere on this piece at any time.
“And the uses? We’re not limited to just one or two. We can adjust as the market adjusts ... Since we envision this taking 20 to 25 years, that flexibility is very helpful. What’s hot today might not be in demand in 10 years.”
As master developers, the Bansbachs can be patient because they own the land and have no debt against it.
“We know every project affects the other piece,” Bansbach said. “We’re not in this to sell the land as quick as we can. We must sell to people who will add value.”

  Lakewood Federal Center

The City of Lakewood, RTD and the U.S. General Services Administration have a 65-acre site, a light-rail station coming soon and an opportunity to create a TOD from the ground up.
The site is south of Sixth Avenue, between Union Boulevard and Routt Street. To the east is the Federal Center, where almost 1,000 people work. The new St. Anthony West Hospital campus is to the south, and there’s already an RTD park-and-ride bus station at Second Place and Routt Street. The light-rail station there is expected to be open in 2013.

City officials have set the stage for a TOD by changing the zoning there to allow for mixed-use development.
“This type of development, with multimodel transportation, is more the future of development,” said Travis Parker, Lakewood’s planning director. “Right now we’ve got a lot of office parks, residential and retail areas. The transit areas are going to be more holistically designed, not big swaths of land dedicated to a single use. The uses will be integrated.”

That zoning change is key to prime the area for growth.
“One of the things we did early on was have a lot of public involvement in the development plans, then moving forward to implement the zoning,” said Roger Wadnal, Lakewood’s comprehensive planning manager. “We resolved a lot of issues out front and now that’s something the developer will not have to do.”
Parker said, “It’s flexible and developer-friendly. It allows for more density and encourages a pedestrian-friendly environment.”

But there are still challenges to overcome before development can begin:
• City officials are mulling whether to form a TIF district.
• The city must choose a master developer.
• The federal land there still needs to go through a “federal disposition process” before it can be sold or developed.
“There are big infrastructure costs that are not paid for yet,” Utter said, adding Lakewood has “great vision, but implementation is going to be the hard part.”

A master developer might be harder to find, but that’s not all bad, Utter said.
“More developers are in the TOD business ... and the local guys are smaller and it will allow for people who are more specialized to projects — they don’t have to be a mixed-use expert, and it brings more people into play,” she said.

7-Eleven targets Denver for growth

January 20, 2012

Those who work or live in downtown Denver can’t help but notice the recent proliferation of 7-Eleven stores.
In an effort to grow market share and boost sales, 7-Eleven Inc. — owned by the private Seven & i Holdings Co. Ltd., based in Tokyo — has opened 54 stores in the Denver market over the last three years with plans to open 20 to 25 more in 2012. It plans to sustain that growth pattern for at least the next five years.

“We’re very aggressive and interested in finding new sites in the Denver area,” said spokeswoman Margaret Chabris from 7-Eleven’s headquarters in Dallas.

Out of the 146,000 U.S. convenience stores, 7-Eleven has about 7,100, a 5 percent market share, according to the National Association of Convenience Stores. There are now about 288 7-Eleven stores in Colorado, 202 of which are in metro Denver. The company has closed 15 stores in the state in the past three years, for various reasons, Chabris said.

“We’ve got a nice store base in Denver today,” said Dan Porter, vice president of development. “And Denver offers an opportunity to grow more stores. ....We’re looking at all areas there, suburban and urban.”
Company officials like the state’s growing population and strong business environment.
The stores are growing via ground-up leasing, acquisitions of other convenience stores and converting other businesses to the 7-Eleven model.

The company continues to aggressively court franchisees, who own about 80 percent of the stores companywide.
And even though it appears 7-Eleven might over-saturate the downtown market — four stores have recently opened in the five-by-four block area around 17th Avenue and Logan Street — Porter said that won’t happen.
“We do extensive research on all the sites and stores before developing them or acquiring them,” Porter said. “In an urban environment, we might be able to put a store two to three blocks from another ... It’s like a $1 million investment for those stores, so we take it very seriously.”

“We want every single store to be profitable,” Chabris said.

Porter said downtown Denver’s growing residential base, coupled with the fact there are no full-service grocers in the central business district, is a formula for profitable stores.
“We feel like we’re filling a void there,” he said, adding the urban 7-Eleven stores in other markets are some of the company’s highest-volume stores.

Joe Beck, state director for the International Council of Shopping Centers and vice president of Denver’s SRS Real Estate Partners, said establishing market share here squeezes out the competition.
“Every retailer tries to do it, so they’re not alone,” Beck said.
Expansion creates relationships with land and building owners so that 7-Eleven is the only convenience-store brand they use, Beck said.

Analyst Robb Brown, principal with the Denver Retail Group, said those building and land owners welcome the expansion.

“In a lot of ways, 7-Eleven is in the driver’s seat. There aren’t a lot of nationally based, creditworthy tenants a landlord can go to,” Brown said. “If 7-Eleven comes knocking, they want to do the deal ... They still have debt service, and this company is a known entity.”

Franchise owners like the business model 7-Eleven offers. They have to split the gross profits 50/50 in most cases, but the company builds the store, provides all the equipment, maintains it and handles much of the bookkeeping.

“Once I’m in the store, I pretty much just pay for inventory and labor,” said franchisee Xavier Castanon, who in the last year bought two 7-Eleven stores. “They do all the accounting and billing, so it frees me up from having to do all that. They’re probably taking a greater share of the profit, but they’re also taking care of a lot of other costs business owners incur.”

Castanon owns the stores at 303 N. Santa Fe Blvd. and 495 N. Sheridan Blvd.
He said the Sheridan store’s sales are up 20 percent since he took over.
Castanon doesn’t worry about too many stores opening near his existing locations.

“I know about the growth potential of having a certain number of stores and density in a marketplace,” said Castanon, a former corporate executive with McDonald’s Corp. “Initially there could be a cannibalization of sales, especially with some downtown stores. But with the population moving downtown, there’s room for a higher density of units.”

The brand recognition, and corporate marketing efforts, benefit his stores. Plus, as Castanon wants to own five or six stores, there’s more opportunities for him to grow.
“For long-term growth, it’s the right thing to do,” he said. “If 7-Eleven doesn’t take that corner, or dominate certain areas, someone else will.”

He also appreciates the company’s efforts to stock fresh food, delivered from local distribution centers and bakeries.

Having more stores to use those centers is good for them, too, Chabris said.
“There’s so much more efficiency for a company to have more stores,” she said. “When there’s more volume going through these support organizations ... they have a better chance of making more money and being profitable, too.”

The fresh foods, coupled with the company’s own brand “7-select,” have been good changes for the 85-year-old brand.

Said Beck: “7-Eleven has done a masterful job of evolving the convenience store.”

Starbucks to launch juice chain next year

Starbucks plans to do for juice what it did for coffee. The company will launch a new health and wellness-focused retail chain next year after acquiring Evolution Fresh, a maker of premium juice products, for $30 million.

Starbucks will start expanding Evolution Fresh by putting in its existing Starbucks locations, the company said. And as consumers become increasingly aware of the brand, Starbucks will launch a new health and wellness retail concept based on it in early-to-mid calendar year 2012. Evolution Fresh Inc. will be a wholly-owned subsidiary of Starbucks Corp.

In recent years, Starbucks has seen success with expanded healthier menu items in its stores. With this acquisition, “Starbucks will reinvent the $1.6 billion super-premium juice segment, its significant next step in entering the larger $50 billion Health and Wellness sector,” the retailer said in a press release.
“Our intent is to build a national Health and Wellness brand leveraging our scale, resources and premium product expertise,” said Howard Schultz, Starbucks chairman, president and CEO, in a press release. Evolution Fresh stands out among other juice brands because it cracks, peels, presses, and squeezes its own raw fruits and vegetables, Starbucks said.

Using a technology new to juice called High Pressure Pasteurization (HPP), Evolution Fresh is able to deliver one of the only “never heated” juice products for an increasingly larger number of its offerings, ensuring fresh tasting and nutritious juices, Starbucks said.

Compiled by the staff of Shopping Centers Today. © November 10, 2011 International Council of Shopping Centers.

Wal-Mart on 3-month win streak

A revenue boost over the year before reverses a two-year sales slump.

 

By Anne D’Innocenzio    The Associated Press

 
Wal-Mart’s effort to reverse a two-year sales slump at its U.S. namesake stores is beginning to work.    The world’s largest retailer said Wednesday during a meeting with analysts that revenue at its namesake stores in the U.S. that have been open at least a year rose three months in a row in July, August and September after more than two years of quarterly declines.    Wal-Mart had promised a quarterly increase by the end of this year, and Wednesday’s news indicates it could make good on that vow in the current quarter, which ends Oct. 28.    “We have had very positive momentum in the back half, especially in the U.S,” said Charles Holley, Wal-Mart’s executive vice president and   chief financial officer. “We have more opportunities to grow more sales in the U.S. and around the world. But we will be deliberate.”    Wal-Mart also said it expects its expenses to increase more slowly than its sales for the second   year in a row. The last time that happened was 1992, Holley noted. Wal-Mart has vowed to reduce expenses even more aggressively over the next five years and put those savings into reducing the prices its customers pay.    The weak U.S. job market and other economic woes have strained the core low-income shoppers at Wal-Mart’s namesake stores in the U.S., while the somewhat higher-income clientele of the company’s Sam’s Club warehouse stores has been more resilient.    Wal-Mart’s namesake stores in the U.S. also stumbled in recent years because of mistakes the company made in merchandising and pricing.      The chain, based in Bentonville, Ark., now has restocked thousands of products it scrapped in an overzealous bid to clean up its stores. It’s also stopped using gimmicks such as slashing prices temporarily on select items and returned to its “everyday low price” strategy, the bedrock philosophy of founder Sam Walton.    Analysts have been closely watching for an end to the sales declines at Wal-Mart’s namesake U.S. stores, which account for 62 percent of the company’s total revenue. On Nov. 15, Wal-Mart will report its results for the current quarter.