The Texas Restaurant Chain Plans to Auction Closed Properties to Highest Bidders in Coming Weeks.
Steak 'n Shake, a chain known for its steak burgers and milkshakes, is putting some closed surplus real estate across the country up for bidding in a move one property auction executive says may be repeated by other national retail chains over the next six months as the pandemic slams the economy.
The burger chain owned by San Antonio-based Biglari Holdings Inc. plans to sell off by early next month 15 of its company-owned locations that were closed in the past year, many with restaurant equipment still in the buildings. The restaurants, ranging in size from 3,734 square feet to 7,041 square feet, are located in Alabama, Florida, Illinois, Indiana, Iowa, Michigan, Missouri, Ohio, Pennsylvania and Texas. Steak 'n Shake hired Keen-Summit Capital Partners, based in Denver, along with local partners at NAI Global to run the process with a bid deadline of Aug. 31 and an auction set for Sept. 3.
Steak 'n Shake isn't the only company looking to rid itself from excess real estate as the pandemic takes its toll on restaurateurs, brick-and-mortar retailers and the hospitality industry, and they won't be the last business to dispose of real estate in the near future, said Harold Bordwin, a principal and managing director at Keen-Summit Capital Partners, a real estate brokerage as well as a workout and investment banking firm specializing in restructurings, bankruptcies, receiverships and other special situations.
Based on what he's seeing, "I think there's going to be a wave of excess properties hitting us over the next six months," Bordwin said in an interview. "Everyone needs to do better with less, and everyone is looking for cash and to reduce their liabilities. In selling excess assets, it turns something that's not productive into cash. On the flip side, this gives opportunities for buyers they may not have had a year ago."
Retailers filing for bankruptcy protection in the wake of the pandemic, such as J.C. Penney, Tuesday Morning, and Neiman Marcus, are in various stages of shedding both owned and leased real estate as they seek to exit separate Chapter 11 bankruptcies with a smaller retail footprint. Meanwhile, a hospitality real estate investment trust has already warned its investors it plans to hand back some of its properties, as the pandemic continues to negatively impact its hotels throughout the country.
In advising his clients, Bordwin said much like the stock market, the real estate market can be hard to predict and difficult to time. Unless a company is in the real estate business, he said, often it's better for them to focus on their specialty and leave the real estate up to professionals to maximize its value.
"Businesses need to be smart in how they use their assets," he added.
He is also representing companies renegotiating their real estate lease terms to help survive the pandemic. The success of those negotiations often depends on the leverage the tenant has on its landlord, he said, and how likely the tenant may exit the lease through the bankruptcy process.
Like other restaurant chains, Steak 'n Shake was negatively impacted by the pandemic. In Friday's quarterly earnings report, parent Biglari Holdings reported revenue for the chain fell 50% in the quarter to $78.2 million compared to $156 million a year earlier, a reflection of the changing consumer behavior and restaurant closings tied to the pandemic. In a filing with the Securities and Exchange Commission, the company told investors it was evaluating its financing options for one of its loans scheduled to mature in March as disruptions in the debt capital market could restrict access to capital and adversely affect the operations, liquidity and capital resources of Steak 'n Shake.
The corporate-owned Steak 'n Shake properties expected to sell at the upcoming auction include:
Alabama: 2720 Spring Ave. SW in Decatur
Florida: 18627 U.S. 19 in Clearwater
Iowa: 3333 W. Kimberly Road in Davenport
Illinois: 7715 N. University in Peoria
Indiana: 1919 North College Ave. in Bloomington; 650 Birk Road in Martinsville
Michigan: 1917 Pipestone Road in Benton Harbor; 17200 Middlebelt Road in Livonia; 32751 Concord Ave. in Madison Heights
Missouri: 5534 St. Louis Mills Blvd. in Hazelwood
Ohio: 5308 Fields Ertel Road in Cincinnati
Philadelphia: 2005 Pittsburg Mills Blvd. in Tarentum
Texas: 2205 E Grapevine Mills Circle in Grapevine; 855 State Highway 121 in Lewisville; 1820 Eldorado Parkway in McKinney
Asked for additional information about the Steak 'n Shake business Monday, a Biglari Holdings company official declined to comment.
Steak 'n Shake is looking at its real estate to aid in bringing in capital. In the second quarter, Steak 'n Shake permanently closed nearly 60 of its restaurant locations and is seeking to convert its 289 corporate-owned sites as of the end of June to franchise locations. The company transitioned 23 locations in the second quarter even as some of its restaurants were still temporarily closed because of the coronavirus.
Of its corporate-owned restaurants, Steak 'n Shake had 59 still temporarily closed, with the expectation that to reopen the dining room counter service would take a significant investment in equipment. With the closings, the company recorded an impairment charge to long-lived assets of $18.1 million for the first and second quarter of 2020.
"Steak 'n Shake is seeking to reopen dining rooms with counter service," the company's executives said in the quarterly filing. "The transition to a counter-service model will require significant investments in equipment. Steak 'n Shake intends to fund these investments mainly by selling owned real estate via an auction process."