McDonald’s Exits And Biden Addresses

As I reported a few weeks ago, McDonald’s (MCD) executives have been wracking their brains over what to do with their Russian business.

This iconic symbol of American capitalism has been operating in eastern Europe since the fall of the Iron Curtain. With over 800 restaurants and 62,000 employees in Russia, the fast-food goliath has maintained a dominating presence in the area.

But that’s all about to change, it seems.

Due to the ongoing conflict between Russia and Ukraine, McDonald’s has suspended operations in the warring region. And while it’s continued to pay its employees the last few months, it can’t maintain that counter-profitable existence forever.

Thus, it announced yesterday that it will be pulling up stakes in Slavic territories and selling the entirety of its portfolio to a Russian buyer.

From the release:

The humanitarian crisis caused by the war in Ukraine, and the precipitating unpredictable operating environment, have led McDonald’s to conclude that continued ownership of the business in Russia is no longer tenable, nor is it consistent with McDonald’s values…

“McDonald’s President and Chief Executive Officer Chris Kempczinski said, “We have a long history of establishing deep, local roots wherever the Arches shine. We’re exceptionally proud of the 62,000 employees who work in our restaurants, along with the hundreds of Russian suppliers who support our business, and our local franchisees. Their dedication and loyalty to McDonald’s make today’s announcement extremely difficult. However, we have a commitment to our global community and must remain steadfast in our values. And our commitment to our values means that we can no longer keep the Arches shining there.’”

After news broke of the exit, share prices fell sharply. But they then steadily recovered throughout yesterday’s session. It might have helped that the company maintains expectations of 40% operating margins, 1.5% expansion, and 1,300 restaurant additions throughout 2022.

The company will notably maintain its presence in Ukraine and continues to pay those employees full salaries – despite having closed all locations in the area.

I know McDonald’s takes a lot of heat here at home. But this news comes as a real upset in regard to our foreign relations. It’s an unpleasant ending to an era that promised hope following the Cold War.

Once upon a time, it set up shop in one of the most communistic countries in the world and thrived as an emblem of free enterprise.

Sadly, this swift exit seems just as symbolic but for all the wrong reasons.

More Non-REIT News to Know About

Yesterday, the Biden administration announced actions to address our shortage of affordable homes. Measures will include increasing government-backed financing for affordable housing and funneling grants toward cities that encourage new construction.

While these moves aren’t exactly going to fix the problem overnight, the administration says it hopes to alleviate the estimated multi-million home shortage in the long term.

“While the policies cover a wide range of issues and agencies, most are intended to do one thing: Make it easier and more economical to build affordable housing,” said Jim Parrott, a former Obama administration housing adviser, who had reviewed the proposal. “The total effect should be considerable”.

The Federal Housing Administration and Federal Housing Finance Agency will also join forces in exploring pilot programs to increase financing for “tiny homes.” These, they hope, will make a dent as well.

Then there’s Fannie May. It said it will do its part by purchasing loans made to construction companies involved in multifamily housing – before they’re built. Right now, it only buys mortgages for existing homes, which is too little too late for construction companies that can’t seem to find affordable financing.

It’s crazy how much we’re still feeling the effects of 2008. But with these new measures, hopefully, the American housing market can finally find its footing in a hectic economic environment.

The World According to REITs

Montgomery Street Partners Ups its Ground Lease Game

Montgomery Street Partners (MSP), a diversified commercial real estate investment firm out of Dallas, announced yesterday that it raised $500 million in private follow-on equity for The Ground Lease REIT (GLR).

GLR was formed by MSP in 2020 to acquire long-term ground leases on development and stabilized properties. This offering will increase GLR’s investment capacity to over $1.5 billion.

For those unfamiliar, a ground lease is essentially an arrangement where a tenant can develop a piece of property during the leasing period. After the lease term (usually around 99 years), the land and all improvements are turned over to the property owner.

In GLR’s case, it leases the land for student housing, multifamily apartments, retail, and hospitality.

Murray McCabe, a managing partner at Montgomery Street Partners, seems confident about the future of this brand-new REIT. He says, “The strong demand we’ve seen for GLR’s follow-on equity offering validates our strategy and confirms that ground leases have evolved to become an acceptable and mainstream financing tool.”

A ground lease REIT is unique in its structure, admittedly. But the idea seems to be catching on, at least so far as GLR goes. That aforementioned $500 million is a pretty clear indication that it’s doing something right.

Brad Thomas is the Editor of the Forbes Real Estate Investor.

Disclaimer: This article is intended to provide information to interested parties. ...

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