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What is McDonald’s up to?

What’s a company’s most valuable asset?

Take McDonald’s for example. What’s their most valuable asset?

It’s people, right? That’s the conventional wisdom.

Actually, not even close. People barely make the top ten. They’re down there somewhere with photocopying equipment and toner.

McDonald’s most valuable asset is real estate.

Think about it. How much real estate does McDonalds occupy? In prime locations across the country. It must be like hectares and hectares worth.

And all that land must be worth a small fortune.

I often think about it when I drive past these places. Like, how much business do they actually do?

It wouldn’t surprise me if the fast-food restaurants were just revenue-neutral place holders for a massive real estate empire.

McDonald’s is a real estate company with a fast-food arm.

I think the same thing about op-shops. It’s a patient but profitable business model. Buy shop-fronts in out of the way locations, wait for the areas to develop, sell the real estate on.

All the while sourcing your products by donation and your staff from volunteers.

Seriously, those guys must be killing it… over the long run.

I don’t know any of that for sure. It’s just what I see looking at those businesses through the real estate paradigm I live in.

But then there’s this news the other day. McDonalds is doing a joint venture with Stockland to develop an apartment complex in Western Sydney.

From Property Observer:

The biggest name in fast food, McDonald's, has moved into apartment development in western Sydney's Parramatta, teaming with developer Stockland.

The project is at its Parramatta restaurant site at 355-375 Church Street.

Some 350 apartments are proposed along with 1565 square metres of new retail space, a car park and the new restaurant.

The fast food group will retain ownership of the restaurant stratum lot, which is proposed to have two levels of seating, a PlayPlace, McCafe and a dual-lane drive thru.

McDonald's senior development director Josh Bannister noted this was the group's first mixed-use development.

They do not have any other plans at this stage, but the company has been looking at value-adding its property portfolio with residential components elsewhere in Sydney.

The proposed apartments will include one to three bedrooms, with views across the Parramatta Park, Parramatta River and towards the Blue Mountains.

Nice. Keep the restaurant, build a 350-apartment complex on top, roll around in jello-pits of money.

And “they don’t have any further plans at this stage…” Sure they don’t. Come on. You telling me this wasn’t the business model from the beginning?

Even if we take that at face value, you can bet this won’t be the last time they do something like this. They’re going to make a tonne of money out of this deal… for what? Effectively selling the air-space above their restaurant.

Space they weren’t using anyway!

If it’s one thing I know for sure in life it’s that patient money loves real estate. Economies change, industries grow and die, cities evolve, gentrify and decay.

But through it all, there’s real estate. Whatever is going on, on a long enough horizon, real estate makes money.

The only time it doesn’t is when civilisations themselves collapse.

But in that environment, nobody is making money.

Patient money loves real estate because that’s where the value is. Over the long run, nothing else comes close.

With those of use with shorter life-spans than McDonalds and St Vincent De Paul, we’ve got to roll with the cycles in the market.

But it’s the same dynamic that drives value for us. Land is worth more over time because they’ve stopped making any more of it.

(… apart from those garbage islands in the South China Sea).

You want to play like patient, inter-generational money?

It’s property all the way.